Most of the investment knowledge that I have are just from what I have learnt from my Investment Management Degree from Cass Business School and add some common sense to it. I base my cryptocurrency research on top-down approach. Bare in mind that I research cryptocurrency based on my long term investment strategy. Therefore I will be emphasizing on factors like liquidity, fundamentals and allocation. The following point can be subjective, cryptocurrency cannot be analyzed like a company by using DCF or FCF models yet. Hopefully, some day a mathematician will come up with a valuation model that everyone can use. I try to value cryptocurrency with my own model based on growth rate (Hashrate) and inflation rate, but it is not too accurate yet.
Top Down Approach
- Screen cryptocurrency that are liquid.
- Fundamental analysis to analyse the technology, history and most importantly the team.
- Technical analysis for market timing.
Step 1: Screening
Liquidity filter
- At least 50% of its circulating supply is being traded in each of the previous three months.
- 80% or more of its supply in the public hand
Step 2: Fundamental Analysis
Fundamental Analysis are mostly qualitative factors. The following factors are some points that I consider when i look at a cryptocurrency.
Technology
- Direction of the technology
Analyse their White Paper and understand what is the direction of the technology and their potential market size. How are they going to disrupt the target market. - Comparative Advantage
What is unique about that cryptocurrency compare to their competitor? For example, EOS vs Ethereum, whats different between them? What EOS is doing that is better than Ethereum? Infinite Scaling? 1.5s confirmation times? - How the coins are monetize?
Bitcoin can be spend on physical real goods, while some other coins can be spend on the service that the company provide. Some coin are just flowing around for speculation. Does the company care about the coin that they issue? - Growth of uses for the coin
Dash wants to be the digital cash. They are developing end-user application for their coins. What other coins are doing for their uses? End-user application? Coin Redemption? Coin buy back? For example, Tgtcoin is offering dividend to their token holder. These factor will determine the intrinsic value of the coin.
Team
1.Team Size and Position
A well structure management is a healthy indicator for the company. Cryptocurrency should be managed like a proper company with CFO, COO and other significant position.
- Background Check
Experience in the relevant sector. Any bad record? Transparency is the key in identifying their trust worthiness. This is the part I emphasis on when i am researching on the developer and team. Conduct a throughout due diligence on their team and history. - How active are they in public?
Civic Founder Vinny Lingham did a great job on being transparency and highly active in public by answering question and commenting. - GitHub development
Most cryptocurrency are open source on Github. Analyze their GitHub activity with GitHub insight to see how productive they are at developing what they promised.
History of the cryptocurrency
Although past performance is not a good indicator for future performance. But I would look at the history of the cryptocurrency to see how the cryptocurrency perform at certain time and how the team has reacted. For example, with Charlie Lee rejoining litecoin team, he has ensure the value of litecoin, even in the bear market in June to July.
Step 3: Technical Analysis
I do not rely on technical analysis solely on any investment decision as research has proven that technical analysis are not a good indicator for future performance, especially in day trading.
However, I use technical analysis to identify long term trend and help identify a good market timing to enter the market based on MACD and RSI.
An article on coindesk (https://www.coindesk.com/life-crypto-time)made a good point that cryptocurrency trading is like trading 12 times faster than real world. Meaning 1 month in crypto is equal to 1 year in real world. There could be a bear and bull trend within a month. Therefore, trend identifying is very important in this highly speculative market. Buy low and hold on.
Disclaimer: All information are for informational purpose only, not an investment advise. Please consult professional investment adviser for your investment decision.
Facebook — https://goo.gl/aQL15j
Twitter — https://twitter.com/leetinka
Linkedin — https://www.linkedin.com/in/leetinka/
Steemit — https://steemit.com/@brian741
I just read all your posts. Welcome to @steemit. I'm going to follow you for a while I'm quite new to @steemit myself. Looking forward to reading your next post.
Congratulations @brian741! You received a personal award!
You can view your badges on your Steem Board and compare to others on the Steem Ranking
Vote for @Steemitboard as a witness to get one more award and increased upvotes!