- Crypto tokens are representations of assets.
- These are not used as a medium of exchange like cryptocurrencies.
- There are different ways to spot undervalued crypto tokens.
Crypto tokens share similarities with cryptocurrencies yet are different from them in terms of the medium of exchange, means of payment, storing value, etc. There is a need to spot undervalued crypto tokens, which can be done in different ways, from checking the market valuation to evaluating tokenomics.
Crypto Tokens
Crypto token is a representation of an asset or interest that has been tokenized on an existing cryptocurrency’s blockchain. These share many similarities with cryptocurrencies but later ones are intended to be used as a medium of exchange, a measure, a means of payment, and a store of value. Crypto tokens are used to raise funds for projects and are created, distributed, sold, and circulated through an ICO (initial coin offering) process that involves a crowdfunding round. Mastercoin was the first project to describe using layers to enhance the cryptocurrency’s functionality.
Crypto tokens are being created and used to raise funds for projects through ICOs.
The single biggest concern is that they can be used by scammers to steal money from investors. It is very difficult to distinguish between a scam token and an actual crypto token. These often serve as the transactional units on the blockchains that are created using standard templates like those of the Ethereum network. These blockchains work on the concept of smart contracts or decentralized applications where self-executing and programmable code is used to process and manage various transactions.
These generally facilitate transactions on a blockchain but can also represent the stake of investors in a company or serve an economic purpose. There are some factors that should be looked at before a crypto token is issued. It might need to be registered based on jurisdiction. Then look at the team behind the ICO and their backgrounds. Many crypto tokens are listed on non-regulated exchanges outside of the United States. However, the crypto tokens that are listed on a registered exchange can be scams.
Undervalued Crypto Tokens
There are two approaches to the undervaluation of tokens; undervaluation based on the ICO price and undervaluation based on the all-time-high (ATH) price.
Three ways to spot undervalued crypto tokens are; checking the market valuation, scrutinizing the project backers, and evaluating the tokenomics.
- Checking the Market Valuation: This includes a variety of factors such as daily trading volume, market capitalization, and other metrics like developer activity, media coverage, and web traffic. It is one of the easiest ways to identify a profitable investment. A project with low market capitalization and daily trading volume is an indication that it is undervalued and worth investing in. The liquidity of the project should be considered as well.
- Scrutinize the Project Backers: There has to be a strong relationship between project backers, industry leaders, and potential partners.
- Evaluate the Tokenomics: It is an essential element to consider when investing in cryptocurrency projects, as it encompasses all aspects of how a given project will be funded and grow. The total supply of tokens should be limited and not subject to inflation.
Conclusion
Crypto tokens are a form of asset just like cryptocurrencies but they are different from them in other ways. Undervaluation of a crypto token can be done through different approaches. The three ways to find undervalued tokens are to check the market valuation, scrutinize the project backers, and evaluate the tokenomics.
