Bruce Hunt

@brucehunt

Due Diligence Checklist for Investing in Cryptocurrency

The cryptocurrency (crypto) market is currently over-saturated with more than 1,300 cryptocurrencies according to Coinmarketcap:

It continues to be difficult to differentiate the winning coins from the losing coins since the rise of cryptocurrencies. My approach in picking cryptocurrency is similar to the process I explain in the video: “ “Due Diligence Checklist You Should Know Before Investing In ICO”. Almost every week, there are a handful of ICOs being released, and millions of dollars are being poured into ICOs.

Yes indeed… $Crypto

Since cryptocurrencies are not “securities” (an equity security represents ownership interest held by shareholders in an entity), many crypto hodlers are already at risk the second they purchase crypto. This means token hodlers does not have the right to say what happens in the project. Crypto does not represent ownership of the project, but rather, crypto is a token that is required in order to use the platform of which the project is building.

So if you have extra cash to invest, which crypto do you invest in? This is how I do it.

  1. Evaluate the team — you need a competent team to manage multi-million dollar funds, and to execute smart business decisions.
  • Experience and integrity — A simple google search would show you more about the founding members of the project by going to their profile on LinkedIn, Twitter, or other forms of social media. How they interact with the community should give you an idea of how they are as people. Their previous experiences and achievements are usually well documented in their social media accounts. Experience does matter, greatly IMO.
Leaders like Charlie Lee with his playful personality towards LTC/crypto community makes you want to put more money in LTC.
  • An army of developers — blockchain technology is still in the early stage of development, and the lack of blockchain developers makes hiring difficult for any cryptocurrency project. What makes a great crypto project is when the founder itself is the lead developer or part of the developing team, like Vitalik Buterin (founder/creator of Ethereum) and Charlie Lee (founder of Litecoin). This is where “size” matters. A team of 15+ members is better than 5 members.

2. Evaluate the project

  • Do you personally believe in the project? This comes down to personal choices and beliefs. There are many projects that aim to have a direct impact on our daily lives, from quantum physics to ending world-hunger. But not all projects aiming to solve problems require ICOs. Just think of it this way, if you believe in the project trying to solve a real-world problem, then donate your money to make it happen by participating or purchasing the crypto tokens, if not then don’t donate your money (by simply not investing).

3. Evaluate the funding and distribution of tokens

  • The amount of funding of ICOs have been receiving lately is ridiculous. The highest amount collected in ICO is Filecoin’s $257 million. The distribution of tokens that are trending right now are also not fair. If the project is not willing to distribute more than 50% of the circulating supply of tokens to the public, in my book, this is not a fair distribution. I don’t know how much it takes to create a blockchain project, but do you need $100 million to create an Ethereum? No. Ethereum collected around $18 million during its ICO and have not used all the funding they’ve received. Many projects have resulted to “air drops” after realizing the distribution of their tokens were not fair.
Photo by Wikipedia

4. Evaluate the sentiments around the project

  • Majority support is critical to the success of the project. The communities and investors are what make the project successful. Just like celebrity figures relies on their fans to support them, crypto projects need their community to support them.
  • What do most people say about the cryptocurrency you’re looking at? The crowd of wisdom is usually right.

5. Evaluate the community support

  • Is the crypto supported by reliable exchanges? Volume of trades transactions matters, liquidity matters, being able to trade crypto easily matters for mass adoption.
  • What’s the size of its community? You can tell by the number of followers on Twitter, activities on Reddit, and Medium blogs. Sometimes there are even Slacks or other forms of chat rooms you can find for more information. You can tell how active the community support is by simply looking at their social media activity.

This is not an ultimate guide to picking the right cryptocurrency, but this is a guide that has worked for me. I, like everyone else, have had great picks, and picks I regret, but I have learned from all my experiences. At the end of the day, it all comes down to finding what works for you. With crypto on the rise, it is becoming more difficult to choose which crypto to invests in. It may seem overwhelming, but if you cannot take the time to thoroughly research your investments, you’d be better off not investing at all.

More by Bruce Hunt

Topics of interest

More Related Stories