By Adam Tarlowski:

Whether you are new to the crypto space or a seasoned investor, everyone who wants in must eventually decide on at least one coin to buy. We detailed how the Wolf Team thinks about what coin could be successful and safe over the long term. The framework below is best suited for investors or traders looking at the market through a long-term fundamental lens. This should only be taken as a way of thinking about the market.

invest in what

Let’s Talk White Paper

First and arguably most important is the availability and integrity of a cryptocurrency’s white paper. It is imperative that the white paper at a basic level makes sense and is complete. This can be challenging for those not technically inclined. But at a minimum, we recommend you work to understand and comprehend the abstract and introduction. There are numerous sources that can break down a coin’s white paper into more understandable terms. This is similar to looking at a stock’s balance sheet and company financials.

It would be unwise to buy something without a basic comprehension of the primary source. With the white paper in mind, potential buyers should understand the intention of the white paper may not be the current direction of the coin. For example, Bitcoin’s original white paper describes Bitcoin to be, “A purely peer-to-peer version of electronic cash.” Today many are viewing Bitcoin as a store of value akin to gold. This isn’t a bad thing. In fact, it has been argued Bitcoin’s competing narratives boost its value thesis. All in all, there is no better starting place to start your search for value than the white paper.

What Problem is the Coin Solving?

Next, we look for the problem the coin is solving. If you can’t clearly recognize the problem your coin is solving, it is likely still searching for a problem to fix. There may be a good reason why you are struggling to explain the purpose of your preferred coin because the coin itself does not yet know what it does. Take Ethereum for example. In simplest terms, Ethereum is building decentralized applications and smart contracts.

These smart contracts have real-world use allowing contracts to execute on their own without human input. Ethereum, like Bitcoin, is many things to many people. But it still has a purpose that can easily be imagined in a day-to-day sense. As a bonus in this category, the simpler it is to comprehend what problem your coin solves, the more likely it is to succeed in the long term. 

Take a Look at Its Community

The next measurement we look for in a healthy coin is its community. This can be a tricky one to measure for those not embedded in the community or those who are biased from being within the community. But luckily, tools exist that analyze this for you. Our good friend Joe Vezzani built a tool called LunarCrush. It measures community sentiment and engagement which we find to be very useful. At a basic level, if your coin isn’t receiving attention from the major outlets like Cointelegraph or Coindesk or gaining traction on Twitter, YouTube, Reddit, and Github, it is likely dying.

A strong CEO and founder can be crucial to a coin’s success. We can look at Beniamin Mincu, the founder of Elrond Gold as a good example. He has come onto the Wolf Of All Streets Podcast and continuously stays active on Twitter addressing the community with updates on his team’s progress. Investors are always concerned with who is running a company when it comes to buying stock. The same applies to crypto. If your coin does not have an active, clear, leader that is still okay. It just means it may be more necessary to use the LunarCrush tool to better grasp the community strength and sentiment.

invest in what

Check out the Market Cap

When assessing a coin, one of the first metrics we look at is the size of its total market capitalization. This can easily be found on CoinMarketCap or by multiplying the current price by the circulating supply. A coin in the top 20 by total market cap likely has a lot more information on it and market resilience than a coin ranked No. 2000 on the list. There are many exceptions to this rule. But we believe that the higher up a coin is on the list, the safer it is. This also includes how long it has been at its current rank.

The most predictably profitable coins are likely going to be those that are ranked in the top 100 and move up to the top 10 overtime. Finding them is the difficult part. This leads directly to price history. There is no coin that has a more publicly available price history than Bitcoin. Because Bitcoin has grown through multiple cycles, we find it to be the most likely candidate to repeat the process. Coins that have just been created may be likely to join in on the bull run, but there is less certainty when there is less historical price data. That said, those have a better chance for insanely high gains – high risk, high reward.

Work With the Trends, Not Against Them

Finally, we like to work with the trends, not against them. This means finding the projects that are geared towards what is new and developing within the space. DeFi has been hot for a few months now. It more than likely still has a lot of room to grow in 2021. Since DeFi has only been around for a fraction of the time that crypto has been around, it is likely that the best investments are going to be within the DeFi sector. The major drawback to DeFi is its abstract and complicated nature. If you can get past this and grasp a basic understanding, it would be wise to diversify your portfolio with a small percentage of some popular DeFi coins.

Each of the above suggestions were ways in which we think about a coin we would like to invest in. We urge responsible investors to do the same. Each suggestion only scratches the surface. And there are other ways of exploring value in the market beyond what we discussed. All in all, be safe and smart – there are many exceptions to the above rules and misleading signs.

For example, successful community engagement and a high market cap do not automatically mean a coin is a sound investment. Think SushiSwap. Checking off two boxes but completely lacking others could spell disaster. Hopefully, these pointers give you a solid foundation for thinking about where you place your bets as the next bull run approaches. On our end, we will continue to dive into these topics in more detail to help you better understand them.