Editor's note: Today, we're concluding our special Digest holiday series from Crypto Capital editor Tama Churchouse.

So far this week, you've learned why much of what you've heard about bitcoin and cryptocurrencies is probably wrong... and why most crypto "investors" are likely to lose their shirts before this boom ends.

In today's essay, Tama shares the key criteria he uses to separate the best opportunities from among thousands of frauds, scams, and "also rans"...

How to Find the Best Opportunities in Cryptocurrencies Today

By Tama Churchouse, editor, Crypto Capital

The cryptocurrency markets aren't like stock markets...

Equity markets are regulated. Not only is the buying and selling of securities highly controlled, but companies are required by law to share information with investors and potential investors.

Auditors examine the books. Stock market regulators require strict criteria be adhered to in order to access public markets... like annual reports, quarterly earnings reports, and other updates.

Companies have shareholder meetings, boards, meeting minutes, and a relatively high degree of transparency.

There are tens of thousands of high-paid equity analysts and institutional investors covering stocks and quizzing company management.

The media constantly probe and ask questions.

Practically NONE of this exists in the cryptocurrency space.

Not only is the general mainstream media coverage of "cryptos" very poor – I have seen articles from the Wall Street Journal, for example, with basic factual inaccuracies – but the crypto media space is also generally not great.

People who write about cryptos often have their own agendas. They may own tokens in a competitor they are writing an article about, and hence be extremely negative. Or, more likely, extremely positive.

There are a huge number of trolls, spammers, pumpers and dumpers, liars, and cheats.

Trust and integrity are hard to come by. That's not to say there aren't excellent thought leaders in crypto. But you have to work hard to find out who they are.

So when you start reading about cryptos in the media, take everything you read with a liberal pinch of salt. And make sure you do your own research.

When we're looking at potential crypto assets to recommend, here are a few key attributes we look for...

The first is problem-solving...

Does this technology leverage blockchain technology to solve a problem (preferably a difficult one) that cannot be solved without blockchain?

We are very skeptical of companies that are simply looking to take an existing business and put it on the blockchain, just to tap into the hype surrounding cryptos.

Next, the addressable market should be global...

At this early stage in the development of the blockchain ecosystem, we want maximum bang for our buck. We want to be buying tokens that can be multibillion-dollar currencies, platforms, or enterprises. To achieve that, we want the potential for everyone on Earth to benefit from whatever crypto asset is being built.

We also take into consideration launch-horizon proximity...

The way a lot of initial coin offerings (ICOs) work is this: The company produces a white paper that outlines the technology it plans to build, and then funds it by issuing some tokens in return for capital (in the form of bitcoin and/or other cryptos).

The key phrase here is "plan to build." There's an ocean of difference between putting an idea down on a white paper and building and executing a successful launch. This is one of the main reasons I very rarely advocate participating in ICOs.

We also focus on the team...

We want to see a team comprised of developers who have a track record of building and (preferably) deploying blockchain technology.

Note here, they don't necessarily need to have been successful in prior ventures. Bill Gates' first company disintegrated before he built Microsoft (MSFT). Steve Jobs was kicked out of his own company, Apple (AAPL). Milton Hershey founded two failed candy companies before what is now the multibillion-dollar Hershey Company (HSY).

Again, because the crypto world is so new, there's a lot of subjectivity here. A CEO doesn't need to be a computer scientist, but he needs to have a very strong understanding of how blockchain will address the points above.

And we note the community...

You have to ask, "Does this project have a large community of followers and early adopters who will actually use whatever is being built?" A crypto asset is no good if nobody is using it and the token isn't widely distributed.

Blockchain protocols like Ethereum are valuable because a huge number of users are behind it. If nobody is building on it or using the application, it doesn't have much value.

Last but not least, we consider the token economics...

Crypto tokens have varying characteristics, but scarcity is an important one. Would you buy into a token that had 1 billion tokens currently "issued" if you knew that in three months another 2 billion would be issued? Probably not.

All cryptos have completely different token economics underpinning them. Bitcoin, for example, has around 16.5 million in circulation at the moment. New bitcoins are mined every day, but the total supply will only ever be about 21 million. Other tokens are created in a single launch with a permanent fixed supply. And some specify an annual "inflation" to be distributed every year according to a predefined mechanism. Token supply has infinite permutations, so you need to analyze them accordingly.

