How to invest in blockchain startups, part one
While the ICO hype is long gone, the cryptocurrency market continues to grow at a frantic pace. For traditional investors, the volatility of the cryptocurrency market may seem daunting, but for crypto enthusiasts, a 5–15% change in market prices per day is a common norm .. Nobody wants to miss the opportunity to make money during next hype, but it’s not very easy to understand where to invest. Let’s be honest — the crypto market is full of scams and one-day startups — you need to be able to separate the wheat from the chaff. Today we will try to figure out how to choose a promising blockchain startup for investment. There are quite a few criteria here, but we will try to list the most basic ones to which you need to pay attention.
Team
The first thing to do is assess the project team. Of course, many crypto anarchists consider complete anonymity and lack of dependence on the human factor to be a kind of ideal, but if you go down to earth, then the assessment of the project team is one of the most effective approaches.
If the CEO of the company and the development team are not shy about publicity, this means that they are ready to take on reputational risks, and this already speaks of a certain degree of responsibility. In conditions of anonymity, it is easy to run away with someone else’s money or simply abandon the project; in conditions of publicity, it will cost itself more. Those who have been working in the cryptocurrency market for a long time understand how important personal reputation is here and how difficult it is to accumulate it over the years.
It will be even better if the team already has experience in implementing successful projects or participating in the development of startups from scratch. Ask what projects and initiatives the team members have participated in. Moreover, it is worth checking the reality of this information. Some unscrupulous teams are talking about merits that they do not have and sometimes make false statements about the participation of any famous personalities, opinion leaders and even investors in their project. Not everyone is Vitalik Buterin, but many want to repeat his success. Be vigilant and remember that “cadres decide everything.”
Social media presence
Usually, if team players have personal social networks and are serious about their project, then they will most likely mention it there, or at least subscribe to it. If a person is not ashamed of his involvement in the project, then there are more reasons to trust him.
Also, serious startups start talking about their project long before the token sale. If they start talking about the sale of tokens a few days before the launch of the project website, then this is clearly a bad sign. Scammers also run aggressive ad campaigns, but they don’t last long. in order to raise funds as quickly as possible, recouping the minimum costs of packaging the project before selling it. A sign of a stable project is a wide and long-term presence on various social platforms. Among the main ones, it is worth highlighting Discord, Facebook, LinkedIn, Medium, Reddit, Steemit, Telegram, Twitter, VK, YouTube. A good project should also have a website where you can read about the project team, find Whitepaper and direct contacts of the founder or contacts of other team players.
However, excessive activity on social media is also a suspicious sign. Fraudsters often try to create the illusion of a large number of subscribers and use bots. The audience on the social networks of the project must be organic and lively. Remember that the most top projects, in order to reach the TOP50 in terms of capitalization in 1 month and even in a day, were developed at an almost silent pace of 2–3 years in order to present a product that was really needed for the market (examples: Filecoin, Cosmos, ICP) … Keeping track of the team’s work and the intermediate results in building the product is a sure factor for the success and productivity of the team. The faster success is acquired, the faster it can leave you.
Whitepaper
If you are serious about investing in a blockchain startup, then you should definitely read their Whitepaper carefully. A good Whitepaper should describe the technology of the project, its monetization model, consensus algorithm (if it is a blockchain), legal aspects, and there should be a project roadmap. It should be indicated how this project stands out from others, its uniqueness and advantages. But all is well in moderation — too bright promises of high, fast and guaranteed risk-free profits should be alarming. In the investment world, there are no guarantees — remember this.
The presence of Whitepaper, however, is not a guarantee of reliability. A fairly well-known example is PlexCoin, who wrote a very convincing document and managed more than $ 15 million until the US Securities and Exchange Commission intervened. The presence of a Whitepaper is a necessary criterion, but not sufficient. This is the minimum that can reflect the vision of the project and its mission by the founders.
Presence on exchanges
Well, everything is simple here. The more exchanges trade the project token, the better. If there are few exchanges and they are little known, this is alarming, but it does not mean that the project is bad, most likely the team is very limited in budget and prefers investments in development instead of investments in marketing. If the project already has a working application (dapp) and is traded on such large crypto-exchanges as Binance, Coinbase, Gemini, Huobi, Kraken, KuCoin, etc. — this is a good sign, but it also does not guarantee the project’s “liveliness” — many cases are known for delisting of tokens from large exchanges in view of the closure of projects.
Technical and fundamental analysis of the project
There are now many cryptocurrency and DeFi trading data aggregators: Coingecko, Coinmarketcap, DefiPulse, etc. With the help of them, you can track the behavior of a token on the market — whether it is growing or falling, trading volume, etc.
Pay attention to the “spread”, that is, the difference between the purchase price and the selling price of an asset on the market. The smaller this difference, the more the project is in demand.
But do not limit yourself to trivial analysis of charts. Try to figure out if there are any long-term prerequisites for the growth of this project against the background of the global economic situation in the crypto market, and in the world as a whole.
In investing, and most importantly in making an investment decision, you are the best helper for yourself. Only you are responsible for your decisions. Research the project, understand its value, and if it inspires you, invest a small amount and wait for the result. Investments at the very beginning of the development of a startup are the most profitable and effective, which can bring you more than 1000% profitability in 2–3 years and even more. You don’t have to go far for examples — ETH at the beginning of its life cost 0.75 bucks, and already at the beginning of 2018 it cost more than 1000 dollars. But you don’t have to be Buterin to achieve such profitability — an increase in the price of a token over 1000% can be found in MKR or DASH tokens, for example.
To be continued
In this article, we examined the main criteria by which you can choose a blockchain startup for investment. Of course, you should not limit yourself to these criteria, but they can be called the minimum necessary.
In the next part, we will look at more “technical issues” — how and where to buy tokens, use a centralized exchange or a decentralized one, what precautions it makes sense to take, etc.
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