Alexander Borodich, a lecturer at the Department of Marketing of the Higher School of Economics and founder of universa, spoke about the fundamental principles for evaluating projects for classical investors.
Over the past year, according to CoinMarketCap, the total capitalization of the crypto market exceeded $600 billion, starting in early 2017 with a mark of $17 billion to an increase of more than 45 times. The number of funds raised through ICOs was about $6.3 billion by the end of the first quarter of 2018, of which $1.7 billion was invested in the private Telegram ICO.
These indicators would satisfy any skeptic and adversary of the hyped technology, although expert opinions in the industry to this day are extremely controversial. On the one hand, last month, well-known economist and financial analyst Nouriel Roubini predicted the impending capitulation of the crypto market, indicating its excessive dependence on the cost of Bitcoin and a large number of failed projects. On the other hand, managers of traditional assets continue to invest in the crypto market, paying attention to the fact that the rate of unsuccessful investments does not exceed that of the classical venture market.
So is it worth investing in blockchain startups and cryptocurrency in 2018?
Current Market Situation
During the seasonal decline, it is worth paying attention to the behavior of large investors and financial institutions, remembering the Russian folktale: "The wolf found a hole in the icy river, put his tail in, sat down and started muttering ‘Come, fish, big and small! No, better big! The more, the better!’” Replace the word "wolf" with "fund," "business angel," or "crypto enthusiast," and you will get a rational motivation for any investor. In other words, large players still believe that the catch in the crypto ocean is good. It is known that in the crypto market, such investors are called whales since they own a very large number of cryptocurrencies and hold the power to influence the entire market. For example, one of the main holders of Bitcoin bought an additional $400 million worth of the coin in early 2018, and has shown no intention of selling them. Anyone can verify that all the Bitcoins are still in the online wallet 3Cbq7aT1tY8kMxWLbitaG7yT6bPbKChq64.
Financial analyst Paul Vigna explains this behavior of whales by the fact that since the beginning of last year, Bitcoin lost only to the shares of two companies traded on classic exchanges in terms of profitability. The largest IT leaders, along with the whales, continue to experiment, invest, and implement blockchain. It is no coincidence that the head of engineering for Facebook, Evan Cheng, moved to the position of director of blockchain engineering.
What You Need to Know When Investing in Cryptos
There are supply and demand, as well as potential dividends with a large multiplier. How not to be mistaken when choosing a project for a novice investor?
Oh, how much was said and written, including on DeCenter, that first of all, you need to pay attention to the project team. This does not prevent fraudsters from raising money from credulous investors unless done correctly. It is necessary to conduct fact checking of founders and key developers, at least on their profiles on Facebook and LinkedIn and carefully study the legal documentation. We will rephrase a once popular ad: not all jurisdictions are equally useful.
If we focus on "due diligence" of blockchain projects and try to find a basic criterion for making an investment decision, then it is technical documentation. Therefore, it is highly desirable to involve not only professional analysts to evaluate the business plan but also programmers with good experience in cryptography even before the acquisition of tokens. Why is it so important? It is impossible to write a white paper without deep knowledge of the subject since the blockchain system mainly refers to cryptography and code. This is a powerful tool for making investment decisions. If the project has a decent technical roadmap, then it automatically takes the team to a new level in the eyes of the investor. Especially in the presence of a minimum viable product (MVP). When investing in projects based on blockchain, mathematical analysis can be the main method for evaluation.
Let us say you decided to invest in a project. In recent years, we have seen numerous hacker attacks on exchanges and private users, as a result of which investors were deprived of almost all of their digital assets, so no precautions are unnecessary when it comes to buying, selling, and storing your cryptocurrency portfolio. For example, in Switzerland, there is a special military bunker equipped with hand scanners and pulse sensors (removing the possibility of using amputated hands). Getting Bitcoins from such a cold storage takes about two days. This is probably the most reliable and exotic way of saving, which does not suit most investors.
For professionals in the crypto market, this is an obvious must-have mode of storage. I would recommend using a so-called cold wallet, which has an affordable price and is comparable in size to a flash drive, which allows you to manage personal keys and have secure access to your assets in the wallet at any time.
The Irrationality of Human Nature
In addition to rational reasons for investing in the crypto market, there is a huge reservoir of irrational incentives. For example, Tesla reported a record $675 million in losses earlier this year, but the company's shareholders did not remove Elon Musk from the position of chairman of the board of directors and CEO of Tesla.
Musk claims of global goals of saving humanity, and his vision really inspires. Any investor is first and foremost a person who wants not only to earn money, but also to take part in something new that can go beyond the usual, and turn over the entire established system.
By analogy, the idea of creating a blockchain that no one can control or change turned from abstraction into reality before our very eyes, promising to change the system of world finance forever. Cryptocurrencies take away the monopoly of central banks for the emission of "Fiat" and make a coup, similar to the transition from paper money to electronic payments. We already have a reality that previously seemed impossible, and no prohibitions can lead to the complete disappearance of the new technology and its derivatives.
In my opinion, the future is behind digital tokens with the functions of smart contracts, which are issued by the central bank of a particular country.
Such a token cannot be used for other purposes, but it is quite possible to adapt it to the type of a card with a biometric sensor that is customized for a specific individual. Smart money cannot be stolen and spent on something else, as it is known to whom and when the money was issued.
In other words, despite the bearish trend, the crypto market still has both rational and irrational reasons for investing in various technology startups and their tokens.