Cryptocoin or Cryptocurrency Analysis Strategy by @SmallCapCrypto
Hi everyone, in this post I will discuss about how we can evaluate a Cryptocoin. There has been a great year of 2017 for most Cryptocoins, but not all Cryptocoins are created equal. Some are growing more than the others, because some has more potential than others. I hope in this post, you can learn about Cryptocoin from the ground up, to allow you to have some insights on how to get started in investing in Cryptocoins.
When we hear about Cryptocoin or Cryptocurrency, many of us assume that all coins are somewhat almost the same. Especially for beginners, it feels like we are just buying “coins” as a currency. However, Cryptocoins are not created equal. There are 3 types of Cryptocoins in general, they are Cryptocurrency, Utility Token, and “Token as Company’s Share”. These are all different, so you have to know what you are buying and investing. This is very necessary for Cryptocurrency Analysis.
If we don’t understand the Cryptocoin well, we might be buying something that does not have enough potential. After understanding the 3 types below, I will talk about some recommendations for each type for you to consider.
Let’s talk about the 3 types of Cryptocoins or Cryptocurrencies:
- Cryptocoin as a Currency as we know it (Cryptocurrency). Most people know Bitcoin, right? Bitcoin is a Cryptocurrency. It is a currency that is based on blockchain technology, which can’t be manipulated. This is the first type of Cryptocurrency. It’s function is as a store of value and transaction. Best examples for Cryptocoin as a Currency would be Bitcoin (BTC), Litecoin (LTC), and Monero (XMR). When you invest in this type of currency, you have to understand a few things that people care about currency. What are those? These could be used in your Cryptocurrency Analysis:
- Secure: People would love to make sure they can’t be hacked. That’s the first thing people care about. Because it is a store of value for them.
- Against Inflation: Why do most people buy houses / properties / lands and gold? Why do the prices of those assets have gone up? It’s scarcity. Lands and gold are not reproducible commodities, they are limited. Would the price of a diamond so high if it is not rare? When we understand about this, we should consider investing in Cryptocoin or Cryptocurrency that are scarce or limited. There are only 21 million Bitcoins that can be mined in total. We have more than 7 Billion people in the world. This is the reason that Bitcoin’s price has gone up astronomically. People believe in it as a store of value. If you compare Bitcoin to Fiat currency like USD or EUR and all other currencies in the world, banks can always print more money and lend those paper money out to boost economy. (That’s another topic, you should do some research about it!)
- Network of users: If you talk about a currency, it has to be accepted by many people to make it valuable. For example, if you create your own “Tommy Coin” and try to use it to buy clothes, would people receive it? Maybe yes, maybe no. Today, many companies would gladly accept Bitcoin and Ethereum as form of payment. That’s a great network of people who use the Cryptocoin to buy and sell.
- Anonymous: Would you like everyone to know whatever you buy and sell? Maybe not? This is where privacy comes in. People would love to buy and sell with Cryptocoin, but they prefer the transaction to be anonymous and untraceable by others. It means that privacy coins actually have really good future in the long run. They can exist together as alternative payment systems.
2. Cryptocoin as a Token (Utility Token). Ethereum allows people to build decentralized applications and smart contracts on its platform. Ether itself is also a Utility Token. It is used as “Gas” to pay for the fee of sending Ether and other tokens to an address on the blockchain. The fee is paid to the miners that confirm the transaction. Of course, Ether can also be used as a currency to buy something. People usually use Ether to participate in an ICO (Initial Coin Offering) of a new token that is issued via Ethereum platform.
A simpler way to explain this is to think about the time you bought a Windows software, you are given a “Windows Product Key”. You then need to fill in the secret code in “Windows Product Key” to be able to use the software.
Utility token works like that. So if you want to use Ethereum platform, you have to use Ether. Ether is a fuel for operating the distributed platform Ethereum. It means when you buy and keep Ether, the price could go up when more people need Ether! Makes sense? It’s like you buy and store fuel and sell it to those who want to use their cars. It’s as simple as that. Some examples of utility tokens are Ethereum (ETH), EOS, Neblio (NEBL), Hawala.Today (HAT).
