How I determine which cryptocurrency assets to invest in.

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There are a lot of cryptocurrencies right now flooding the Crypto market. Below is a general list of questions I try to answer before I determine which crypto assets I should invest in. It is a continuous journey to learn how to pick which cryptocurrency assets to invest in. 

My Checklist

  • Is the crypto asset a Coin or Token?
  • What is the supply & market cap situation?
  • What real world problem is this cryptocurrency project trying to resolve?
    • Does this project have a whitepaper?
    • Does this project have a team who’s identities are public?
  • Where is the coin/token listed?

Is the crypto asset a Coin or Token?

I like to determine whether the crypto asset is a coin or a token. 

  • A crypto coin is digital cash, its native to its own blockchain & used for transactions within its blockchain.
    (e.g. Ethereum is the native coin of the Ethereum Blockchain).
  • A crypto token is a unit of value, developed on top of an existing blockchain. Crypto tokens can be made by anyone and their supply can be controlled by third parties. Transactions of tokens still require the blockchain’s native coin for payment of transaction fees.
    (e.g. SUSHI is a token created for the SUSHI Swap decentralised finance (DeFi) exchange, Ethereum is required as payment of any transaction fees).

What is the supply & market cap situation?

I like to ensure the crypto asset has a sensible supply to potential market cap ratio.

  • Low supply, less than 150 million often means the asset will be rare, ideal for store of value, market cap buildup can be high to rapid. Market price can start from $3,000 USD in value.
    (e.g. Bitcoin, Ethereum).
  • Medium supply, between 150 million – 1 billion often means the asset will be used as a utility, market cap buildup can be medium to high. Market price can vary between $0.5 to $3,000 USD in value.
    (e.g. Binance Coin, Kevacoin). 
  • High supply, between 1 billion – 100 billion often means the asset is trying to solve a real world issue, market cap buildup will be slow to medium. Market price will vary between $0.50 to $5.30 USD in value.
    (e.g. Cardano, VeChain).
  • Ludicrous supply, anything between 100 billion – 1 trillion (yes, that is the one with the number 1 followed by 15 zeros), market cap depends on hype, highly unlikely this asset will reach $0.0001 USD in value.
    (e.g. Safemoon, SHIBA INU).

Max Supply

  • The maximum coins/tokens that will ever exist in the cryptocurrency’s lifetime.
  • (e.g. Bitcoin (BTC), throughout its lifetime only 21 million coins will ever exist).

Total Supply

  • The amount of coins currently in existence, through mining/minting.

Circulating Supply

  • The amount of coins currently circulating in public hands.

What real world problem is this cryptocurrency project trying to resolve?

Projects like Bitcoin were developed to resolve the issues of centralised banking primarily around the world’s reliance on banks as middlemen to every financial transaction. I find this question important in helping me identify suitable investments, this question alone has helped me avoid many rug-pull & ponzi style projects which rely on new investors to maintain their momentum.  

Does this project have a whitepaper?

This is very important, you want to ensure a cryptocurrency project that is attempting to resolve a real world problem has done its research on how to resolve this problem.

The whitepaper will need to help you understand the following;

  • what is the issue/problem this project is trying to resolve,
  • how is this project going to solve this issue/problem, (e.g. blockchain mechanisms),
  • what is the governance of this project, (e.g. transparency/security/accountability),
  • what are the use cases, (e.g. real world applications/partnerships).

Does this project have a team who’s identities are public?

The reason I find this very important is to put my own mind at ease, knowing that the persons who are accountable for implementation and success of this project’s identities are revealed and public. Most often projects who have anonymous developers/teams have been rug pulls and ponzi schemes. 

Where is this coin/token listed?

Some coins are only available on certain exchanges, some only available on decentralised exchanges (DeFi). Exchanges themselves carry a certain level of risk;

  • Does the exchange make an effort to identify and verify the identity of their users?
    (e.g. Know Your Customer (KYC)).
  • Will the exchange have enough liquidity to allow me to withdraw my funds/assets?

Hence I keep my trading to a handful of exchanges.

Apart from the above glimpse of what I consider when making a decision on which assets to invest in, I also spend time to look at trading charts to determine a buy in, take profit and stop loss points. I don’t invest a lot in one go I try to invest a little periodically to ensure dollar cost averaging. 

Disclaimer: This is not financial advice.
This information is general in nature and has not taken into account your personal financial position or objectives. Please refer to a licensed adviser or tax agent and relevant PDS for product details before making any investment decisions.

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