How to crypto value invest
And how Heimdall can help you with it
In this article, far from guiding you to really make money, I’ll give you a really succinct overview of how to evaluate and find investment opportunities in the cryptocurrency market, and where Heimdall can fit in your deal flow.
Heimdall is a fully and truly social-based crypto gem hunter tool, automatically tracking and comparing cryptocurrencies' social activities and prices.
What is Value Investing?
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis, it is an investment strategy that focuses on the long-term value potential of companies, not on their current market price, nor their volume of transactions on exchanges.
Being a new and completely unique market, cryptocurrencies have their own fundamental analysis — that still isn’t well defined nor understood. But for this article, I’ll propose a fundamental analysis thesis for cryptocurrencies, especially for altcoins.
Price, value, and alpha
In short, to value invest you have to understand that price and value are two different things, and to make money you should seek where that market asymmetry is the highest, i.e., projects with the highest real-world values and lowest prices. Undervalued projects are those which have an equal or higher real-world value than other similar projects that have bigger market capitalizations, and it’s to evaluate the real-world value of a project that a fundamental analysis thesis is needed. This will be the topic of discussion of the rest of the article. Also, as an important side note, it’s crucial to note that to value invest you need to be able to draw comparisons, it’s impossible to state that a project is undervalued without any comparison.
Evaluating projects
Given a project, to assess its value I suggest evaluating three main factors:
1. Project Value Proposition
The most fundamental thing when seeking a good investment is to understand what is the core business of that project, and even more: to evaluate if it’s aiming at a real and latent problem to be solved. The project value proposition is defined by what people get from using the products or services. Bitcoin brings the ability to own and send P2P in a truly decentralized and uncensorable asset, Ethereum enables smart contracts. Many other projects are aiming at solving issues related to the scalability and high fees of both Bitcoin and Ethereum, while other projects have different real-world value propositions such as decentralized lending and loans, decentralized trading, decentralized market places, and the list go on. For sure there are a lot of people trying to solve a lot of different problems using decentralized technologies, and this is something that has been happening over the last years and will still be happening for years yet to come. Not everything could or need to be solved using decentralized technologies, as a result, many projects will fail and many already have. Understanding and evaluating a value proposition is a whole art, and probably even a full book on how you could do it will most certainly overlook some essential aspects. Even more than a profound topic, assessing value propositions is very subjective and personal, if you are long enough in the crypto market high are the chances of you already having your own thesis on how to evaluate value propositions. Good investors are those who have a well-defined thesis and stick to it in the long term.
To make it short, a value proposition is what you read when you open a crypto project website, assessing it is what your mind (conscious or not) does to answer the question: does this project make sense? Does it solve real-world problems?
2. Ability to execute
For sure just having a good value proposition isn't enough to say whether a project worth your investment, as the majority of projects will fail by the inability to execute. Having a good value proposition is the key step of identifying a problem to be solved, but understanding how to solve it and being able to do so it’s the next fundamental and needed step to a successful project. It’s worth noting that for the same issue probably there are many independent projects working on how to solve it. The process of evaluating when a project has the ability to execute its value proposition is still personal, but a little less subjective than the last step. The most important thing is to look at who is backing the project, whether the development and founder team have enough knowledge and background to solve the specific problems that are related to its value proposition, and also if the project has raised enough money to make it happen.
3. Community Network
Even not being the most technological crypto, nor the most efficient, Bitcoin is the biggest, most successful, and known crypto, and that is the network effect. As important as the value proposition and the ability to execute, are the people around the project. As an example, let's look at Uber: with money to hire a development team, anyone could build a similar app to solve the public transportation problem, but will it succeed? Small are the chances. When you look at companies like Uber, the most important asset that it owns is not physical nor technological, it’s the network of people that drive at and use Uber itself, and that what’s makes Uber a successful company.
So my third factor to evaluate a crypto project is to look for its community. As the last steps, it’s still somewhat subjective, but more than that: it’s hard to evaluate. I usually start by looking for the utilization metrics of the projects, like the number of users and the total value locked if it’s a DeFi project, or on-chain statistics when it’s a blockchain solution, but be aware: as with many others, those metrics could be inflated by fake users and not permanent incentives.