So if you are looking into investing in Cryptocoin as a Utility Token, you need to make sure that people need whatever the Token can buy! To know whether many people will need it, there are a few things you need for Cryptocurrency Analysis::
- Usefulness of the platform. Is the platform useful? Think about Ethereum, the price of Ether keeps going up because it enables people to create their own smart contracts. That’s amazing and useful. If you are buying a token from a useless platform, the token is never valuable, it’s like a fake monopoly money. There are so many useful tokens out there that you can invest in.
- Scarcity. If the token’s supply is limited, people have no choice but to buy the token from others to be able to use it. So when you want to buy a token, make sure that it is useful and also limited. Limited supply will drive the price up when people need it!
- Users. Will there be many users for the platform? Will the number of users grow over time? When there are more users, the value of the utility token will go up because the users need it. With that, you have to always look at the community that uses the platform. Is the community of users growing fast? Or is it just a community of investors and speculators? It will succeed better when the community of users grow faster.
3. Cryptocoin as Company’s Share. With this type of Cryptocoin, you can receive dividend from the company’s profit. The number of Cryptocurrency of this type is pretty rare. A good example is Modum.io (MOD). It is literally providing services to companies and leverages blockchain for the services and to get capital. When you are investing in Cryptocoin as Company’s Share, you should think about this for Cryptocurrency Analysis:
- Customers. Do they already have customers? How big is the market? Would they be able to keep getting new customers and retain them?
- Profit margin. How good is the profit margin? Can they maintain the profit margin for a long time?
- Barrier to entry. How hard is it for new competitors to enter the market? Who are the existing competitors? How hard is it for competitors to take away the existing customers?
Once you understand the Cryptocurrency Analysis above, read below to find out some of the Cryptocoins with high potential:
- Cryptocoin as a Currency (Cryptocurrency).
Cryptocurrency Analysis: For this type, my best pick would be Bitcoin and privacy coins. I choose Bitcoin because of its wide network of users. Bitcoin has limited supply and it is also being used to purchase many altcoins. I also like privacy coins like HUSH, PHR, and SUMO. I truly believe that a Cryptocurrency should protect our privacy when doing transactions. Click to learn more about privacy coins. - Cryptocoin as a Token (Utility Token).
Cryptocurrency Analysis: There are several tokens that I really like, such as Ethereum (ETH), Nuls.io (NULS), Binance Coin (BNB), Hawala.Today (HAT). Ethereum is BIG. It is still growing really fast, it has the best documentation and support as a blockchain platform so far. People are using it as a gold standard and they will always need Ether. I’m loving it.
If you have been using Ethereum, you would have known that even if I love it so much, Ethereum platform is slow now (Like really, try to send Ether or tokens with it). NULS is solving that problem, NULS is an interesting coin with a modular infrastructure, which can speed up transaction and solve many inefficiencies.
I like Binance Coin (BNB), why? Binance has been growing really fast as a great Cryptocurrency exchange for trading altcoins. If people want to save 50% of their trading cost, they can use BNB as a Utility Token to pay for the transaction fee / trading fee. As long as Binance user base keeps growing, the value of BNB will keep rising.
My next pick is Hawala.Today (HAT), oh boy if you come in early, you are gonna make big bucks. And HAT is all about that. They are developing a P2P Cryptocurrency-Fiat Exchange and they are targeting people who want to buy Cryptocurrency with Fiat currency (like USD). Same case with Binance, when Hawala.Today gets more users the value of the token will be growing quickly. Take note that Binance Coin (BNB) now has a market cap of $1.5 Billion (January 2018) and HAT Token now has a market cap of only below $100 million. There is a lot of room to grow for HAT token, especially targeting a mass market of Fiat currency owners. HAT token also has very low total supply of only 7,000,000 HAT (Compared to Binance Coin’s total supply of 197,192,382 BNB. Remember the value of scarcity). See my recommendation for Top ERC20 Token List 2018 here. - Cryptocoin as Company’s Share.
Cryptocurrency Analysis: For this type, my recommendation for now is only Modum.io (MOD). They are using blockchain to comply with the new pharmaceutical supply chain regulation in Europe. I like how they use blockchain to solve physical problems. However, I would recommend you to hold more Utility Tokens than this type of token. If you are interested to buy shares of a company, you can buy it in stock exchange.
That’s it for Cryptocurrency Analysis that could help make better investing decisions. I hope that this post gives you something. If yes, please give this post some “Clap” so that others can see it too!
Happy investing!
