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The Top 3 Criteria We Look at Before Investing in Crypto

Introduction

At UnderstandingCrypto.info we are often asked what criteria we use to select coins to add to our portfolio.  The answer is never short, nor simple.  However, it sparked a great idea for an article, and this is the result.  While there are many things we look at when deciding what crypto projects to invest in and what coins to HODL, this article will cover our three most important things. 

First, a large disclaimer.  We are not financial advisors, and this is not financial advice.  This Crypto Checklist is not meant to suggest/tell you what criteria to use.  It is simply us sharing what criteria we use.  Our risk tolerance and financial situation may be different than yours.  Work with your financial advisor if you want advice on how/what/when to invest. 

Also, for full transparency, I will be writing about some coins in the article, of which if we are currently holding, I will mention as such.

This article is for information / entertainment purposes only. 

With that out of the way, now on to why you’re here.

Crypto Checklist

1. Tokenomics – The #1 thing we look at before investing in any Cryptocurrency is the current state of the project’s Tokenomics, especially around Crypto Marketcap.  If you are unfamiliar with crypto marketcap or want a refresher, check out our article HERE.  Essentially, we want a project that has room to grow.  There are great projects such as Solana ($SOL) and Cardano ($ADA) – we are not currently holding either – that are great long-term investments, but their short-term upside is limited.

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While there are never any sure things in regard to financial markets, one thing I can write with a level of comfort and certainty is no coin will take over Bitcoin ($BTC) or Ethereum ($ETH) for #1 or #2 in marketcap (we currently hold a small position in $ETH) in the next year.  Very likely they will stay 1 and 2 for at least the next few years.  So the expectation for any coin is its needs to stay below those two in marketcap (price doesn’t matter). 

That doesn’t mean other coins cant improve.  Many will.  As $BTC and $ETH raise the marketcap bar, it leaves more room for growth for the altcoins.  Your goal is to find a coin that will rise in marketcap at a greater rate than $BTC or $ETH.  That is why we search for low marketcap coins that have multiple X growth opportunity in comparison to whatever the current overall crypto marketcap is looking like.

2. Project’s Technology/Purpose – The 2nd thing we look for is what value does the project bring to the table? What is its purpose?  If you chase #1 on the Crypto Checklist and ignore #2, you’ll find yourself ‘investing’ in a bunch of $hitcoins that will leave you holding nothing but losses.   The project has to have purpose.

That doesn’t mean a meme, or socially pumped coin, can’t hold value or purpose.  They most definitely can. 

marketcap_1292021b

Looking at the two most popular coins (at time of this writing) that fit the ‘meme’ label are Dogecoin ($DOGE) and Shiba Inu ($SHIB).  Both were outside the top 100 in marketcap and both skyrocketed into the top 10 in total marketcap at their peaks.  Even at 11 and 13, both coins made a lot of people a lot of money.  However of the two, only one fits our #2 tag on our Crypto Checklist, and that is $SHIB (of which we are holding).

Why?  As a technology, neither offer anything special that many other coins cant already do better.  However, for being a socially driven coin, $SHIB has also made a lot of smart moves.  Partnerships with Bitpay, AMC and Newegg shows the power of the Shib Army and the coin’s ability to gain traction.  While $DOGE has some great partnerships as well, SHIB also beats out the other meme coin because of its finite supply. 

While I write that in half jest (550trillion $SHIB can barely be considered a finite amount), there are burn mechanisms in place to continue to pare that number down.  It won’t be in the next year or two, but five plus years from now I anticipate a much smaller total amount of $SHIB being available.  Between a $SHIB based exchange and their growing footsteps in game and NFT market spaces, the burn rate will accelerate.  The coin doesn’t need to hit $1 to be successful.  It doesn’t have to hit $0.10 or even $0.01.  It can continue to make a lot of people wealthy while also powering a multitude of creative projects at $.001 and below.  And that’s the key.  We believe it will power multiple creative projects.

However, as much as we love $SHIB, it no longer meets criteria #1 of our Crypto Checklist.  As such, we would hodl it since we have it, but will not add to our position.

3. Social Awareness / Adoption – The third thing we look at is the social awareness and adoption. This can take a lot of forms.  One of those forms is the development team (which falls into both social awareness and adoption).  Why?  Blockchain developers are far and few between, especially talented developers.  They have a dealer’s choice on what project they want to work on, and in most all cases, they will be holding that coin.  They have the direct ability to increase a coin’s value by dedicating their time and knowledge into improve the project’s technology / purpose (#2 on our checklist).  So only coins that have a chance at being adopted for a larger use have a chance at being adopted by developers outside of its core creators.  So how great is the team working on the project, and have any partnerships developed that can increase a coin’s growth?  Polygon ($MATIC) is a great example of this.

Another measurement of adoption are exchanges.  How many is the coin listed one?  While getting on Coinbase is great, it isn’t required for us to consider investing in.  A lot of smaller projects have to show their #2 before they get listed.  But we look at whether or not the ‘can’ be picked up by larger exchanges.  Just because it hasn’t happened yet doesn’t mean it never will.  Exchanges are very open about the listing policies.  If a coin you love isn’t yet listed on an exchange you love, just see if it fits the criteria of eventually being able to.  If so, then it is only a waiting game, and there is nothing wrong with that.

Blockchain developers are far and few between, especially talented developers.  They have a dealer’s choice on what project they want to work on, and in most all cases, they will be holding that coin.  They have the direct ability to increase a coin’s value by dedicating their time and knowledge into improve the project’s technology / purpose. 

The final piece in this segment is social awareness.  How popular is the coin?  Popularity is a great indicator of potential growth, especially when combined with items #1 and #2 on our Crypto Checklist.  Pretty much every coin in the top 100 of marketcap has some level of social awareness.  However, has that helped the project grow in the last 3 months?  6 months?  In the last year?  Are there any catalysts coming that will get it in front of the eyes of new investors?  For a coin to go up, people need to want it.  For them to know they want it, they need to know about it.  If your favorite coin only has 100 followers on Reddit or Twitter, or they have 100k followers that all look like bots, stay away.

There you have it.  The top 3 criteria we here at UnderstandingCrypto.info use to decide whether or not we want to invest in a crypto project.  While there are many more things we look at, we wont dive deep into any project unless it hits all three of these criteria.

Be on the look out for our next article – The Top 2 Cryptos for 2022 that we are Investing in… and you got it… they both are based off this checklist.

Helpful Information
  •  If you want to learn more about making money in crypto, check out Victory Crypto
  • If you want to learn more about beginner cryptocurrency trading lessons, check out Crypto Ultimatum
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