Let’s Learn How to Find Undervalued Coins using an amazing fundamental research tool called token terminal.
Many times people judge crypto if it’s undervalued or overvalued by seeing the price or hype. Even if the crypto is at its all-time high, we have seen the news and pages talking about how undervalued the coin is and the FOMO it creates. For a proper investment, we have to see several points which include, revenue, TVL, etc. There are in excess of twenty-one thousand cryptocurrencies listed on CoinMarketCap, so there is plenty of food for thought regarding investment.
How to actually find an undervalued cryptocurrency?
Cryptocurrency prices are largely based on new innovative technologies and a whole lot of hype. Because of this reason, it becomes difficult to search the world of micro-cap coins, especially with issues such as scams and failed coins abounding. We can identify undervalued cryptocurrencies, and it’s really not so different from the way stocks are evaluated by everyday value investors.
Let’s discuss the traditional methods investors use to search for undervalued gems. Also, later in this blog, we will explore a new tool that eases the process of the traditional approach.
- Finding about the creators and developers that are building the technology which the coin represents.
- Find out which markets sell the coin. There are many that deal with the trading of digital assets. In the early days of many digital currencies, a buyer might only be able to make a purchase at a single web exchange (Coinbase, Bittrex, Poloniex, Binance, Mainnet, etc.). As coins become more popular, they become available through more exchanges, which increases trading volume and price. If you buy an undervalued coin before it becomes available in multiple cryptocurrency exchanges, there is great potential upside. Also, pay attention to coins bought and sold primarily in the East or West. Cryptocurrency mania can quickly cross oceans, adding millions of new potential buyers. Of course, there are also many decentralized exchanges to add to the mix.
- Find out if other companies and entities are using or partnering with the coin/technology you are interested in. Microsoft’s involvement with Ethereum is a good sign, for example. Real-world uptake is essential and will greatly increase the value of a new coin.
- Carefully look at the price of the coin and the movement it’s made in the past weeks and months. Did it respond to a hype cycle, then come crashing down (pump and dump)? This will help you more accurately anticipate future price movement.
- Coins worth investing in will make available a Roadmap for any ICO that explains future plans for blockchain projects, release dates, and other events of note. It’s also a good idea to take the time to read the whitepaper for any ICO.
As promised, let’s now discuss the new tool which has all the data metrics we should look at before investing.
It’s a platform where from blockchains to decentralized applications, you can gather any data to make an investment move. It also offers the tools to evaluate and track the most promising crypto projects and provides traditional, financial, and business metrics on crypto assets.
When fees are taken directly by the protocol and its token owners. The token terminal allows us to watch and navigate the revenue of the biggest names in the crypto market which we can sort on the basis of days and months. From Dapps to Blockchains, you can easily monitor and make an investment move by exploring more metrics and analyzing some key points mentioned above.
Treasury is a very important metric to look at before investing in any project. In simple words, treasury is a community-controlled and decentralized collaborative decision-making mechanism for sustainable funding of the underlying blockchain development and maintenance. If the treasury is big, it means that the project has sufficient money in case something goes wrong or it needs some more development, etc. Token terminal is a very handy tool that covers all the dapps and tells the exact treasury amount it has. Below, Uniswap is winning the treasury game with +25.9% dominance at the time of my writing.
Market Cap/ TVL ratio
The market cap to TVL ratio is calculated by dividing the market cap of crypto by its total value locked (TVL). While many beginner crypto investors get dazzled by a high market cap, it’s this ratio that really shows whether it has good investment potential.
- When a protocol or network’s market cap to TVL ratio is above 1.0, this means it is overvalued. There may be a price correction i.e. depreciation on the horizon.
- When a protocol or network’s market cap to TVL ratio is below 1.0, this means it is undervalued. The price might appreciate going forward.
Data-driven approaches are dominating narratives across industries and emphasis on more precise metrics, crowdsourced resources, and AI-powered analytical tools seems to be the inevitable direction of how future investment will look. In crypto, tools like Dune, token terminal, etc, really make things easy for normal investors. Investing with the help of data and proper research not only helps in saving time but also reduces the risk of losses.
It helps to compare blockchains and decentralized applications on their price to fees (P/F) ratio. The price-to-cash flow (P/CF) ratio is a multiple that compares a company’s market value to its operating revenue or its coin price per unit.
In terms of applying P/S on cryptocurrencies, it is an ideal valuation method for early-stage protocols, which have little or no net income as well as being highly useful for relative analysis. For example, a higher ratio indicates that the network is generating lower revenue relative to the historical market capitalization, and thus may be overvalued.
The P/S ratio is calculated by dividing a project’s fully-diluted market cap by its annualized revenues. In this context, revenue is the total amount of fees paid by the blockchain’s or Dapp’s users.
P/S = Market Capitalisation / Total Revenue
With the influx of institutional and retail investors, market participants are constantly trying to gain an edge using a variety of tools – ranging from charting tools to technical analysis and news aggregators. In the midst of these conventional tools, we believe that using traditional metrics in digital assets such as the P/S ratio, and P/F ratio holds merit in providing a historical perspective of the token as well as an ideal valuation tool.
So, this was all about today’s topic where we discussed how to invest in crypto and find undervalued coins and also tips to keep in mind while investing in the crypto market. To know more about crypto investing, you can join some classes related to crypto. You can even consult any crypto experts before involving in any investments.
You can also check out our video guide on this topic.
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