This is a guest post from Leury – one of our most successful interns. He was invited to Valle for the apprenticeship program, with the goal of becoming a partner on one of our businesses. In this series of posts he shares what he is learning here.
With the boom in the cryptocurrency industry last year, it seems like all people talk about is ICOs, tokens and coins! A couple of months ago I didn’t know what any of this meant… I was dedicated 110% to SEO after all.
Like I said before I was a total NOOB. Specifically, I wanted to learn how to analyze cryptocurrencies and ICOs to seperate the good investments from the bad ones.
What made me want to find out more about ICOs was that in 2017 a total of 211 ICOs were able to raise $3,880,018,203! When I saw that…. I thought, “I HAVE TO LEARN ABOUT THIS SHIT ASAP!!!”
What Is An ICO
ICO stands for initial coin offering and is similar to an IPO or initial public offering. An IPO is the public sale of a company shares for the first time, for the purpose of collecting funds to invest in the company. Cryptocurrency sells advance tokens from its overall coin base, in exchange for upfront capital.
ICOs:
- Used to fund new cryptocurrencies
- Investors exchange fiat (USD, EURO, GBP, etc.), Bitcoin, or Ether for these brand new coins in hopes that the token will become more valuable over time
- Alternative form of crowdfunding
- Usually have a minimum (soft cap) and a max amount (hard cap) of funds they want to raise
- The cryptocurrency re-invests the proceeds into various areas of the company (product, team, legal, marketing)
The Most Successful ICOs of 2017
FileCoin
- Token: FIL
- Amount Raised: 257 Million raised
- ICO Date: 08/10/17 – 09/10/17
- Company Location: United States
- Project: Data storage on the blockchain
Tezos
- Token: XTZ
- Amount Raised: 232 Million raised
- ICO Date: 07/01/17 – 07/14/17
- Company Location: United States
- Project: Decentralized blockchain ledgers
EOS
- Token: EOS
- Amount Raised: 185 Million raised
- ICO Date: 06/26/17 – 01/07/18
- Company Location: United States
- Project: Infrastructure for decentralized applications
Sirin Labs
- Token: SRN
- Amount Raised: 157 Million raised
- ICO Date: 12/12/17 – 12/26/17
- Company Location: Switzerland
- Project: Decentralized blockchain ledgers
Bancor
- Token: BNT
- Amount Raised: 153 Million raised
- ICO Date: 06/12/17 – 06/12/17
- Company Location: Israel
- Project: Decentralized liquidity network
In 6 months these five companies managed to raise 984 million USD in total! I almost fell out of my chair when I saw these numbers. I then decided to do some more research on the key things to look for in an ICO or cryptocurrency in general.
How to Analyze Cryptocurrency and What to Look For
For this example, we will use ChainLink (Token Ticker: LINK). Chainlink is being developed by the company SmartContract which was founded by Sergey Nazarov and Steve Ellis. They are trying to create a decentralized oracle for the blockchain.
I’m sure you’re thinking to yourself, “what the hell is an oracle?” If you think I am referring to the company Oracle or an ancient prophet from ancient times, then you’re utterly mistaken.
In ChainLink’s case, they want to connect the blockchain to outside sources like APIs, data feeds, digital payments and much more.
Now I am going to show you the methods we’re currently learning here in Valle De Bravo, Mexico.
Without any further delays, let’s start our initial coin research on ChainLink and analyze the top 5 things to look for when doing token research.
1. How Long Has it Been Trading For and Starting Price?
You want to get a good idea of how the token has been doing since it started being traded on the cryptocurrency exchanges. One of the best places I found to assist on my initial coin research is CoinMarketCap.com. Head over to CoinMarketCap and search for ChainLink in the top right corner like shown below:
Once you’re on this page you want to head down to the “ChainLink Charts” section to start your research. Now hover your mouse pointer all the way to the left on the chart to see the date it started trading and for how much.
According the screenshot below it started trading on September 20th, 2017 for 0.156 USD.
Fast forward to February 25, 2018, and it’s currently trading at 0.670 USD, an increase of over 329%. That’s a huge increase!
That’s great if you bought at the beginning, but what’s happening to the price now? Let’s check the price at various timeframes to see if it is gaining or losing momentum.
