Why ROI doesn't matter.

The current crypto investment meta.

Do you find yourself evaluating new crypto projects solely based on ROI? Many people do. While it seems like a good indicator to see how a project is currently earning. There are problems with this approach. Next week the earnings could be different, this will vastly throw off the ROI time or maybe it never ROIs. A better way to evaluate projects should be on the fundamentals, vision and monetization strategies.

Problems with ROI-only approach.

Relying on a project's current ROI is a very bad approach. The main problem is people FOMO (fear of missing out) into projects because it's making 10$ a day and ROI in 1 month. It sounds great on paper but in reality what happens is since there's a large group of people who now jump into the project, the rewards generally go down for everyone. For example, a project with 1000 users claiming to be earning 10$ a day on a 300$ device, sounds great. The ROI is 1 month. The overlooked problem here is that now let's say 2000 people jumped in because they felt the FOMO hard. If rewards are split equally as in most projects they are. We are talking about rewards dropping from 10$ a day to 3$. Since we are only evaluating the ROI here, we are now probably panicking and thinking this is a scam. This is why we need to approach this with a different mindset. One that will lead us to smarter investment choices.

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How we should be evaluating projects.

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Fundamentals.

An important thing to look out for when looking into crypto projects to invest in is its fundamentals. I am talking about the general concept of the project, it needs to make theoretical sense before moving forward. Let’s say there's a crypto project that collects data about your car. Like how fast you drive, and they want to sell this data to car insurance companies so they can adjust your insurance rates depending on how fast you drive. Let’s break this down a bit to understand.

Vision.

Collecting car data. Well this makes sense, there are devices in the world that exist already that collect information about your car, they are called OBD2 scanners. So this looks good so far, we know this is a real product already so not some crazy-fetched idea that could take years to develop.

Monetization strategy.

Now selling the speed data to insurance companies. They would be the potential client that would “have” to buy this data. If they don’t this project has no future. Someone has to buy the data eventually or the whole flywheel stops. Now think to yourself about this. Why would the insurance company buy this speeding data? Well, it’s simple. They can make more money buying this data. Let’s say they bought all the data for the cars across the USA. All speeding people have been identified, now with this data they can identify the people and raise their insurance rates because they are more likely to get into an accident. But also now the insurance company is pocketing more profits from the higher rates. This is an important step that needs to be thought about. If the company buying this data cannot make more money than buying it, we are in trouble.

It’s super important here to not get this confused with selling hardware. Selling hardware as the main source of income such as a Dimo, Helium hotspots or hivemapper is NOT the way the project will survive. This hardware is sold to consumers in hopes that it will then collect data or perform certain tasks when you can then sell the by-product such as collected data. The number of devices sold does not equal guaranteed success. Sure, you can sell 50,000 devices. But if nobody wants to buy the data they are producing or use your network. The ROI will never happen. Or at least not legitimately.

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The long term.

Following these guidelines should help you pick out projects that have a bright future. I know it’s easy to only look at the current ROI. But if you play your cards right and find a project with a solid plan, your investments could pay off well. Another benefit of investing this way is that you end up researching more into the project before jumping in. Once you gain more knowledge you could also be more likely to wager a larger bet on the project. I can’t predict the future. But some of these projects sound like they have the potential to disrupt entire industries, we are talking about Billions of dollars in valuation potential. Remember this, just because the ROI doesn't make sense today, it doesn’t mean it's not a good project. These things take time. Don’t overlook the fundamentals of a project. You might regret it a couple of years later.

Things to watch out for.

I would like to go through some things to be extremely cautious about before picking a project to invest in. The biggest red flag right off the bat is if the official project itself talks about ROI numbers. This is an instant no. This also falls under some securities laws in the USA so do not touch anything of this sort. If the official project such as Helium is talking about ROI on their site, this is bad. If 3rd parties are talking about it such as Moken/Heliumdeploy, since they are not the ones who created the tokens this is fine.

Be cautious about hardware sales, especially if the only accepted payment method is crypto only. I would personally advise only purchasing units that are with a credit card for buyer protection, in case something goes wrong.

For projects that are offering pre-orders, while this is sketchy sometimes, it depends on what the project is doing. It’s best to make sure the fundamentals are there and solid-looking. Pre-orders can sometimes be delayed or just never get shipped out. So proceed with caution on these.

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Final thoughts.

Hopefully, this page has convinced you to change your mind about ROI. I know it sounds important and all but this mindset in the crypto space of ROI over everything needs to be changed. It’s not the right way to go about things.

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^{This is an opinion piece by JD: X profile}