Many people get into cryptocurrency by hearing about bitcoin on the news, then googling “best crypto to invest in” and buying as much as they can. Nonetheless, if you’re not a rookie in this field or the world of investments in general, you are aware that things aren’t always this effortless. We can assume that since you are here, you know that doing your homework before investing vastly increases your chances of success.

It’s somewhat easier to spot red flags on a project than to choose the best one to put your money in. Even while we can’t guarantee results with the approach we’re going to lay out for you, we’re confident that the knowledge we can provide will substantially boost your prospects. Let’s get started!

Let’s begin by understanding a simple concept: the “Star Principle”, popularized by Richard Koch. For him, a star venture is one that operates in a rapidly growing niche (more than 10% yearly) and is it’s front runner. Such businesses can take advantage of economies of scale to gain advantages over their competitors, allowing them to charge greater prices, have lower costs and use larger pools of funds to finance their endeavors.

However, not every company is a star, be it for not being a leader or operating in a slower growing market. That does not mean that you shouldn't consider investing in them. To understand those different kinds of ventures we can use the BCG Matrix:

Stars appear exactly as described before, and the other three types of companies it categorizes are:

Question marks: not leaders, but in a high-growth market. They can become stars if things go their way, but industry leaders frequently outcompete these companies.
Cash cows: leaders of consolidated markets. They have strong returns, but they can be outpaced by innovative competitors over time. Many have succumbed to this fate, such as Kodak, Polaroid and Blockbuster.
Dogs: they are merely followers in slow growing markets, with a lot stacked against their success. A key takeaway from this article: a dog is not a great investment, specially in crypto (pun intended).

But how does this apply to cryptocurrencies?

First of all, we need to establish a procedure to distinguish niches in the crypto world. “Cryptocurrency” is not a single niche anymore: every token has a price, but their usefulness is measured by a plethora of other aspects. Let’s explore some examples of niches:

Storage of Value: Bitcoin is the king of all “digital gold” candidates by far. If you follow the star principle, it’s very unlikely that it’s getting dethroned any time soon, and not at all if the competition isn’t truly groundbreakingly innovative.
Smart Contract platforms: these initiatives serve as decentralized supercomputers to run dApps that power the Web 3.0. They’re platforms first, currencies second, so being great monetary reserves is not their aim. The leader of this niche is currently Ethereum, but the competition is strong and offers compelling alternatives.
Privacy coins: the growing issue that is the lack of privacy in traditional decentralized ledger networks (because of pseudoanonimity), some blockchains implement robust privacy mechanisms to hide their user’s transactions from all others. As sub-niches, some focus on efficiency for transactions and others on storage of value.
DeFi governance tokens: many DeFi protocols issue tokens that give users the ability to vote on platform governance issues. DeFi tokens appreciate in value with the platform’s success, and the best metric to quantify this success is the Total Value Locked (TVL) on the protocol.

The second step is to determine the potential of the project to eventually be a niche leader or whether it’s niche is completely new. Because the cryptocurrency sector is still in its early stages, discovering niches that are rapidly growing isn't difficult. The challenge is determining with certainty whether or not the project you're considering is competitive and is in a valuable niche, while being attentive to unviable goals and ambitions.

Sometimes, a star may be poised to lose its standing because of issues like scalability, currently Ethereum’s “kryptonite”, with high fees and slow processing speeds making alternatives such as Cardano, Solana and Polkadot attractive. When a star loses its leadership position, it’s incredibly rare that they will reclaim it in the future.

Finding a star crypto project to invest in is a very nuanced endeavour, but with enough attention to detail you can determine which blockchain projects are truly worth you money. The last step is to conduct your due diligence on the economic incentives, governance, transparency mechanisms and technological assets of the project, which can sometimes be difficult without expertise in this field so it’s a good idea to seek professionals to assist you with this process.