We can always get the most up to date prices from CoinCheckUp Chainlink page, where it shows the price movement for the last hour, 1 day , 7 days, all the way up to 90 days.
2. What Partnerships Do They Have?
The first place to look for is the website of the token creator. In this specific case, we would go to SmartContract’s website. Let’s look for a section that talks about partnerships or if they mention who they are working with. I scrolled down on the page and found this section:
Two out of four seem to be partnerships:
- Swift – Global provider of secure financial messaging services used by over 11,000 banks
- Cornell -Initiative of faculty members at Cornell University
But let’s dig a little deeper and see if they have any more partnerships that they don’t list on their website.
Let’s use our friend Google and locate ChainLink’s subreddit (Reddit is a good source for information related to crypto for research purposes ONLY and not to be taken as financial advice!!). Let’s search for “chainlink reddit” and see if we can find something about partnerships.
We got lucky as this was the first result in Google. Once we click on it, the first post is also talking about partnerships… BINGO. Now let’s scroll down and find the specific section where they are talking about partnerships. In this case it’s, “Chainlink’s Partners/projects Using Chainlink.” Here we find 4 additional partnerships:
- Zeppelin_os – considers themselves the operating system for smart contract applications
- Town Crier – an oracle for the blockchain
- Factom – a blockchain as a service company, using blockchain for data management and security
- Brave New Coin – offers tools decision makers need to understand blockchain technology
That brings us to a total of 6 partnerships. But I noticed one really negative thing from this research.
SmartContract is doing a bad job of updating their website to show all 6 of their partnerships. It would be best to show them in one place and not force potential investors and adopters of this technology to go search for information that should be listed on the website.
That makes me wonder… how many of these partnerships are real?
To find out, you can cross-check the partner’s blogs and social media accounts to see if they’ve issued a press release or announcement about the partnership.
You can also plug Chainlink’s website into archive.org to see what the website looked like in the past (I used this tool in the past to check for spam on expired domains). By looking through the previous versions of the website, you can find out if any partners (or team members) have dropped out of the project.
3. What Exchanges Are They Listed On?
The more exchanges the coin/token is listed on the better especially if you’re an investor. From an investor’s point of view the more exchanges the token is listed on the bigger the impact it will have on the price of the cryptocurrency.
Being listed on multiple exchanges gives it more credibility and gives us a little bit more peace of mind.
It’s good to keep in mind that not all exchanges are created equal! Every single exchange has different criteria that tokens have to meet before being listed.
Imagine investing in a token and down the road, it gets listed on GDAX/Coinbase the price could potentially leave this galaxy since it’s almost impossible to get listed there.
So let’s return to our galaxy and focus on some realistic exchanges.
For example, exchanges like Binance, Poloniex, Bittrex, etc… if it is listed in at least 1-2 of these it’s a good sign. Obviously, if it’s listed on more, it would be much better but you get the point.
To find the exchanges that the crypto token is listed on let’s go back to CoinMarketCap.com and search for ChainLink. Once you’re on ChainLink’s page go to markets. This will show you all the exchanges it’s being traded on.
As you might notice, some exchanges come out 2-3 times. The reason for this is because exchanges are accepting either Ether (ETH), Bitcoin (BTC), or Fiat (USDT).
4. Addressable Market
One really important question that you should ask yourself is: “How big is the market that they are trying to improve?” Once you start your coin or ICO research you will come to realize there are a lot more crappy/failed coins than good ones.
Let’s head back to the SmartContract website. Head to the homepage and look at the images to get an idea of the industries they are targeting.
- Digital Payments
- Market Data
- Bank Payments
- Events Data
- APIs
Let’s use digital payments as an example. Since digital payments are so broad, I will select PayPal and try to get some data. I Googled “paypal statistics for 2017” and found Statista had all the Paypal statistics I needed.
In 2017 alone, the payment volume was 451.27 Billion USD an increase of 24.15% from 2016! That’s freaking HUGE!
The interesting part is this is only PayPal and doesn’t include Stripe, Square, and other digital payment platforms. We’re talking about over trillions of dollars if we include all the merchants that Chainlink is targeting.
