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With cryptocurrencies having proven capable of delivering massive gains, it's no wonder more investors are looking into this asset class.
The trouble is, if you're just starting out - or even if you've been studying cryptocurrencies for a while - figuring out which ones to buy and which to avoid can be daunting.
Unlike stocks, there are no disclosure rules governing cryptocurrencies, and while some metrics are available, they're not always reliable.
What investors need is a way to filter out the bad projects while identifying the best cryptocurrencies to invest in.
The Alternative Wealth Network's own Nick Black has developed a framework that does just that. As a crypto trader since 2014, Nick quickly realized he needed a set of guidelines that would help him maximize profits and minimize losses.
And that's when the "Five T's" concept was born...
I recently had the chance to talk to Nick about the Five Ts, and he was willing to share his ideas with you. What follows is a transcript of the interview.
So You Want to Invest in Crypto...
DZ: Okay, Nick, I know you often talk about the "Five Ts" in your video streams. How did you come up with it?
NB: Well, I looked at what some other very successful people were doing, and I started considering things like: "What is currency?" and "What's the difference between price and value?" So I came up with a more formalized approach to evaluating digital assets. It's a framework, a starting point.
DZ: You call it the "Five T's." What are they?
NB: Basically, the Five T's are Team, Technology, Tokenomics, Timing, and The Problem, which I also refer to as "Why Token?" Looking at these five aspects of a project is a very simple way to analyze any asset to see if it's worth owning.
DZ: Alright, let's start with Team.
NB: When I look at the team, I want to know who's building this thing. Who is involved? Have they built other things? Do they have good DNA? Let's look at two companies real quick: Ripple. Who do you have? Chris Larson. Brad Garlinghouse. Both of them quasi crooks. Then you have David Schwartz, former NSA cryptographer. He's awesome. The problem is, one awesome guy and two complete criminals. To me, that doesn't pass the smell test. So I don't trust that team. Now look at LINK. Sergey [Nazarov, a co-founder and CEO of Chainlink]. Cool guy. Until you look at their behavior. The developers sell the tokens as fast as they get them. Does that sound like somebody that believes in their project? "I believe in this so much that I'm selling everything as fast as I get it through lockups - as fast as the law will allow." That makes me incredibly uncomfortable. If they don't believe in it, and they're the ones building it, why on earth should I believe in it? So LINK doesn't pass the Team test.
DZ: I've also heard you talk about big investors, like venture capitalists, as a part of the Team component.
NB: Yes, exactly. If I look at a project and I see Coinbase Ventures, Andreessen Horowitz - names like that - I'm like, hmm, interesting, right? Polychain Capital - you just go down the list. There are certain groups that seem to invest correctly over and over and over and over. You want to pay attention to where those guys are putting their money. If I see a big bank that jumped on board, I'm like, "Oh, I like this."
DZ: Now tell me what you look for with Technology.
NB: Right. Here you want to ask questions like, "Are they building a protocol layer?" "Are they building a decentralized app?" "Are they building something in between?" And is the technology outdated? Or are they building something that's going to take so long to build that by the time they get it done, it's likely to be outdated and obsolete? So make sure the technology is relevant and timely. Another thing you can do is look up the project's GitHub submits. See how often they're pushing updates to the code. If they're not, you have to wonder, well, what are they doing? And make sure they haven't solved a problem that's already been solved. So look at the technology. Just stand back and look and say, "Does this make sense to you?"
DZ: I know exactly what you're talking about. I've looked at the websites of some crypto projects and couldn't figure out what they were trying to achieve. And I've been following this stuff for over 10 years.
NB: I've seen some of these platforms that are like, everybody's gonna be rich and blah, blah, blah. And then you realize, I don't even know what they're doing. And I don't know if they know what they're doing. Get out of here!
DZ: [Laughs] I hear you. Tokenomics is next on the list. That has to do with how the tokens are created and distributed, right?
NB: That's basically it. Here's what you need to ask: "How many tokens are there?" Is there a cap on the supply? Is there some expansion mechanism? Is it inflationary? Or deflationary? Who owns the tokens? You have to watch for this. Let's say there's 100 tokens, and they put 10 out to the public while the developers and founders own the other 90. Nope. I'm out. If the founders own any more than 15% of the tokens, it's a scam. I don't know how to be any clearer about this. Be very careful when the founders own too much, when the developers own too much, when the Treasury owns too much.
DZ: I'm always leery of projects that create huge numbers of tokens right at the start.
NB: Yeah, make sure the number doesn't have so many zeros that you have to count the zeros. If you have to count the zeros with your finger, there's too many tokens. What do you need trillions of tokens for? What do you need hundreds of billions of tokens for? Get out of here, man.
DZ: The problem with those high-supply coins is that they're so crazy cheap - just a tiny fraction of a penny - that some investors will get sucked in thinking they're getting a bargain.
NB: You see a lot of meme hunters out there looking for a token that costs less than a penny that they think they can pump to get over a penny. Quit looking at that garbage. That's a junk play. It's idiot money. It's musical chairs and gambling. That's not what you're here for. The idea is to invest in projects that are going to meaningfully change planet Earth. And if you do, you will be rewarded handsomely for it. Don't get over your skis, and don't look for the quick buck.
DZ: Excellent point, Nick. Now tell me about Timing.
NB: Timing is a little bit like technology. But timing refers to questions like, is the project relevant? And do they have a vision that makes sense in the near term? So if you look at what they're proposing and you go, "The thing that they're going to do is awesome. It makes sense. I understand their story." Right? But it's going to take five years. So you go uh-oh, hit the brakes, five years in crypto is like 10 years in any other market. So look at the timing. And make sure that they're meeting their milestones. Are they getting their updates out on time? And if they're not, and if they don't have a good explanation, and good dialogue, good communication - then I'm out.
DZ: Great. Now we've only got one left - Why Token.
NB: Always just ask yourself: "Why is there a token?" Do you need your own token to do what you're trying to do - to go from point A to point B or to deliver your service? Why do I need your currency? Why does it exist? What does it solve? What is embedded in it? Is it some smart contract? Functionality? Look at Cardano, Polkadot, Ethereum; yeah, for those you need the token.
DZ: So what exactly makes the tokens for Cardano, Polkadot, and Ethereum necessary?
NB: For Ethereum, the token is how fees are paid. Cardano: Smart contract language is built into the embedded layer, I need these tokens because it reduces fees. And that's how I do staking. Okay? Polkadot - Polkadot is the main chain, you have all these parallel chains. They leverage the token for a variety of use cases. For the NEAR token, same thing. If you can't answer "Why Token?" - why should you own it?
DZ: Makes sense. Any final thoughts?
NB: If you can't explain it to your grandmother, you shouldn't have it on your balance sheet.
DZ: [Laughs] Absolutely. Thanks for doing this, Nick.
Nick Black is a regular contributor on Money Morning LIVE. Tune in to his regularly scheduled appearances:
- 11:30 a.m.-12:30 p.m. Monday
- 11:30 a.m.-12:30 p.m. Wednesday
- 11:00 a.m.-12:00 p.m. Friday
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.