DEEP DIVE

How to decide whether a crypto project is a good investment?

Since I got into crypto in 2017, I have tried most of the ways of making money, from trading to liquidity mining to early stage investing.

I’ve managed to lose money in all of them.

But, with great losses come great learnings. I re-adjusted my strategies and managed to make some money as well.

One of the best ways to make money is by investing is good projects and then waiting for the market to do the work before cashing out at a healthy profit.

Buy low, hold for a period, sell high.

In the past 6 years I have evaluated more than 500 crypto projects and invested in well over 200.

Here’s my criteria for picking winners:

1. Project Use Case

2. Team

3. Protocol design

4. Tokenomics & Vesting

5. Marketing

6. Macro market

7. Supporting Narratives

Let me show you what to look for in each of them.

1 - Project use case

• The project itself needs to be a sound idea. It should be solving a problem in the market.

• e.g. Uniswap (UNI) - solves the need for on-chain swapping of tokens.

2 - Team

• Crypto is not a mature technology, but it’s getting there. As such, teams need to be quick on their feet, work with newly released technology and have some sound financial strategy to support themselves

• Teams should show technical competency and ability to raise capital and develop intellectual property

• e.g. Near Protocol (NEAR) - the team have been strong knowledge contributors to the crypto and the AI space. The co-founder invented the Transformer - the “T” in every GPT!

3 - Protocol Design

• How the machine works needs to be efficient, with emphasis on maximizing the User Experience (UX)

• Projects should reward their community of users, developers and contributors well

• Protocol is designed to accrue value to the token

• e.g. Common Wealth (WLTH) - has built a circular economy to allow value to stay within the ecosystem and reward stakers and holder of the tokens and NFTs

4 - Tokenomics & Vesting

• We need to understand how the actual supply of tokens is going to change over time. We do not want massive amounts of tokens coming on to the market.

• A slow a steady bleed of tokens is best here. Less vested tokens are also better.

• e.g. Bitcoin (BTC) - no vested tokens. There’s already 92.6% already mined/ in circulation. As the halving just happened, Bitcoin’s inflation rate is just 0.84%, about 75% LESS than current US inflation and 72% LESS than gold’s.

5 - Marketing

• If done well, good marketing is like throwing fuel on the fire.

• If done too well, we might have projects that create high expectations but fail to deliver.

• Teams should choose their channels and strategy wisely, and then execute ruthlessly when the time is right

• You want to see evidence of a team that knows what they’re doing.

• Crypto moves at a much faster pace than the rest of the world, and marketing can make or break a project’s success.

6 - Macro market

• You don’t want to be investing in a market that’s going down - the returns are understandably not as good.

• A market that’s consolidating or picking up, however, is the one you want to be in.

• To understand the entire crypto market, we only need to look at the king - Bitcoin.

• Right now, we are entering a bull market - a 12-18 month period of crazy growth, so it is indeed a great time to position yourself in the space.

7 - Supporting narratives

• Even within a bull-market, there are certain categories or narratives that take hold of the public’s attention.

• Where attention goes, money flows.

• Investing in the right narratives could mean the difference between getting a 2x vs a 20x return.

• E.g. In 2024, narratives such as RWA (Real World Assets), AI and Gaming are very strong, so it’s smarter to invest in tokens from these categories.

Well, that’s the list.

In a future post, I’ll use these criteria to analyze a project I think has strong growth potential this cycle.

Interested in learning about good projects that I think are worth investing in?

What are your thoughts on my criteria, is there something I haven’t considered here?

WORDS OF WISDOM