We have developed a comprehensive method for evaluating cryptocurrency opportunities.
Here are six rules that we follow at Crypto.IQ. These rules are based on Charlie’s years of experience in the crypto markets and require inside knowledge of the world of crypto assets.
Crypto Investing Rule #1: Does It Solve a Real Problem?
Cryptocurrencies exist because they solve problems that existing fiat currencies, such as dollars and euros, do not.
For example, Bitcoin solves the problem of being able to transfer money between individuals quickly and easily outside the control of banks.
At the same time, Bitcoin has a few built-in structural problems due to the way it was designed. Because of the way Bitcoin verifies each transaction with all of the computers in its network, it can take a few minutes to process a Bitcoin transaction.
As a result, new coins have appeared – Litecoin, for example – that have solved the problem of slow processing time.
So, when evaluating a new crypto I always want to know:
- What specific problem is the cryptocurrency trying to solve?
- What is the case for it being adopted?
- How big is the problem that the solution is trying to address?
- Have others tried to solve the problem before?
And that brings me to our second rule.
Crypto Investing Rule #2: Top Management Team
We take a very hard look at the management team behind any new currency.
They have to know really what they’re doing. This is where my seven years in the industry and thousands of personal contacts really come in handy.
I have to know that the management behind a currency truly believes in what they’re doing – and that they have created built-in incentives to accelerate growth and value.
We’ve seen a lot of abuse in this regard, so this is critical.
It’s no good if all the benefits accrue to management and none to the token holders.
Nothing is more important than vetting and making sure it’s a “real deal” team behind the token. Because the industry is so new, and the regulatory and technological framework so fluid, in crypto more than any other sector it’s critical to bet on the jockey rather than the horse.
The good news is nobody knows more about the players in the industry than me, Charlie and our team of analysts. It’s why we advised our clients to invest in STEEM earlier in the year.
While the idea of a decentralized, censorship resistant social media app has legs (Hello 2017!), the most attractive aspect was knowing that my good friend Ned Scott— who was at my wedding— was running the show. He was also backed by a full team of top-notch advisers I personally knew.
We advised clients to accumulate in early March 2017 in the $0.15 range. By that summer STEEM had spiked eventually hitting $2.52.
A 2000+% move in 3 months!
And then there’s…
Crypto Investing Rule #3: Distribution Mechanics
My team and I take a hard look at the float, that is, the number of coins being issued both now and in the future.
We also look at the distribution mechanics: how is the coin distributed? Is it done fairly? Are the developers hoarding the coins for themselves or are they “seeding the ecosystem” in a way that makes owning the coin critical for utilizing its benefits?
These factors are crucial…yet very few investors think about them.
As I mentioned earlier, one of the reasons why Bitcoin could (and should) rise in value to $100,000, even $500,000 per coin at the minimum is because there is a built-in limit to the number of Bitcoins that can be issued. Only 21 million Bitcoins will ever exist.
Not all cryptocurrencies have limits. However, we always evaluate how the number of coins will impact price appreciation.
Here’s where our team of former hedge fund analysts kick the tires and make sure the mechanics of the company/token give it the maximum chance of success.
You can have a great team and a great product, but if the company sold 2 billion tokens and the float is unlimited, the tokens chance of appreciating is not good. So, we ask, “What are the terms of the token?” “What are the legal implications?”
It’s the old late 90’s tech IPO playbook: good management, good product, good marketing and scarcity or tight supply is like rocket fuel.
Crypto Investing Rule #4: Increasing Demand
Fourth, we take a hard look at the growth in the demand for a specific coin.
It doesn’t matter if a cryptocurrency solves a current problem or looks good on paper if it’s not being used in increasing amounts.
I look to make sure that demand for a currency is rapidly accelerating.
For example, the daily volume for Zcash has increased from around $762K in January 2017 to $77 million today – an increase of 10,004% increase.
This is clear evidence that demand for Zcash is skyrocketing.
It comes down to hardcore analysis of the token’s network effects and whether the incentives align to simultaneously accelerate growth and the token’s value.
But it needs to make sense all-around. Even if the company has a real business model and product, it’s not going to work and produce long-term gains if all the benefits accrue only to management and not to the token holders. Again, we’ve seen a lot of abuse on this front, so this is absolutely critical.
You’d hate to see an iPhone type success from a company and down the line, you as a token holder, realize you only participate in Apple TV.
Crypto Investing Rule #5: Potential for Institutional Use This is crucial.
As we saw, the big money in cryptocurrencies is going to be made when the big institutional investors, such as Fidelity and the big pension funds, begin buying cryptocurrencies to hedge their positions.
So, another factor I look at when evaluating a cryptocurrency is whether a specific currency can handle the volume such investments will require. Not all coins are scalable in this way. Some are designed to be small and to stay small. Others could easily see billions of dollars flow into them, driving the prices through the roof.
We want the latter. Every time.
Crypto Investing Rule #6: Solid Metrics
Sixth, my team and I always dig deep into the metrics of the currency. We subject every cryptocurrency to our 100-point analytical checklist.
We take a hard look at the market cap, circulating and max supply, demand acceleration, and other proprietary ratios and indicators that I’ve spent 7 years in the crypto sector perfecting—and which I use in tandem with the analytical tools of the financial wizards on my team.
This lets us know precisely how much a crypto currency is potentially worth, its future transactional value, and what its price is likely to be in 60, 90 and 120 days.
Using the metrics is how we were able to get our private clients to invest in some of the biggest winners of the past two years including:
- Monero... which has turned every $500 into $244,9071 over the past 24 months.
- Dash... which has turned every $1,000 into $290,8882 in the same period, and
- Ethereum... which has grown a $5,000 flyer into a staggering $2.7 million...
Written by The Crypto.IQ Team
Charlie Shrem is a Bitcoin pioneer. A social economist. A digital currency trader who has made millions. His work in this field is legendary. In 2011, at the dawn of the crypto era, he founded BitInstant, the first and largest Bitcoin company.
In 2013, he founded the Bitcoin Foundation and serve as its Vice Chairman. Since then, Charlie has advised more than a dozen digital currency companies, launched and managed numerous partnerships between crypto and non-crypto companies, and is the go-to guy for some of the world’s wealthiest entrepreneurs. In short, he is the ultimate insider at the epicenter of the crypto universe. Charlie holds a BS in Finance and Economics from City University of New York and studied at Florence University of the Arts.
Charlie Shrem isn't the only legendary trader on the CryptoIQ team. Randall Oser founded TRK Group in 1999 leading the company as its Head Trader until its sale to E*Trade in 2003. He grew TRK to 150 employees while deploying over $100 Million in trading capital. He trained dozens of Wall Street traders on not only how to make millions of dollars but more importantly how to preserve their newfound wealth.
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