5. What the Community Thinks
Obviously, we want to dig as much information as possible. This step requires A LOT of reading and research but it’s one of the most important ones, as you will learn the most about the cryptocurrency (besides reading the whitepaper of course). What you want to do for this step is start Googling. Let’s start with “chainlink ama” (AMA= ask me anything, typically a Q&A session hosted on Reddit by the creator of the product).
In ChainLink’s case, I was not able to find one. There was a request for one which got this reply 4 months ago:
Sergey must have never returned to his office after 4 months. It’s pretty obvious communication is not their forte.
Reading the reviews of the token is really helpful as well. Search for “chainlink review” and read through at least the first page or the top 5 results if you’re feeling lazy :).
Another useful technique is looking at reviews on YouTube to get some ideas of what others think but again, none of it should be taken as financial advice! By watching a couple of videos you will gain solid knowledge on your token of choice.
Hopefully, by now you know the basics of what to look for in a cryptocurrency you want to invest into. Doing your due diligence will lead you to find promising crypto companies and avoid frauds or scams.
Just remember, that the crypto space is highly volatile and driven by emotions. Certain people will say one thing to get the market to crash or rise. So do your due diligence before buying or selling any crypto!
Who knows, you might be able to find the next Bitcoin!
Recommended Sources for Crypto Knowledge
Podcast – Bad Crypto Podcast – Crypto, ICO News for seasoned and newbie investors.
Blog – cryptosis.io – Analysis, strategy, and picks.
Key Takeaways
These are the things you should know before investing in an ICO or any cryptocurrency.
- Is it trading in any exchanges? Which exchanges is it listed on? For how much?
- What kind of partnerships do they have? Are these the type of partnerships that will be game changers?
- What’s the addressable market? Are there any barriers to entry?
- What do others think of it? Scam or is it the next best thing since sliced bread?
What is your crypto research process? Let us know in the comments below!
If you found this helpful… remember sharing is caring!
*I’m not a financial expert please don’t take this as investment advice!
Brett says:
Good tips on how to do very high-level due diligence once you’ve found some ICOs. Surprised that this didn’t come w/ an obligatory, I’m not a financial expert and don’t take this as investment advice, even though it’s really speculation ;)
A little constructive criticism:
It’s a little on the thin side, quickly glossing over things w/ out much explanation. Why is it important to know how long it’s been trading and how much? Why is it a good sign that coins are listed on exchanges like Binance, Poloniex, Bittrex, etc…? Does that mean it’s not a good coin if it’s not on one of these? You are giving tips that could be construed as financial advice, whether that was the intention or not, so it’s important to not sail through things as if everyone has the same level of knowledge.
Also a mention of how volatile and downright shady the market can be (insane FUD / FOMO in the name of pump and dumps, next to zero regulation) would probably be warranted. Sending people blindly to YouTube (or Reddit, etc) for advice can be very dangerous. There are many disingenuous people out there hyping / shitting on coins only because it benefits them, often making things up. If it were 3 months ago, one could have easily come across any number of “paid actors” pumping something like BitConnect, which turned out to be a massive scam! Who knows how many active scam-coins there are, I’ve heard astounding estimates around that, upwards towards 75%. While I doubt it’s that high, it’s probably safe to say there a still MANY of them.
Lastly, one thing EVERYONE should keep an eye on while researching, regardless of where you live, is how Gov’t bodies are looking at coins, if the coins you are researching are really being transparent in their plans around this. Recently, the US Fed is starting to crack down and this is just the beginning, it’s only going to get worse. All it takes is some good or bad news, whether, true or not, to send the market swinging, happens every day, sometimes more than once. For example, news about S. Korea Gov’t banning exchanges a few months back sent the market into a dip. That “news” turned out to be false, but as we know, perception is reality in many cases, but that’s all it took to generate fear driven reactions.
It’s dicey out there, not for weak hands, but if you have the stomach for it, a lot of money can be made, at least for now. Don’t forget, this market never closes, so HODL on for dear life!
Leury Pichardo says:
Excellent advice! I went back and edited the post. I think things will be much clearer now.
One thing that I can’t believe I forgot was “I’m not a financial expert” statement. That should be engraved in my brain by now as all crypto podcast that I listen to mention it.
If you have any more constructive criticism, please let me know I highly appreciate your input! :D