There are two factors that drive the profitability of your investment in Cryptocurrencies:
First, ‘Source of Variation’ that essentially means what percentage of the returns depend on forces that the new company or token does not control. Ideally investors want 100% of the returns dependent on things they themselves or the entrepreneurs control. On the opposite most extreme case, is investing in the market, where tokens are going up and down in value without any sort of investors’ control.
Second, ‘Returns’. Investors want to earn more than what they would earn in other projects. But this figure must be adjusted for the cost of capital of the investor. In cryptocurrencies, returns are mostly linked to the value of the business model and the number of tokens that are outstanding during the time of the investment.
Evaluating an investment is about understanding the business model – not the idea of the business model that entrepreneurs are “selling” to you.
Investors need to adjust the power of the business model to how much of its potential depends on the entrepreneurs and how much on external forces. Combining that information with the number of tokens that will be outstanding during the time of the investment is the key to investor’s profitability.