As a community, it’s safe to say that there are users that count more than others: when you have very influential people, like Cz from Binance or Elon Musk involved with your project, this project should have a higher network score than others. For the sake of evaluating a network score, i.e., to say what projects have bigger and more connected community networks than others, I and my team built a unique software that monitors social media in real-time and scores the relevance of users for the cryptosphere in real-time. Using math, graph theory, and machine learning we managed to score how more important to the network effect one person is than another, even more, we manage to evaluate which people are involved with each project in the crypto community. With that, we score and rank every crypto project by its social score, which could be checked for free at https://heimdall.land.
Using the data available at Heimdall you can evaluate if a project has a strong network by looking at its Social Score and comparing it with other projects. Being the community one of the most important things to make a project succeed, when looking for new investment opportunities I always compare its Social Rank at Heimdall with its Market Cap Rank. What this means is that I compare how much bigger a community is compared to its market value, it’s not a rule, but often happens to projects with a good Social Score that they build a network effect that keeps them growing both in network size and in price.
Extra: tokenomics
It is worth mentioning that it’s fundamentally important to after understanding the last three aspects, to dive into the tokenomics of the projects and evaluate whether the tokens distribution is reasonable and time sustainable. You should always look for who are the tokens holders, when those tokens will be circulating in the market, and for what price they were sold.
Finding new investments
Using those suggested factors to evaluate crypto investments should give you a starting guideline, and with enough practice and market exposition, you should be able to come with your own investment thesis to interpret the market and drive your decisions. However, assessing investments is a hard task and requires hours of study and mental effort for each project to be assessed.
With a defined plan on how to evaluate projects, the question yet to be answered is how to find projects that are worth your time researching and evaluating. Most people just surf social media until find something that is interesting and worth spending time, but unfortunately, this is not an optimal way to find new investments, due to the highly biased environment that people are usually in and to the high time consumption that it takes to find good projects.
To minimize time and bias, I suggest starting with the third step of evaluating projects: guiding yourself by the community network around projects.
Start with the hottest projects that don't have a high market capitalization. As Heimdall has already estimated the communities network scores by its Social Score, you can search for the hottest and socially strongest projects using Heimdall itself, and most importantly, you can use constraints, as a market capitalization limit, to filter for projects that are potentially undervalued but have high Social Scores, and that should be a good enough starting point to apply the others steps of assessing investments.
The action plan
After finding an interesting project, and diving into its fundamentals, and assessing it by the suggested factors, if you find that it holds a stronger combined fundamental value than other similar projects, you probably have found a good investment to start with.
Unfortunately, finding a good investment is not the only thing that you need to do, you actually need to buy and sell. Doing so it’s another high demanding challenge that requires market experience — and maybe some gut feeling. Some suggest buying your first tokens after assessing it as a good investment and then averaging down your price, buying more tokens when its price declines. This could be a good action plan on how to buy, but sometimes it also backfires, due to a market recession. To sell, people usually define selling targets, but reassessing your investment should always help, whether the gap between value and price closes, it’s a good time to sell — however subjective it may be. Using technical analysis to help with when to buy and sell a good investment might also be recommended by others. Heimdall also offers you real-time sentiment analysis for each crypto, that with some study could assist and support your final decisions.
In fact, no one knows when to buy or sell, but assessing projects by your own fundamental analysis should help you to have a higher success rate. It’s not about getting it right every time, but getting it right most of the time. It’s important to study and understand the market, to be able to really assess investments, and it’s highly not recommended to buy tokens that do not hold a high fundamental value.
Wrapping it up
What this short article tries to tell you, it’s that to make money in the long term with altcoins you need to be able to assess fundamentals. By including Heimdall in your deal flow, you will be able to find projects with strong communities faster than searching manually, and by comparing its Social Scores with their market capitalizations, you can get a hint of whether a project might be undervalued.
Heimdall is completely free and available at heimdal.land
The information provided in this article does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any article’s content as such. Neither I nor Heimdall recommend that any cryptocurrency should be bought, sold, or held by you. This article suggests that you do conduct your own due diligence and consult your financial advisor before making any investment decisions. DYOR.
