Researching cryptocurrency can become confusing if you don’t know what to look for. Since the market has been flooded with new investors, Bitcoin and altcoin prices have surged by more than 350% in 2020. Looking at those numbers, you might think that investing is easy.
However, many coins have also collapsed in the past years. Before investing, you must do your own research. Almost every reliable project releases a whitepaper that will include detailed information about that specific project’s goal, governance, use cases, and technical specifications.
This article will present a simple but effective list in which the fundamentals of a successful project will be discussed.
1. The technical specifications of the project
First and foremost, looking at price developments is not enough to determine the quality of a project. Those who only do that woold think that by looking at numbers only, you could say that investing in BitConnect would have been a smart move.
In 2017 BitConnect went from $10 to $471 in months. All of this happened because of internet hype. Looking at those numbers back then, one might think it’s time to invest in BitConnect. However, in the end, the entire project appeared to be a scam. Doing the proper research before investing in cryptocurrencies such as BitConnect will prevent you from making mistakes in the future.
So, what aspects should I look for while selecting potential investment options?
- What kind of blockchain is being used?
- Is the project decentralized? (For example, DeFi projects)
- What are tokenomics? (The study of token policies, distributions, production, goods-and-services)
- What are the network possibilities (Staking, File-storage, Oracle or Smart contracts, etc.)?
- What is the consensus algorithm?
Analysis like this can give you great insight into what the technical side of the project is capable of. For example, cryptocurrency brokers can provide you with reliable information about the specifications of a new coin or token. On the other hand, specifications alone can’t tell you enough (more on that later).
A perfect example would be Ethereum 2.0. One of the reasons people are stoked for Ethereum 2.0 is the enormous technical upgrade the network received with “The Merge” and will receive in the future. It’s essential to keep in mind that this technical summary doesn’t tell you everything.
However, it will give you an insight into how far a specific project can go in terms of innovation/scalability.
2. The team behind the project
As with any business, the team behind the project is vital. Before investing your hard-earned money in a coin, we recommend you research the team involved with the project.
For example, If Changpeng Zhao (the CEO of Binance) suddenly starts a new project, it indicates that the team knows what they are doing and the people in it are qualified for the job. Experience is the key, especially in this highly volatile crypto market.
Things to look for when looking at the team behind the project:
- Who is leading the project?
- Who is on the primary team?
- How much experience does the team have?
- Is their progress in sync with the roadmap?
- How frequently do updates occur about the project?
- Take a look at the team Github (often used for distributed source code control)
Doing a team analysis will give you a general idea of the in-house experience, the vision, and the team’s history. Always check the individual’s career path (this can be done through LinkedIn or personal credentials).
In the past, scammers have tried to create fake personas to gain public trust. That is why it will often be a good sign if a veteran in the scene supports a new project. If experienced veterans back the project, the chances of a successful investment become more likely.
3. What solution does the project offer?
Every team has its vision of its product. While some projects seem futuristic, others focus on solving practical issues. The vision of the team and the solvability of the problem will be critical for future developments within the project.
Multiple projects often set out to challenge the same problem with similar promises. During times like this, it is essential to do proper research about all of the involved projects. This should be done to determine which project will be the most successful.
Things to look for during this analysis are:
- What kind of solution does the project offer?
- Which projects offer similar solutions?
- Does the team have evidence to back up their claims?
- Which of these projects has the most potential?
After researching the candidates on your list, you can tell which project offers the best possible solution and which one will be the easiest to implement.
Keep in mind that investing in relatively immature projects is always risky, especially if you are new to crypto. This is the most important reason for doing your own research on every investment you make.
4. Community analysis – does the project have any following?
A community is essential when evaluating a new project. Of course, no project gets famous overnight. However, the community behind a project can indicate what you are dealing with. A promising project with the little-to-no following can be an indicator of a risky investment.
A strong community is essential because it creates an active ecosystem, generates exposure and trust, and ensures interaction. A rule of thumb is that after popularity rises, the availability of a coin also surges.
In succession, this results in lengthy articles and information sources about the concerned project. An active and solid community will help achieve the project’s exposure.
Aspects of the community you should pay attention to:
- The kind of people that have invested in the project
- The project advisory board
- Most important partners
- Large and institutional investors
After carefully examining these aspects, you can tell if the project has reliable connections within its industry.
For example, some projects are funded by large entities, indicating that the project will most likely not be a swindle. This also demonstrates that the team behind the project or coin has solid connections with serious investors.
5. Trend analysis
Keeping an eye on trends within the market can be very beneficial. From an investor’s perspective, the cryptocurrency market can seem very volatile. That is why looking at trends within the market can be an exciting way of measuring a project’s potential.
In 2020 a well-known trend was and still is “DeFi” (Decentralized Finance). In the past year, investments in DeFi projects have been skyrocketing, resulting in projects heavily funded by investors.
Some popular ways to find trends amongst the market are:
- Cryptocurrency-related news outlets
- Consulting Google Trends
- Analyzing price charts (technical analysis)
A trend analysis gives investment opportunities. Popularity often goes hand-in-hand with a trendline. Remember that jumping on the bandwagon without proper research is never a solid game plan.
However, combined with all the factors described above, it can give you a great idea of the sentiment in the market.
6. In conclusion
With investing always being risky, there are certain factors you can investigate before pulling the trigger. Understandably, many people have no clue where to begin and what to look for.
This list should give you a sense of direction when considering a potential investment possibility. The concept of Do-Your-Own-Research will always be a top priority when investing in a new project.
Either way, we would like to emphasize that even with this checklist, risks will always be involved when investing. Furthermore, we wish you good luck in finding those hidden gems!