These are just a few high-level things we look for before we make recommendations.

As I said earlier, trust and integrity are hard to come by in the crypto world...

That's why I also rely heavily on my own network of trusted experts that I've built up over the past couple of years... These are people who have been active in the space for a long time, and who know what's really happening on the inside. These guys know who builds good tech and who doesn't, who can execute and who can't, which exchanges are looking at what cryptos to potentially list (which can drive a flood of capital into a crypto when it happens and vice versa).

I am an investor in, and sit on the board of directors of, a blockchain company that has generated well over $500 million since its token distribution began about six months ago.

That's how I got started in cryptos. It's afforded me a front-row seat to the inner workings of the industry and access to some of the most powerful players in the space.

This network is a hugely powerful tool, and stacked with people far smarter than I am when it comes to the nuts and bolts of computer science – folks who I reach out to when we're assessing a potential investment.

The top of the crypto ecosystem is very small. Everyone knows each other. And this network provides the key behind-the-scenes intelligence that you don't get on any forums or chat groups, let alone from the media.

Have you ever heard of the 'J-Curve'?

The J-Curve is a graph employed across a range of fields, from economics and private equity to political science, as a means of correlating the level of a country's stability and openness.

It can also be applied to the crypto-asset investment process as a means of identifying potentially undervalued cryptos that have the potential to deliver huge gains.

Let me walk you through it using our graphic below, which is broken down into three stages...

Stage one is the ICO...

Cryptos come to market with the goal of raising money quickly, and usually with as much fanfare as possible.

There's a lot of hype at this stage of the process. Maybe some celebrities get involved. Short-term speculators pile in to buy tokens on launch.

But the tokens at this stage usually don't have any utility. Usually, these tokens are launched on the ethereum blockchain. But the underlying value proposition or product that the company is raising money for hasn't been built yet.

So we often see a short-term spike in speculative activity, followed by a correction.

Stage two is the doldrums...

The doldrums is a colloquial maritime expression, describing parts of the Atlantic and Pacific Oceans affected by low pressure around the equator.

While these areas can host squalls and thunderstorms, there are often long, calm periods where there is no wind whatsoever for weeks on end.

That's often what happens in stage two.

The initial ICO and post-ICO hype and media coverage have subsided. The speculators have come and gone. The developers are hard at work. And the project has several months, or even a year, before it goes live.

The price reflects the lack of interest from speculators. There's not much "buzz" yet. That will come later, if and when a viable product is launched. But for now, all is quiet.

As an investor, this is an ideal time to strike.

Finally comes the launch...

With time, the project will get closer to hitting key milestones and the launch of its crypto, be it a currency, a protocol, or an enterprise.

As we start to approach that territory, we see interest in the project build again, and the price reflects that.

There's a world of difference between buying a token for a project that goes live in a week versus six months.

I hope it's clear where we want to be buying: stage two, when a project is under the radar. It's "unloved" by the speculators. It's not appearing on the news and blogs because there's not much to report other than that the team is building.

This is when, as analysts, we stay very close to the project. We're looking for regular development updates. We're making sure that the team is hitting its milestones. Are they ahead or behind schedule? Are they building the team or are developers leaving?

These J-Curve trades provide us with the best possibility for finding huge returns...

From time to time, we will be presented with fantastic opportunities to get in quickly on particular crypto assets.

These trades are usually event-driven: for example, when something has happened to spook the market, bringing about a large correction and creating a great buying opportunity.

A good recent example of this was China's ICO ban in August and September. Bitcoin fell by up to 40% in the days and weeks after the announcement, from a little less than $5,000 to $3,000.

As someone who is based in Asia and covers the China crypto market, I knew this was a tremendous overreaction.

So did others in my network. One of the most knowledgeable bitcoin insiders (only a handful of people in the world know more about bitcoin than this gentleman) shared with me in real time that he saw major buyers coming in at the $3,000 level.

It bottomed exactly there, and hit a new high above $5,000 less than one month later.

Other opportunistic trades will be because of potential upside catalysts to a particular crypto asset: like a major partner announcement, or a major exchange listing a token (which typically drives a lot more volume into a particular token post-listing).

Regards,

Tama Churchouse

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