4 methods to evaluate Cryptocurrencies — where should you invest in?
By: Petros Leandros
Tags: Technology, Cryptocurrency, Blockchain, Ethereum, Bitcoin

Over 1,000 Cryptocurrencies exist at this stage, whereas more ICOs are being created continuously. If you have followed my previous articles, you would be aware that a vast majority of them are not worth investing, due to the highly overvalued prices in the market. However, there are a number of good projects among them with large intrinsic value, where the long-term Cryptocurrency investor should consider holding. How can you determine which coins are worth investing in? There are 4 methods which will assist individuals to evaluate if they should hold any given cryptocurrecy:

1. Use case potential & scalability

The first factor that investors should evaluate in a potential investment, is the coin’s potential and if the application can scale to a large enough level in order for the token to rise in value. Questions that potential investors should ask here include the following: What is the cryptocurrency’s use case? Does it solve an existing problem? Does it provide a significant improvement over an existing application? Is the solution that the token is proposing, technically feasible? What is the potential reach of that application? It may sound counterintuitive, but a surprising number of investors tend to just follow word of mouth and buying coins without ever thinking about what is the actual usage of the coin in question.

2. Development Team

An important factor in evaluating a cryptocurrency’s potential, is the team behind it. It is important, that the development team is experienced in the area and (preferrably) have a good track record of participating in either more cryptocurrencies, or in the Blockchain and/or startup space in general. Furthermore, investors should look at how active the team is. For example, do they develop bug fixes in order to correct problems in the underlying infrastructure? Does the team develop upgrades (often in the form of “forks”) in order to improve the cryptocurrency’s network? Without a strong development team, a project with good potential can often fail to deliver due to the team’s inability to take the required action in order to fulfil the project’s potential?

3. Investors & Community Backing

The list of investors behind a Cryptocurrency, are a good indicator of the coin’s potential. First of all, large corporations and hedge funds supporting individual coins, can offer their resources (funds, connections, expertise etc.) in order to support the growth of the coin, largely increasing the odds of it being succesful. Furthermore, institutional investors perform very detailed ue diligence prior to throwing millions of dollars and associating their brand name with a Crypto project. As such, investors can be assured that their decision to back a given currency was not taken lightly.

Strong backing from the Cryptocurrency community is also a good predictor of the price rise of a Cryptocurrency (even though this factor is correlated more with the short term rise and less with the long term rise of a coin). A strong network of supporters, ensures that the coin will be promoted “for free” through word of mouth, Cryptocurrency blogs and Blockchain technology enthuasiasts groups. This will attract more inexperienced investors, which will increase demand for a coin and thus will result in the coin’s price to rise.

4. Trading Volume & Liquidity

Finally, it is important for a potential investor to assess the amount of trading activity of the coin they are interested in holding. If trade activity is low, investors run the risk of not being able to liquidate their position in case they want to exit the currency. Furthermore, the lack of liquidity that exists, means that any given currency is prone to price manipulation by anybody with a large enough capital to disrupt the market.

Picking the right investments from a list of thousands of coins is not an easy task. However, by following the above guidelines, potential investors can ensure that they at least pick coins which have at least some potential for future growth.

Do you agree with the views expressed in this article? Let me know in the comments section and don’t forget to share the article with friends and family!

Petros Leandros, MSc

Note: The views expressed in this article are the opinions of the author and do not constitute investment advice in any capacity. Like all types of investments, investing in Cryptocurrencies carries the risk of losing your investment.