India’s cryptocurrency landscape is amassing strength as the growth of crypto-assets and the technologies underlying it is captivating retail investors and entrepreneurs throughout the nation. On one hand, where the technological innovations related to crypto-assets are offering promising potentials with public blockchain technologies and the use of smart contracts in the operations, on the other hand, the newness of the ecosystem and the absence of a regulatory framework in India is inhibiting the sector from gaining trust and exposing the investors to small risks.
As an investor or a trader, one is always exploring alternate investment opportunities apart from traditional stocks and bonds and with cryptocurrencies doubling in value since the start of 2021, they provide an opportunity to reap high returns. Investing in crypto, especially Bitcoin, is being considered as a good alternative and a store of value as the dollar loses value due to the Fed adopting quantitative easing and pumping money into the economy to provide a stimulus.
Overall there are more than 8,000 cryptocurrencies in existence as of January 2021. There are risks associated with investing in cryptocurrencies just like investing in any other asset class and the investor must carry out due diligence and the selection of exchange in dealing with cryptos is the key factor for consideration. It is always advisable that one must cautiously carry out basic research on the tokens under consideration before investing especially the ones who are investing first-time in digital assets.
In cryptocurrencies with so many options available one, therefore, needs to adopt a strategic approach before choosing the right token that is secure and helps maximize returns on one’s portfolio at the same time. So how does one know which coin to invest in? Different exchanges offer different types of products and services to ensure that a user is able to gauge the market and invest accordingly. In India, too, exchanges offer some of the most popular or prevalent tokens. But for a first-timer investor in crypto, the cryptocurrency market can be slightly overwhelming due to a lack of understanding of the industry.
Hence, to ensure that this newfound enthusiasm among the Indian investor community is well guided and protected, exchanges have been working on enabling them via educational videos, knowledge sharing, and developing products to better address their needs.
To ensure that new users have a better grasp of the basics, we can refer to the 7M framework that factors in multiple criteria to list only those digital assets that satisfy the regulatory requirements of the jurisdiction. The framework can act as a ready reckoner guide whereby new crypto investors can easily enter the space and reap the benefits of the possibility of making higher investment returns offered by cryptocurrencies.
These 7Ms are Model, Mechanics, Management, Market, Motivation, Momentum, and Money.
A successful business model represents a map of how it is going to create value for a discrete group of people or for the industry as a whole. Having a sound, value-creating, and revenue-generating business model ensures stability, sustainability, and growth led by innovation. Every business model is created with a) an objective that will be solving a crucial problem; b) a vision beyond the immediate concept where the project has established a system in its network in which the problem has ceased to exist or curbed at max.
Decentralization has been the core principle of the blockchain industry and our next step is to analyze a project’s effectiveness in maintaining immutability, transparency, automation, and resilience with its decentralized business model. The parameter evaluates the proficiency of the project’s business model in the highly competitive crypto space and the numbers a project will be able to achieve if it successfully reaches every milestone of its roadmap.
A well-experienced team leads the project with coherence in their strategies and collective progress towards the project’s vision. A balanced combination of hard and soft skills, the ability to overcome technical and entrepreneurial hurdles, the team of advisors and partners, clear articulation of thoughts from management to the customers, timely accomplishments of the milestones, and the ability to cope up with adverse situations are some of the factors which are chiefly considered in this framework.
Understanding and defining the Market of the project in which the product is being offered is key to its growth. Exchanges or trading platforms should therefore carefully study the size of its existing market, competitors activities, unique selling points (USPs) of the project, product’s ability to acquire a significant market share alongside coping up with the future threats, and then exhibit growth in the industry which evolving rapidly
Every project is using blockchain, building a network, and circulating a token within its network. The demand and supply of the token decide the price of the token, and this same demand and supply are decided by the utilities the token has within the network. Our team seeks an understanding of the application of blockchain, use cases, tokenomics, and the value generation spots of their tokens.
7M’s Momentum identifies the traction the project has received on social media over a period of time and the reputation a project has developed from its inception. We track the perception with which a project is perceived and study the company’s roadmap, its expansion in multiple directions, the network effects, partnerships established with high-profile organizations, and expansion of the existing customer base with active acquisition and growth strategies.
Our financial researchers have developed comprehensive asset valuation and financial models which help us to evaluate the reasonability and feasibility of the financial valuation of the company. These models also help us to foresee the outstanding debt obligations of the company, the current funding they have received, incoming revenues, and the covering of the entire scope of the project with these numbers. Outside the financial models, we track the revenue generation spots, exchange listings, the token allocation models which subsequently affect the supply of the token.
As India’s movements towards Digital India and a 5-trillion dollar economy progress with the advent of computerized money, the Government of India and the RBI will be exploring the potential of blockchain technology in financial services. With computerized money, India has the opportunity to take maximum advantage of investing in computerized and decentralized assets. Such investments require a strong foundation of awareness, education, and infrastructure which frameworks like 7M ensures from the very first day. Extraordinary circumstances need extraordinary measures and laying down investor-friendly structures which protect their funds and help them adopt an industry that is moving at an unbelievable pace.
The author, Neeraj Khandelwal, is Co-founder at CoinDCX. The views expressed are personal