Before you invest in any cryptocurrency, it’s vital that you do your research. So let’s look at some steps you should take when reviewing a cryptocurrency.
Review Their White Paper and Official Website
One of the first things you’ll want to know about any cryptocurrency you’re going to speculate on is what it does by reading the white paper and reviewing the official website.
Reviewing the White Paper
A cryptocurrency’s white paper should provide a comprehensive overview of the project. However, white papers can be too technical for the average investor, so you may need to write down any questions you have as you review them.
However, a white paper should be detailed because its goal is to highlight the cryptocurrency’s purpose, underlying technology, utility, and prospects for success.
If a cryptocurrency does not have a white paper, that’s a red flag, and you may want to reconsider investing in it.
An official website for any legitimate cryptocurrency should openly share information about the project and the people behind it.
Be wary of websites that are difficult to navigate, have dead pages or links, have a lot of spelling errors, or need more transparency about the project and those involved with it.
These could be signs of a shoddy project or investment team. Or a simple pump-and-dump scheme.
Research Their Competition
Researching the competition of a cryptocurrency can give you valuable insight into how other companies that do the same thing are performing. And how that sector of the market might perform over the long term.
While many cryptocurrencies might have great technology, being late to market can be a competitive disadvantage for latecomers.
Assess what utility the cryptocurrency project brings to the ecosystem and if there is genuinely a need for it.
The developers are the ones behind the scene who will ultimately make things happen.
Therefore, learning about the advisors and developers of a cryptocurrency is a great way to determine if the project has what it takes to be successful.
Questions to ask about the development team include:
What’s their track record on other projects?
Do they have a working product or just a proof of concept?
Are the developers reputable and well-known in the industry?
What kinds of partnerships do they have to support their promises?
Are they responsive to queries and questions about the project?
You’ll be able to do much of this research through official channels like their website. Still, you can also use community forums and social media for deeper dives into cryptocurrency projects.
Monitor the Activity of the Project
If you do not see a lot of project activity, that could be a sign that the project has been abandoned or is a scam.
Here are some different types of activity to monitor:
Trading Volume – A high trading volume is a sign that people are trading the crypto you’re looking at and is a good sign of liquidity and stability.
Website and Social Media Activity – Check to see if their website is updated and if they post regularly on social media.
Activity in Their Community – Look for their communities on platforms like Reddit, Discord, or Telegram to see how active and healthy their community is. Communities that haven’t been active are a red flag that the project is struggling.
Look For Their Developer Activity – You can look on Github to see how active the developers have been. Developers should constantly update their code, so a lack of recent activity can be worrying.
Do Technical Analysis on the Cryptocurrency
You might think that doing technical analysis is just for more advanced trading, but that’s not the case.
A cryptocurrency’s market cap is one form of technical analysis. The market cap is the number of available coins multiplied by the price. A higher market cap indicates that a coin may be more stable and established.
You can also look at the tokenomics of a cryptocurrency. Tokenomics refers to the supply and demand characteristics of crypto projects.
How many tokens will the crypto project issue, and is there a set limit?
What proportion of the tokens are reserved for the project’s founders?
How will the remaining tokens be distributed?
Be wary of projects where whales control the majority of the tokens or if the project plans to issue millions of coins which can dilute the token’s market and devalue your holdings.
Join Crypto Communities & Go to Crypto Meetups
Joining crypto communities and attending crypto meetups is a great way to meet many like-minded individuals. In addition, these activities can help you stay informed on the latest happenings in crypto.
Communities and meetups will allow you to bounce ideas off other people and learn from other traders.
The one consistent aspect of cryptocurrency is that it is constantly changing. So as an investor, you’ll be well-served to stay informed about the crypto projects that interest you.
It’s a good idea to have a process when researching cryptocurrency projects. Be thorough with your research and keep your eyes open for red flags indicating a struggling project, abandonment, or potentially a scam.
Doing some simple technical analysis of a project, like an evaluation of the market cap and tokenomics, can give you a sense of how a project has, is, and could perform in the future.
Take your time, and remember that the crypto research process is ongoing. The more you learn and know, the better investor you’ll become.