A 3-Item Checklist for Your Crypto Investment Conviction
a quick mental guide of questions on choosing the right crypto for you.
Hello all! It’s been a while as I’ve been hyper-focused on research in the Bitcoin and crypto space, but I wanted to write something different as we are on the potential cusp of exiting this range-bound price action. There are thousands of emerging crypto assets and their ecosystems, and it is becoming increasingly difficult to choose certain assets over others. Here are 3 things I try to consider carefully to make sure I’m putting my hard earned fiat into eventual appreciating purchasing power! I will also state that this mental question guide is for long term investors, not traders. Working in crypto for the past 6 months has enabled me to learn a lot more about digital asset analysis, and I wanted to share a little into the plethora of questions that I have learned are most beneficial when making these important decisions.
Source: Chinnapong|Shutterstock
1. Investment Thesis. Solidify it. - Why am I investing in this project/protocol? Truly, deeply, why? The answer to this question should be like a database in your mind constantly adding new information. Here are some questions that I consider:
If I plan to continue to put an amount of my savings into this crypto investment/asset, what thorough logic and reason do I have for doing so?
Will that logic and reason be enough to weather through a 50-80% price drop, as seen previously in the much more volatile crypto markets?
Will I want to keep buying and hodling this asset because of my earned conviction when it seems unattractive to the market?
What is this project or crypto solving for and what competition do I need to consider? What is the realistic opportunity at hand?
How could my investment thesis fail? What real risks are there?
Is the money I’m putting into this investment going to destroy me if entirely lost?
Would the slightest potential upside be worth the worst-case scenario downside of my bet?
2. Fundamentals, Technicals, Tokenomics. Learn, learn, learn! - If you don’t know already, the crypto space is somewhat organic, and life-like because it is an ecosystem filled with decentralized technologies intertwined with constant human communication/action and ingenuity. The nascence of the financial ecosystem surrounding these advancements is also aiding in the fiat, venture capitalist mindset of investors and firms alike, adding to the price volatility and unpredictability of the space. However, we cannot ignore the insane rate of growth and adoption that is taking place. People are finding value in all kinds of different projects and protocols for their various theses and use cases, so it is important to be able to compare these different projects on fundamental and technical levels. Here are some things I look to ask myself:
What consensus mechanism does this protocol use? PoW? PoS? Something else?? What are the true pros and cons of each, and why is one superior over the other?
What real world, macroeconomic concerns do I need to be aware of, and how could any of these concerns affect my investment thesis?
Although technical/price analysis should not be taken as complete truth and more as a probabilities visual, what can I gauge from the current technicals of the asset I am analyzing? What does the asset look like from a BTC-denominated logarithmic scale?
Is there any “alpha” or opportunity that lies in the charts and how the market is realizing those charts currently?
Are there reliable tokenomics available to study on this asset? If not, why? Is data out there transparent for all to see/are there any on-chain analytics I can study?
What can I concur from the tokenomics of the project? Was there a pre-mine, ICO, private sale for early investors? Can this blockchain asset be manipulated economically and is that risk worth my investment?
Are there any regulatory concerns regarding this asset? Is it a security via the SEC’s Howey test? What risk does that bring to the table?
3. Narratives. Find signal, and filter through the noise! This might be the hardest part. As you can see, every question I have written above leads to a substantial amount of research. Fortunately, if you know where to look, the crypto ecosystem is filled with resources of intelligent and knowledgeable individuals that have asked similar questions and learned wisdom along the way. Unfortunately, however, this space is also filled with people who should not be trusted wholeheartedly with information. Some have emotional ties to their projects and are stuck in their ways or preconceived worldviews and don’t even realize it. This includes “crypto Youtubers” or influencers that sometimes even get paid to “shill”, or promote the projects that they’ve heavily invested in. This also includes some really smart people that have already made good money! Be careful. Look for the resources that speak wisdom and enhance your critical thinking skills as well! Here are some other questions I like to consider when filtering through market narratives:
Is this resources or piece of information trustworthy/credible and why? Do they have a history of being right?
What biases might this person or resource have while I’m studying their ideas and information? Alternatively, what knowledge might they have that is more valuable than my schema of the same topic?
Is this resource or individual I’m learning from a critical thinker?
If this narrative or piece of data I am learning of is true, how will that have an effect on my asset and investment thesis?
If I believe this narrative to be false, how is the market realizing that same information, and is there any opportunity to be seized because of it?
What is the severity or level of importance of this narrative/information I’m learning?
If this narrative is a contrarian view to the broader market, why is that the case and why should I continue to be intrigued to learn more?
I hope this shorter newsletter gives you some clarity as to how I go about thinking about investing in digital assets. If I were to create a tldr for this, it would simply be that investors need to research and have the desire to learn until critical thinking becomes second nature, especially in a crazy space like this. Question everything, and assume you know nothing! I’m continuing to learn myself that questioning ideas adequately and meticulously seeking answers is what ultimately leads to truth. And what do we know about the markets? They always eventually reward deep truth.
“Ask, and it will be given to you; seek, and you will find; knock, and it will be opened to you.” Matthew 7:7
Sources:
Stock Photo and Image Portfolio by Chinnapong | Shutterstock