This crypto checklist is similar to equity investment checklists with a venture capital spin. These factors are listed in the approximate order of priority that I have been weighing these various criteria. The attached graph shows market cap on the y axis and developer rating on the x axis and has been helpful for analyzing crypto investments.
Business Model (uniqueness) – Does the crypto offer something unique that isn’t offered by other cryptos? There are a large number of me too Bitcoin clones that don't offer anything new to the crypto space and don't offer a reason for investment. Monero offers ring signatures and the CryptoNote protocol for superior privacy of transactions. Factom (FCT) is described as a “data layer for the blockchain” and allows storage of medical records, voting systems, legal applications and smart city data. FCT offers more functionality than the monetary transactions data that is recorded in the Bitcoin blockchain. Platform coins that allow smart contracts or decentralized exchanges are an example of coins that offer a use case beyond simply acting as a currency, e.g. Burst, Ethereum, Nxt, Lisk, and Stratis.
Market Capitalization – What is the market cap of the currency you are considering for investment? The lower the market cap of the currency in question the higher the likelihood that a successful investment will result in a multi-bagger gain. If the market cap of the crypto you are considering investing in is already $10B, its very unlikely that your currency will experience a 1000x gain because this would imply a $10 trillion market cap. That will simply not happen. The entire market cap of crypto is about $110B as of June 18, 2017. Trees don't grow to the sky and neither do cryptos.
Competition – How many competitors are in the same space as your currency? Storage is an extreme example where you have Dropbox, Amazon Cloud, Siacoin, Maidsafe and Storj competing in the storage sector. The large number of market participants means that profits and prices may get whittled down as the opposing forces clash.
Technical Chart Considerations – Do the charts support a trade entry? Ideally you are buying at resistance levels. If you buy after a 100% to 500% pump that occurred over less than a week, this is inviting disaster since the path of least resistance may be for the currency to go down. Strongly recommend buying at resistance levels so that you avoid buying high and then taking an immediate loss when the crypto retraces.
Developer Strength – The best proxy that I have found is the developer rating from the https://www.coingecko.com/en website. This number quantifies the number of commits, number of forks and contributors on the github site. Other factors being equal, currencies with a high developer rating have stronger development and technological innovation and are less likely to be scams. Bitcoin has a 98 developer rating as of June 18, 2017. Scam coins will usually have low developer ratings below 20.
Sentiment Data – Ideally there is positive sentiment around the crypto you are considering for investment. The best indicator for measuring sentiment may be posts on the https://bitcointalk.org speculation sub forum. There may be some predictive power in these posts particularly for the lowest market cap crypto currencies that may spike once the crypto whales decide that a crypto is undervalued and the crypto is more likely to move when capital enters an illiquid name in size.
Management Team - Who is the team running the crypto? Are they former Bitcoin Core developers? Perhaps their CEO is founder of a previous successful startup and has the credibility to build up the crypto into a great success. The CEO of Voxelus is one of founders of Salesforce.com and this caught my attention during due diligence on the crypto currency VOX.
These are the most important factors I look at. Are there any other factors that investors consider? If so please let me know, would be delighted to hear from other crypto investors on what works and what doesn't. 😆
