I have noticed there aren’t many articles on how to fundamentally analyze a token or a coin for the crypto market so I decided to publish my ways of how I shortlist cryptocurrencies for investment.
- NVT (Network Value to Transaction Volume)
This is a ratio of the amount of volume being transacted over a period of time relative to the market capital over that period. e.g. Bitcoin as of today 06/01/2019 has a market cap of $66,976,389,909 and volume over the past 24 hours has been around $4,947,321,799. To calculate the NVT we divide the market cap by the volume to get the figure 13.54, this is our Bitcoin NVT for today. To take a better reading with a larger sample, an average of the market cap and volume over 30 days is recorded. This way we get a more reliable number for NVT.
The NVT of Bitcoin should be our benchmark, any coin that has a lower NVT than bitcoin can be considered to have a solid user base with a decent amount of transactions. I like to invest in coins with an NVT lower than 10.
2. Social Metrics
Most coins have multiple social media accounts where announcements and discussions take place. Usually the bigger the market cap the larger the user base on social media. But what if we looked at the number of tweets being tweeted over the past month or the exact number of mentions a specific hashtag related to the project was mentioned. This usually is a great way to gauge the “Buzz” around a coin. Websites like http://www.cryptometrics.net and https://solume.io among others provide plenty of information on social metrics.
3. Use Case
How many stores of value coins do we really need, there are hundreds of coins that do nothing besides being decentralized! My portfolio has around 6–7 coins all with different uses some of which have working products and services already. Take Pundi X or Modum as an e.g. they both have working products that are already being used by businesses. Diversifying your portfolio to include coins in different fields you believe in, is much better than holding one coin. When the stock market recovered after 2001, plenty of stocks regained their losses and continued to make new highs. So when cryptocurrencies start rising again you can bet it won't be Bitcoin alone. Now, this doesn’t mean go searching for the next ICO or the lowest market cap coin and throw your money at it, always do your research.
4. Check Out Ranking Websites
These are websites that rank coins based on their teams, advisors, social activity, tx speed, etc. They can give you some insight on what makes a coin standout or where they lack behind.
5. Read the Whitepaper!