Tip #1: Understand the problem
Every business (blockchain or not) is either trying to solve a problem or make a part of your life easier by providing an enhanced offering. The details of these problems are generally covered in what is known as a white paper.
The issue is, white papers can get very complicated, very quickly, particularly when they resemble a highly technical thesis of a concept product that is barely imaginable to the average human being.
If you feel you have some good technical knowledge but still can’t decipher what the prospective token is going to do, consider this a red flag (at least for yourself). Ask others to help explain the concept, the issues and the advantages of the offering.
Understanding the problem they are trying to solve is the first rule of analysis.
Without it, how can you be expected to understand the viability of the solution and make an informed decision about investment?
Tip #2. Compare the solution
Once you understand the problem, the solution should (in most instances) be the product they are creating.
Not all solutions are created equal.
Some solutions are created to compete, some are created to innovate and some, quite simply, are solutions that just don’t make sense no matter which way you look at them.
Put the proposed ‘solution’ into one of the above categories and start your research on the competition. Look at how the solution compares to others if they are building it for less, targeting a different market or anything unique.
Before you say ‘they have no competitors,’ look outside of the blockchain ecosystem. Not all innovation needs to be built from blockchain, and whether they like it or not, legacy non-blockchain systems are still competitors.
Tip #3. Avoid the ‘hype’ metric
The dictionary defines hype as “a deception carried out for the sake of publicity”.
You will note that there are several ICO websites that analyze the amount of ‘hype’ associated with a particular token offering and will base their recommendations on the amount of ‘followers’ or ‘backlinks’ connected to the ICO in question.
Hype is not a metric. ‘Hype’ in most instances is an artificial representation of the conviction of the general market. It is a fake and enforced notion that has in most instances been paid for or artificially generated to create FOMO (fear of missing out) and herd mentality in the market.
There are traders that primarily rely on the hype metric to ‘flip’ ICOs in the short term for capital gain. This can work at times, however, it is not a true representation of fundamental investment, nor will it continue to be a viable strategy for a maturing marketplace that has already had a large number of over-capitalized token offerings that do not deliver.
Tip #4. Block out the ‘presale’ and ‘private sale’ FOMO
Token sales are getting smarter by the day in artificially creating a level of FOMO by reporting on the success of significantly oversubscribed ‘presales’ and ‘private sales.’
In many instances, successful funding of these stages is legitimate, but don’t let it affect your analysis of the overall company.
It is possible to create complex structuring of ‘early money’ to drive demand for later stages of the sale. We have recently heard of several token sales offering bonus tiers of +150% for such contributions.
Ensure you don’t get caught up in the early contribution FOMO.
Tip #5. Would you use it?
Part of analysis is asking yourself a simple question.
Would I use the product/service the token is offering?
If your answer is no, ask someone else the same question. Better yet, ask ten people the same question and gauge the response. Don’t say anything about the company, the amount raised, the advisors, etc. Keep it simple and collect some raw data from a sample market yourself.
While this method shouldn’t necessarily determine the full outcome of the analysis, what it will do is highlight some of the problems the company may face, existing competition and barriers to market adoption.
This post was written by the team at Astronaut, a new token focused on asset management of ICOs, altcoins and cryptocurrency.
Alternatively, if it’s all too much, join Astronaut to put your ICO investing on autopilot. http://www.astronaut.capital