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The Takeaway: 3 Fundamental Factors to Assess Cryptocurrency Investments


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What Are They?

1 - Intrinsic Value: Though the term in this context is still evolving, for now, intrinsic value refers to the sum of services that a cryptocurrency and its underlying technology provides.

  • If a crypto is in use ( you can check Blocktivity) and actually solves a real-world problem, then you need to investigate the company's development capacity to outpace othercompeting crypto technologies to speculate on the viability of its continuing use.
  • Cryptos backed by large corporate partners may be a plus, but you have to figure out whether the corporate partner actually injected capital into it, has a contractual agreement with the crypto developer, and is actively involved in the cryptos development--in short, you need to get a sense of the quality, motivation, and goal of the corporate partnership.
  • Newer cryptos have already been exposed to the scalability problems experienced by older cryptos like Bitcoin and Ethereum; so find out what solution a given cryptocurrency is implementing to solve the scalability problem.

2 - Protocol Coin vs. Utility Token:

  • A protocol coin is there to support an entire blockchain ecosystem; for a protocol coin to be rendered obsolete, the entire ecosystem must collapse.
  • A utility coin is built atop an app within a blockchain ecosystem; for a utility coin to be rendered obsolete, all it takes is for nobody to use that app.
  • Both have a different set of risks and opportunities for wider usage--choose carefully.

3 The Motivations Driving Demand
  • Last but not least, you need to figure out of a cryptocurrency is solely used for trading or people might actually need to use it for reasons other than financial speculation.
  • Also, try to determine if a crypto, most likely a utility token, is targeting a particular industry, and do your best to assess the viability of its usage within that industry; ultimately, it all boils down to market demand and the nature of that demand, whether speculation or industry use.

THE TAKEAWAY: These three fundamental factors--intrinsic value, coin type, and the motivations driving demand--provide a basic framework to help you begin assessing a potential cryptocurrency investment (emphasis on "begin"). Although there are several other factors to consider, the ones mentioned above can serve as guideposts to help you direct your research.


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About the author


Karl Montevirgen is an independent content writer who specializes in finance and emerging (disruptive) industries. Having been involved in the commodities and FX markets for the last 9 years, Karl writes for several companies and publications in the finance, blockchain, cannabis, and content space. 

You can view his extended profile, list of publications, and theoretical content work on his LinkedIn page. 

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