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Long Term Value

Long Term Value

How do you determine the long term value of a cryptocurrency?

Does this so-called “long-term value” even exist? Or are cryptocurrencies rather a modern form of gambling?

With these questions in mind, we started to develop Coinformation. Relatively quickly it became clear that we are definitely still in the “Wild West” in terms of the state of development. The crypto market correlates strongly with the current economic and sentiment situation, and cryptocurrencies show price trends that are very similar to those of young technology companies. If the economy is doing well and the outlook for the future is positive, investors jump on it. The better the sentiment, the more risk-averse the investment behavior. And cryptocurrencies are among the riskiest and most volatile asset classes out there.

So does investing only make sense when the economy and future are positive?

Quite the opposite. The crypto market is in a special situation, comparable only to the dot-com era in the 2000s. Thanks to blockchain technology, many new opportunities are emerging on how to improve existing business models and processes in traditional markets. In addition, new markets are emerging that are based entirely on blockchain infrastructure. Like Internet technology today, Blockchain technology can significantly change our lives tomorrow. 99% of 2000s Internet startups have not survived to this day. But those that have survived - like Amazon or Google - have risen to become global corporations. At Coinformation, we use “long-term value” to search for that 1% hiding in the thousands of cryptocurrencies.

How do we find that one percent?

At Coinformation, we determine the long-term value of a cryptocurrency using a checklist. This checklist is divided into 6 dimensions, which in turn are weighted by an algorithm. We would now like to take a closer look at these 6 dimensions:

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The Team

At the latest since the Terra crash and the posse around the founder, CEO and “autocrat” Do Kwon, it has become clear how important KYC is for cryptocurrencies. Not only the previous curriculum vitae of the founder or the company management should be available and coherent. But also the existing or learned skills should fit to the performed job. In particular, Coinformation also looks at the extent to which the team has worked together in the past, whether there were or are conflicts and what external allegations there are that could not be cleared by the team.

The Network

Almost all cryptocurrencies are built on the basic idea of building an ecosystem or a vibrant community with their solution. The larger and stronger the ecosystem and the higher its growth rates, the more value the cryptocurrency used to run the ecosystem has. The project must be able to build such an ecosystem. It can do this only through a strong network. Projects that can attract publicly known individuals as advisors. Projects that enter into strategic partnerships with large companies. And projects that can secure funding from successful venture capital firms. These are the projects that can realize the great visions of the team

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The Solution

At the beginning of a solution is the vision. Our experts evaluate this vision with regard to the degree of target achievement and feasibility. Also important are which milestones have already been reached and what the future roadmap looks like. By classifying the phase the project is in, we can also evaluate whether the current valuation is justified or to what extent the solution still has growth potential. Furthermore, we assess the monetization opportunities of the solution. We estimate potential revenues and determine how long the project can work on the solution using the capital raised without raising new capital. Especially in recessions or bear markets, how quickly capital reserves are depleted can be critical. Even good solutions can fail because of this.

The Technology

A good team can only scale a good solution if it relies on the right technology and knows how to use it. This is especially true for blockchain-based projects. The blockchain infrastructure over which the solution or cryptocurrency runs must not only be fast, cheap and energy-efficient. It must also be able to handle larger amounts of data, as well as be consumer-friendly and secure. Security in particular should be a focus, as cryptocurrencies have major advantages - over traditional centralized solutions.

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The Tokenomics

Cryptocurrencies often take it upon themselves to offer decentralized solutions. They go so far as to create so-called DAOs (Decentralized Autonomous Organizations). Subsequently, these projects are further developed on the basis of democratic voting decisions of the cryptocurrency holders. However, while the basic idea seems noble, the reality is often quite different. In particular, the distribution of the coins or tokens proves this. Is a project that is 80-90% owned by the top 10 holders really still decentralized?

Tokenomics are something like the business model of cryptocurrencies. As usual with a business model, token economics should make sense. That is, the supply, mint and burn processes, as well as inflationary or deflationary behavior of cryptocurrency should be analyzed.

The Market

For every solution or cryptocurrency, there must also be a market, i.e. the solution must have use cases that have future potential. At the same time, we analyze the growth potential of these markets. We evaluate the position of cryptocurrency against direct competitors. Questions we answer include: Is the cryptocurrency market leader? Or does it have the potential to become the market leader? How unique is the cryptocurrency and in what aspects does it differentiate itself from the competition? In particular, we continuously monitor the markets and the positioning of the cryptocurrency in the market in order to identify and take advantage of trends at an early stage.

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Does Coinformation also provide insights into the individual dimensions?

If we identify particular potentials or risks along the scoring framework, we will also show these in the future. As a Coinformation customer, this not only gives you a simple overview, but also tells you exactly what aspects you should pay attention to or what opportunities and risks you should consider before buying the cryptocurrency.

What if the price of a cryptocurrency falls despite good “long-term value”?

First of all, there is no need to worry (although, of course, there are situations that are more fun). As Jeff Bezos, founder of Amazon, once said in the early days of his company, “The company is not the stock,” the reasons don't necessarily have to be that the investment is wrong or that the cryptocurrency's fundamentals are not good. In retrospect, falling or lower prices can also be an opportunity to get into cryptocurrency more cheaply. Even the most successful companies had to accept price declines of -70%, -80% or -90%, sometimes several times, and are worth many times more today. With Coinformation we offer security even in such situations. For this purpose, we observe the market and certain metrics with regard to their short-term development. We do not have a crystal ball, nor do we offer financial advice, but we do provide certainty as to whether the price movement is in line with the fundamental, long-term value potential or whether external factors are more likely to be responsible for it.

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© 2022 Coinformation

Disclaimer: Cryptocurrency investments carry considerable risk of loss. The value of your investments can go up as well as down. Please do your own research before investing in any cryptocurrency. This service is for informational purposes only and is not financial advice.

About Coinformation:

Coinformation provides information as well as fundamental data analysis of cryptocurrencies. We track prices, financials, on-chain metrics, social interest and many other metrics to identify long-term value and give short term signals in case these change.

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