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Features of evaluating ICO projects

18.07.2019

While working with cryptocurrency, when choosing a project, you need to understand the main indicators for ICO. The basis for a correct and effective investment strategy is a preliminary assessment of cryptocurrencies and their projects. It is a big mistake to invest in digital currencies without preliminary analysis, just taking into account the popularity. This rule works for any area, including the crypto industry and ICO projects.
 

Analysis tools

Metrics are used for valuation and analysis in standard portfolio investments. These include the following tools:

    The value of earnings per share (EPS).
    Value / Income Ratios (P / E).
    The ratio of the value of the asset to the revenue of the corporation (P / S).

There are other tools, and the price for attracting one user, the final income, net profit and the number of customers can be considered universal. To evaluate a young firm that has been on the market for up to 2 years and has a tendency to revaluation, complex resources are used, including the method of discounted cash flows. 

Effective tools

When considering startups during initial development, many tools will not be suitable for analysis. Such firms simply do not have indicators that can be compared or measured. These rules are also used for new ICO projects, because it is difficult to perform a qualitative analysis for investors who need to determine the attractiveness.

The TAM tool can be used as an attempt to perform the assessment. With its help, the total number of target audience for which a product or service is being prepared is determined. As a result of using the metric, the value will fully correspond to the volume of generated tokens.

In the field of investors, Metcalfes Law is often remembered and used, which speaks of the economics of network effects. Its meaning is this: the value of the network is similar to the number of users squared. In other words, the more customers, the higher the cost of the network. Therefore, with an increase in the number of users, the price of the cryptocurrency increases and vice versa.
 

Bitcoin as a benchmark

Vitaly Belik, an employee of Soft-Meta, believes that for the correct operation of any tool and analysis, it will be necessary to exclude the factor of probable guessing. It is impossible to do this until certain knowledge has been accumulated to earn the trust of methods, and until a real and necessary practice has been formed.

Today in the circle of investors there is no understanding of real risks, no distribution of responsibility is used, but a pluralism of preferences is applied in the selection of metrics for analysis. As a result, there are problems caused by the operation of simple comparative estimation models.

Today there are services that make it possible to assess the possible development of a "bubble" for specific cryptocurrencies. For this, comparisons with Bitcoin are used. Two main factors are used for the assessment:

    Supply-adjusted price (SAP). The tool helps to determine the possible value of the X token if there were a similar issue of Bitcoin in circulation.
    Volume-adjusted price (VAP). The tool acts as a possible value of the token if the trading volumes were completely similar to Bitcoin.
    End ratio. The tool shows the ratio of 2 metrics SAP and VAP. The higher the value, the greater the revaluation of the cryptocurrency in relation to Bitcoin.

The approach has a logical approach, if there are no benchmarks on the crypto market in the form of the current financial flow, then you need to apply a certain standard and find the value based on similar tokens. In this case, Bitcoin will be a good analogue, since its market capitalization is 40-50%.

From a more global perspective, the Bitcoin price raises a number of questions. Today the cryptomarket still does not understand how to estimate or verify the value 100%.
 

Selection of criteria for evaluating ICO

The CoinMarketCap portal includes a table where more than 1000 cryptocurrencies of various types and natures are used, and several metrics are used for work. The list can be ranked by capitalization when it comes to the sum of all tokens, which are multiplied by the current value. This method helps to determine the popularity of a cryptocurrency, and the result indirectly shows the level of distribution in the market. Theoretically, you can talk about the reliability of a cryptocurrency, but only if it is evenly distributed among a large number of users. This will eliminate the likelihood of a collapse of quotations in the shortest possible time.

The second important feature is trading turnover. The instrument includes the sum of all tokens that change the holder per day or another settlement period. The value can indicate the interest of the participants in a particular cryptocurrency. With significant market movements, turnovers can grow rapidly, and in a sideways market the parameter will be low, since holders are not interested in making transactions.

There are other metrics that can be used to analyze the reliability of tokens. For example, the period of existence of a digital asset is determined. Cryptocurrencies, which have been on the market for many years, are considered more attractive and more reliable, people from different countries know about them, they have proven charts and a reputation. New tokens are characterized by wide potential opportunities, but the probability of losses is much higher.
 

Features of ICO selection

Before starting to invest in new projects, it is important to fully know the data about the goals, principles and team of the cryptocurrency. It is the last indicator that helps to determine who the authors are, what projects were used and previously created, how experienced the team is.

The second factor is the technology used in the project. Untrained investors may not understand all the specifics, so it is difficult to determine the reliability of the data. However, it is possible to easily track the implementation of the cryptocurrency roadmap and the project as a whole in order to determine the fulfillment of obligations.

For any cryptocurrency project that appears on the market, it is important to fulfill the monetization plans. If the development team was able to complete all the plans from the roadmap to generate income, then the project is considered good, as is its token. Often, within the framework of a new development, a whitepaper is created, which includes data on capital and its structure. This helps to see the owners of the main volumes of digital coins, their concentration in management and free circulation.