Real Due Diligence (DD) Guidelines for Crypto Companies in 2019

All cryptocurrency companies have one thing in common:

If they are listed, they are public trading vehicles with public market exposure and designed to raise capital from the ‘capital markets’ in this case defined by crypto.

Everything else is secondary and what’s above is the first principle that should be understood and accepted about any cryptocurrency company during any process of Due Diligence (DD). This relates to our years of experience in the crypto markets and many more in the traditional markets founding and running technology companies that are publicly traded vehicles, directly dealing with the SEC/FINRA, outside auditing firms, successful litigation, Market Makers (MMs) and advising hedge funds on science, algorithms and technology.

We have a high internal standard for DD executed on cryptocurrency companies and traditional equities. We’re opening our internal guidelines for DD to the public as this is what is clearly needed in today’s cryptocurrency space.

We engage in exhaustive DD from the perspective of a publicly traded vehcile and for the purpose of what we call “DD Baskets”. These are groups of cryptocurrencies that are placed in a basket consisting of short positions in traditional equities and long positions in cryptocurrencies of the highest quality for the year 2019.

These are the primary parameters we use during our DD process:

Note: Some of this is similar to strategic and technical DD (Due Diligence) we provide to founders and investors in Silicon Valley and for US government labs, DOE & DARPA along with a couple of hedge funds and family offices
  1. A reasonably sized circulating supply or what’s called a ‘float’ in the traditional markets
  2. We determine how much of their volume is organic vs synthetic (either paid for by themselves or an outside firm)
  3. No security tokens will be allowed if they don’t have a solid revenue plan. Even better, if they can provide an RPS/T(Revenue Per Share/Token) metric. Utility tokens will not have the same regulatory burden which involves timed sales of tokens/equity according to SEC rules, litigation costs, quarterly payments to outside auditing firms and endless filing fees. This also means we’ll provide technical guidance on whether or not it’s a security token or utility token
  4. ETF readiness
  5. Current liquidity levels
  6. Sell pressure: How close are they to their 52wk high. If they’re too far away from it they won’t qualify following the principle of ‘buy high sell higher
  7. We conduct due diligence on details including:
A) The founders and team: We’ll be conducting phone interviews and in-person meetings— Is one of the co-founders a scientific or technical co-founder?
B) Algorithmic technology vs vanilla tech — is it easy to duplicate?
C) Strategy including contingency plans and SWOT analysis
D) Security: Is there anyone on the team with a background in software, OS, net, infosec or at least general information security along with social engineering?
E) Product-to-market fit and frictionless customer on-boarding
F) Revenue projections and customer retention levels, stickiness & addictiveness
G) Addressable market size: Do their flagship products operate outside the cryptocurrency space and span across industries? Are their products retail/consumer or enterprise institutional or both?
H) KPIs (Key Performance Indicators)
I) A detailed analysis of the circulating supply (float), it must be reasonably sized and sensibly engineered within their cap table in addition to whether or not they’re in death spiral territory via convertible debt or similar. As a publicly traded vehicle, this is a very important consideration in their history of operation.
J) Legal coverage, how much corporate litigation experience do they have and with which firms they use along with their reputations
K) Their ‘story
L) Classification of their trading vehicle (have they financially engineered it as a currency, stock, bond, asset, other)
M) Track record and reputations: Have they ever raised an official round of funding before? If so, how was it spent?
N) Whether or not they have anyone on the team that has experience running a US publicly traded company or dealing directly with the SEC or FINRA
O) Have they experienced an extended downturn in the global financial markets before?
P) Exit scam and soft exit detection
Q) Do they have a comp matrix or know what one is?
R) One of the most important factors: whether or not the team or company provides equity to their community

We use a number of other fine-grained metrics internally but what’s listed above can provide a good starting point for properly valuing a cryptocurrency investment.

Do you have parameters or metrics that have reduced risk and increased reward related to your individual strategies for cryptocurrency investment? If so, feel free to share them.

Anyone can use these parameters to gauge real value in developing their own diverse positions in what we anticipate being a new wave of high quality cryptocurrencies. In the meantime, we’ll be constructing a long-term DD Basket trade based on short positions in selected traditional equities and long positions in high quality cryptocurrencies that have passed our DD process with flying colors.

If you’d like to include your favorite cryptocurrency for consideration or if you’d like us to conduct DD on any cryptocurrency teams or any aspect of them mentioned above feel free to make contact with us here on Telegram or via

Happy positioning in 2019!