Researching cryptocurrency can become quite 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 it is very important that you do your own research. Almost every reliable project releases a whitepaper that will include detailed information about the goal, governance, use-cases, and technical specifications of that specific project. In this article, we will present a simple but effective list in which the fundamentals of a successful project will be discussed.
Table of Contents
1. The technical specifications of the project
First and foremost, looking at price developments is not enough to determine the quality of a project. 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 a matter of months. All of this happened because of an 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 the 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 will be able to provide you with solid 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 because of the huge technical upgrade the network will receive in the future. It’s essential to keep in mind that this technical summary doesn’t tell you everything. However, it will be able to 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 very important. Before investing your hard-earned money in a coin, we’d recommend you do some research about the team involved with the project. For example, If Changpeng Zhao (the CEO of Binance) would suddenly start a new project, this gives you a good indication that the team knows what they are doing, and the people in it are qualified for the job. Experience is 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 main 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 teams 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 history of the team. Always make sure you 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 in order to gain trust from the public. That is why it will often be a good sign if a veteran in the scene supports a new project. If the project is backed by experienced veterans, the chances of the investment being successful becomes more likely.
3. What solution does the project offer?
Every team has its own 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 key for future developments within the project. It often happens that multiple projects set out to challenge the same problem, with similar promises. During times like this, it is important to do proper research about all of the involved projects. This should be done in order to conclude which project will be the most successful in the future.
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 will be able to 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 about every investment you make.
4. Community analysis – does the project have any following?
A community is important 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 little-to-no following can be an indicator of a risky investment. Having a strong community is important because it creates an active ecosystem, generates exposure, trust, and it 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 in achieving the exposure a project needs.
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 will be able to tell if the project has reliable connections within the industry they operate. 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 interesting way of measuring the potential of a project.
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 being 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. Keep in mind that jumping on the bandwagon without proper research is never a solid game-plan. However, in combination 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. It’s understandable that many people have no clue where to begin, and what to look for.
We at Anycoin Direct deal with new projects on a daily basis. That is why we recommend following this guide before making big investments in a new coin. Before a new coin will be featured on Anycoin Direct’s platform, the broker has to make sure the project has solid fundamentals. An example of the extensive research we do can be found on their ‘What is Bitcoin’ or ‘What is Ethereum’ pages. For analyzing the price of a specific coin you can visit the ‘Price pages’.
This list should give you a sense of direction when looking at a potential investment possibility. The concept of Do-Your-Own-Research will always be a top priority, especially when investing in a new project. Either way, we would like to emphasize that even with the use of this checklist, there will always be risks involved when investing. Furthermore, we wish you good luck in finding those hidden gems!