The Parameters for Picking Winners, interesting guest post by Chris Bell
Disclaimer: Investment advice from blogs is taken 100% at your own risk. You must do you own research and due diligence into any investment methodology and its practicality.
Myths to Debunk:
- There are cryptocurrency oracles who can pick winners via crystal balls. People claiming to pick winners can do so because we are in the largest bear market of the decade (maybe century). With that being said, this article is simply to provide some structure and ideally reduce risk.
- All coins are created equal. This is totally untrue as I will outline in this article.
- Regulation will kill cryptocurrency. I will not say this is impossible, but rather it is highly impractical and improbable. The fact that cryptocurrency is decentralized provides a tremendous amount of resilience to censorship.
Despite popular belief, a cryptocurrency contains many of the same core characteristics needed to evaluate a commodity or asset. What we do at Bellblock LLC is to categorize our investments into 3 groups based upon 6 “gates” which are used to assign a score to a digital asset. These gates are not gospel, but they have provided directional guidance to our investments thus far.
The Six Gates:
- Development Stage
- Financial Backing
- Dividends Provided
- Strategic Partnerships
“What stage of the product lifecycle is the digital asset currently in?”
This is broken into 3 stages: Dreamer, Prototype, Product. The Dreamer stage means that the token’s product offering is something that has 0 technical software backing it besides the minted token. The utility of the token itself is nothing and the company is relying solely on its vision to generate revenue. The Prototype stage indicates that work on a functioning product is in progress and either a proof of concept or prototype is available to use and engage with. The Product phase means a functioning product is currently in the wild and code is regularly being pushed to Github.
This is the most overlooked gate as most investors have never had to care about this element in traditional markets. You can rely on company financials, documents, and announcements to provide you with this type of information. However, we are in a decentralized world where control is shared in multiple ways. The hunt for community is truly based on the token or coin you are interested in. Popular places to find community include Slack, Discord, Reddit, Medium, etc.
This is broken down into 3 levels: Robust, Growing, and Infancy. A Robust community is one that is both rich and active with communication from all parties (core dev team, miners, investors, etc). You will be able to nearly always find a point of contact who is open and willing to help you or simply answer questions. Core developers are not a mystery in a robust community and they push code and explain new happenings in the space. A Growing community is simply a smaller version of robust and it will be less easy to find answers and open communication. This is not to be confused with deliberate lack of communication which is a very bad sign (you’ll have to discern this on your own). A community in the Infancy level is so new or quiet that you’ll need to watch it more closely to evaluate engagement. A new community should show engagement progress daily or weekly while an established asset with no community should be regarded as riskier.
Development of any software solution or platform takes money. You may not know how the money is being spent, but it’s important to know that it resides somewhere. For some tokens, you can find this information from either their ICO information, public ledger data, or simply from their funding partners. This data is not easy to surmise unless it is publicly provided in some way, which is why each financial backing level is assigned a weight during our evaluation. You’ll also need to assess how much this funding lends to software development, marketing, etc.
Financial backing is divided into 3 grouping based upon financial support in years.
Long-term – 4-5 years
Mid-term – 2-3 years
Short-term – 0-1 years
Simply put, does the token pay you in some way or not? This is a binary operation and is weighted as such.
How many strategic partnerships does the token or coin have? Ethereum is an example of a currency with a high number of strategic partnerships thanks to the Ethereum Enterprise Alliance. The more partnerships the better as this indicates a vested interest in the success of the asset.
Does the token or coin provide utility in some way and how does that utility differentiate from that of other digital assets. You would be surprised how many coins are simply a wash, rinse, repeat of either Bitcoin or Ethereum. Still, there are many coins that provide immense value due to their utility and stand alone as a sole provider of that utility…. for now.
You could layer in all the math and trading dynamics you want to fill in the blanks for supply and demand, but I believe these 6 gates are outstanding leading indicators of whether a digital asset is worth your time in the first place.
Email: [email protected]
Chris Bell is a cryptocurrency and blockchain professional with expertise in
- Blockchain consultancy and strategic integration with core public protocols specifically Ethereum.
- Cryptocurrency mining: Linux and Windows mining implementations
- Proof of Work & Proof of Stake hash algorithm implementation
- ICO & ITO campaign management, marketing, and end-to-end execution
- Cryptocurrency education and diversification methodology
- Digital asset investment strategy and portfolio management