Getting the Market Right: Adam Sharp on How to Do Your Own Cryptocurrency Research
Steve McDonald: Our guest this week is the cryptocurrency king himself, Adam Sharp – the guy who’s been telling you forever to buy these things, and he’s still telling us that.
Adam Sharp: Thanks a lot, Steve.
SM: In this segment, we’d like to talk about the most important things you look at before recommending a cryptocurrency.
AS: It’s harder than it used to be to look at these cryptocurrencies because we used to have a very small handful of reputable cryptocurrencies – less than a dozen just a couple of years ago. And today, there are hundreds of really interesting projects out there that are worthy of attention.
So yeah, it’s more complicated to evaluate these things, but it’s also more fun. In general, I would say the most important thing is the technology underlying the coin or token.
And that sounds kind of broad and general, but to stand out in today’s cryptocurrency market, you really need something spectacular about your technology. You need more transactions per second. You need cheaper transactions.
So it ultimately comes down to the technology. And the coins with the most interesting and most innovative technology will attract the best developers.
Most of these coins have a community of developers that contribute. It’s a lot of different people from different backgrounds all over the world who believe in a coin, so they’re willing to dedicate some of their time to it. Also, they probably own some of the coin.
It’s really important to start off with a good technological foundation – and a unique one as well. Because most of these coins are what’s called “open source,” anybody can take the code, copy it and create their own cryptocurrency.
So you need something that’s both unique and attractive to a community. You need to attract developers like a magnet. You need to bring in talented programmers who can come in, improve your coin and continue to safeguard it. Security is another big thing.
Unless you have really talented developers who are reviewing the code and testing any changes, you’re going to run into security problems eventually. People are going to be able to attack the coin network itself.
This is one of the reasons why bitcoin has been around for so long – it’s very, very hard to attack. It has a large community of developers who are constantly working on improving it – improving the performance.
And the most important aspect of bitcoin is its security. Because it has the longest track record in crypto, it’s very important to developers that it’s not tarnished. If someone attacked the bitcoin network successfully and stole some coins or disrupted the network itself, it would blemish that track record.
So really, it’s all about the underlying technology. After that, there are other important factors, including marketing, know-how and community outreach.
The developers need to be aware enough and confident enough in their product to communicate updates effectively. They need to be able to reach out to the community.
SM: Okay, let me interrupt you for a second.
SM: Where do our Members go to get this information? How do the people watching this video get this information?
AS: You have to be able to look at information on social media and discussion forums. Reddit is one of the most popular areas to discuss cryptocurrencies.
You have to be able to get a sense for whether this person is talking about the coin positively for an ulterior motive or if they really believe in it.
I like to go on Twitter as well, and I follow a bunch of cryptocurrency developers, blockchain programmers and people who are actually working on the nuts and bolts of these systems. And I see what coins they’re interested in, which projects they’re following and what they’re getting involved with.
So you have to be able to sniff out illegitimate projects. I’ve looked at a lot of penny stocks. When I was much younger, I got burned on penny stocks. After a while, you get to the point where you can look at a project or a stock and tell whether it’s legit in just a few minutes.
And that learning process isn’t exactly fun, but once you have that knowledge, it’s really priceless. And you can tell which projects are “full of it” and which ones are full of potential.
SM: So don’t take it for granted. You don’t think the average guy should be out there trying to shop bitcoin or some of the other coins?
AS: I think they can as long as they do it right – as long as they’re willing to experiment with money that they can stand to lose – because these things are volatile.
If you’re going out there and picking your own coins, it’s going to be a learning process. You’re going to get burned a couple of times. It’s just like stocks or anything else. To properly learn this stuff, you have to take a chance. You have to put some real money on the line.
Hopefully, new people can go out and do this across many different projects. Maybe you put $50 or $100 in a bunch of different projects, see which ones work and then maybe invest more in those.
It does require tracking these developers over time. You want to get their newsletters. You want to follow them on Twitter. You want to go into their chatrooms – that’s a big thing these days. All of these cryptocurrencies have chatrooms, usually on Telegram – it’s the latest one that’s very popular.
So you have to get in the weeds and really get a feel for where a coin is going. Is the support for this coin organic? And you have to just have a sense for it – like I said – that you’ll develop over time.
If you invest in enough coins, if you follow them religiously and if you track them, you’ll start to get to the point where it’ll take you only five minutes to look at a cryptocurrency and get a feel for whether it’s a legitimate project.
SM: Interesting. So the technology, the people behind it and getting some experience under your belt. Is that a pretty good summary?
AS: Yeah, exactly.
SM: As always, Adam, thank you so much for taking the time to be with us. It’s always a great interview.
AS: Thanks a lot, Steve.
About Steve McDonald
Somewhat of a renaissance man, Steve worked as a professional broker and has been an active trader of bonds for more than two decades, specializing in ultra-short-maturity corporate bonds. But before entering the investment industry, Steve was a naval aviator, flying fixed-and rotary-winged aircrafts, and also served as a surface warfare officer. Steve’s regular video series featured on Wealthy Retirement called “Slap in the Face” Award is some the most amusing investment content we republish.