The cryptocurrency market can be both incredibly lucrative or gut-wrenchingly painful, depending on the decisions you make when investing.
Unfortunately, it’s rare to stumble across sure-fire wins when making an investment, so there will always be some degree of risk involved. Nonetheless, through careful project selection and proper due diligence, it’s possible to dramatically minimize this risk and maximize your odds of success.
Here, we take a look at five simple tips you can use to spot potentially undervalued and attractive projects. These tips primarily focus on pre-launch and early-stage projects, but can generally be applied to more established projects just as easily.
As always, never invest more than you can afford to lose — there are no certainties in the investment game.
One of the simplest ways to identify an attractive investment opportunity is by examining whether an asset is undervalued.
For projects that haven’t yet launched, this means checking its initial market capitalization. This is the value of all of its token units that will be in circulation following its token generation event (TGE).
Projects that have an initial market cap that is lower than their expected fair value can represent lucrative investment opportunities since the market tends to move the token price toward its fair value in the days and weeks following its TGE.
In general, a project that launches with a lower than expected market cap has a strong chance of gaining value until it achieves its fair value. Conversely, projects that have a higher than expected market cap — such as due to a sudden, transient influx of orders — may eventually fall back to a lower, fairer market cap.
Let’s use AstroSwap
as an example, a token whose market cap was set at $120,000.
As the first DEX on Cardano, it is easy to compare its market cap to other prominent DEXs like PancakeSwap
, both of which have a market cap well in excess of $1 billion.
Sure enough, AstroSwap quickly moved closer to its fair market value following its launch, climbing from a $120,000 to $120 million market cap at its peak.
Before diving into any project, it’s generally a good idea to see who you’re investing alongside. Practically, this means checking out its earliest known backers — paying close attention to any noteworthy VC funds and angel investors they have onboarded.
In general, projects will have a list of their most prominent backers on their websites. (But this primarily applies to projects that are venture-funded.)
Using Port Finance
as an example, we can see that it’s backed by a range of well-established VC funds, including Rarestone Capital, Morningstar Ventures and JumpCapital. From here, you can navigate to each VC’s website to see their track record. Zooming in on Morningstar Ventures, we can see it has also backed early titans like Elrond, Covalent and Yield Guild Games.
But perhaps more importantly, you can see it was backed by AscendEX. Early exchange backers can be an indicator of a CEX listing down the line — and sure enough, Port Finance was listed on AscendEX.
Ideally, you’d want to see not only a list of well-respected VC funds with excellent track records, but also backers that are known to add value to the project — whether that be through assistance with marketing, strategy, development or something else.
On the flip side, if the project is backed by rather obscure VCs or completely lacks any backing, this could be a red flag. If the experts don’t want it, why would you?
A strong team is key to a strong project. There are no two ways about it. By selecting projects that have an accomplished, experienced team behind them, you can dramatically increase your odds of success.
The executive team should be subject to the majority of your scrutiny. Pay close attention to the background and experience of its CEO, CBDO, CMO, and perhaps most importantly, its CTO.
— an upcoming futures ecosystem and basis trade aggregator protocol — as an example, we can break down how you do some basic due diligence on a team before investing.
First up, the CEO. As the project lead and the individual responsible for organizing and managing the team, a strong CEO is paramount. Examining Gehan Rajapakse’s LinkedIn, we find that he’s founded and managed a variety of startups in different niches over the last decade — demonstrating strong business sense.
Moving on to the CTO, Artur Ferreira, we see that he founded UTrust
(one of the best performing projects of 2017) and is a partner at an established crypto fund. Lastly, the platform’s CMO Xavier Garcia has held high-level marketing roles in the blockchain space for half a decade, largely focused on blockchain-based financial products.
A strong team bodes well for the project, whereas a subpar team can be a sign of weakness. Look for evidence of prior success and a history of sticking through for the long term.
If the team is not publicly facing, this makes the job a lot more difficult. In this case, it would be best to look for alternative ways to verify the team’s accolades — such as looking over the project’s GitHub, checking for awards or considering the testimonials of other trustworthy individuals.
One of the key aspects of any successful project is sustainable tokenomics
. Irrespective of how good a project is, highly inflationary tokenomics will inevitably lead to price suppression if there isn’t sufficient utility in place.
Unfortunately, some projects aren’t exactly transparent about their token emission and it can be a challenge to accurately work out how fast a token’s supply will inflate. Others, however, have transparent tokenomics helping you work out if this will be a problem.
Some of the best ways to identify whether a project will suffer from high inflation include checking the vesting schedules of its early backers, tea, and advisors, seeing whether the project is holding a substantial airdrop, or is running a long-term yield farming program.
For projects that seem to have a relatively high amount of inflation, check if there are any measures in place to reduce the circulating supply — such as a staking system or any burn mechanics.
is an excellent example of this. Although the project suffers from a level of inflation that would cripple most projects (at 371,600 CAKE per day), it also offers strong utility for the token with numerous burn mechanisms in place to help ensure supply and demand are roughly balanced.
As you may already know, the cryptocurrency market moves in ebbs and flows. Projects that would perform extraordinarily well at one point in time may not perform so well when they actually launch.
Likewise, projects that seem to be less than stellar at or prior to their launch may evolve into just what the market needs.
Staying on top of the market and having a general understanding of current trends is crucial for identifying projects that have a good market fit, or are likely to fit the market later (based on their current trajectory).
One of the simplest ways to gauge a project’s market fit is by doing some basic keyword analysis.
Taking the recently launched Bloktopia
as an example, simply browsing its website you’ll find that it’s building in some of today’s most hyped and marketed niches — including decentralized real-estate, gaming, non-fungible tokens and the Metaverse.
Seeing whether a project aligns with current trends can be as simple as checking the performance of some of its keywords on Google trends
or by monitoring trending tags on social media.
As a platform building a decentralized Metaverse on Polygon, Bloktopia hit the nail on the head and launched right when interest in the Metaverse reached its peak. But most importantly, it was developing long before the Metaverse became a hot niche, giving it a head start over the competition.
That said, it’s important to double-check that the project you are scrutinizing isn’t just appropriating current trends in order to dupe investors. This would be a major red flag.
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