Almost every article about investing in cryptocurrencies stresses the importance of “doing your own research” (DYOR in crypto speak). It can be difficult to navigate the crypto world given the thousands of crypto assets available on the market. This guide will give you some tools to use on your journey – so your portfolio might one day outperform Goxx the hamster.
- The most important steps and resources for doing your crypto research.
- Learn more about a cryptocurrency project’s goals, sponsors, and position in the market.
Step 1: Crypto Research Tools
Tools for researching cryptocurrency are crucial for any investor. Get acquainted with some tools before investing your money in a specific bitcoin project. These tools will help determine the price change in cryptocurrency projects. Even though using any of these tools can be intimidating at first. Once you get the hang of it, you will make the best possible investing decisions. Some of these tools are:
Messari is a cryptocurrency data aggregator that has a ton of valuable tools for chart analysis so you can make better trading choices. You can tailor your research to different coins using the screener’s parameters, including volatility, volume, liquidity, and market cap.
As an on-chain data and intelligence platform, Glassnode collects information from numerous blockchains to precisely gauge the activity of the crypto network and then uses that information to provide metrics and investment insights. With Glassnode, you can examine market indicators for any coin and see how many active addresses have completed successful transactions. The platform also offers price information and lets you download data and set alarms.
LunarCrush uses data from social networks to determine investor sentiment in addition to market activity and transaction information. You may track the influencers, coins, and exchanges that most interest you with LunarCrush, and it offers real-time insight into who those influencers are.
To assist you in making knowledgeable cryptocurrency decisions, Coin Metrics offers financial intelligence about cryptocurrencies as well as market statistics, indexes, network data, and other analysis tools. The platform provides access to over 100 assets and 400+ metrics, including cutting-edge ones like realized cap and free float supply.
Another crypto research tool that merits attention is Santiment. Like Glassnode, Santiment offers on-chain, social media, and financial data on around 2,000 cryptocurrencies, enabling you to forecast any cryptocurrency’s price movement.
One of the most critical data aggregators that monitors cryptocurrency prices by market cap is called CoinGecko. Nearly 13,000 coins and more than 600 cryptocurrency exchanges have live price updates available. The software offers a thorough study of the cryptocurrency market, tracking and calculating the market capitalization of coins and tokens and the trading volume for exchanges. Community statistics are also available from CoinGecko for Facebook, Twitter, Reddit, and other platforms.
CoinMarketCal is a cryptocurrency calendar that keeps you informed of all upcoming coin-related events. The platform combines evidence-based and community-driven frameworks, enabling users to add crypto events that are subsequently verified. Upvotes are given to actual occurrences, while downvotes are given to fictitious events.
You should check out Coin Dance, a bitcoin research tool with a lot of data. The software keeps track of various statistics, including mining breakdowns, block sizes, fees, network nodes, and harsh rates. To view the global adoption of cryptocurrencies, you can also sort the data by nation.
CryptoMiso ranks cryptocurrencies according to Github activity. Based on the most popular repository, you may view the number of commits a specific crypto project has made during a particular period.
An excellent trading platform for people is called Coinbase One. As it is currently in beta, only a few people can access it; you will be informed in your Coinbase account if you’re eligible. Despite not being a research tool in the traditional sense, users receive benefits like free trading costs, discounted stake rates on yielding assets, round-the-clock phone support, and a 90-day free trial.
Step 2: Understand the Functionality
First, familiarize yourself with the function and purpose of the cryptocurrency. Cryptocurrencies with utility are typically better investments. Some projects, even if they have utility, are useless because they add nothing new to decentralized finance.
For example, a redundant cryptocurrency project would copy the code and features of an existing project without any new or unique value added. If a new cryptocurrency project identical to Bitcoin were created regarding its consensus algorithm, transaction processing, and overall functionality, it would not add any new value to the blockchain ecosystem as it would simply duplicate an existing project.
Cryptocurrency without a whitepaper is a huge red flag. Even if you think a paper is good, look for other opinions from people with more knowledge and experience than you to determine if they have come to a similar or differing conclusion about the project.
In this era of misinformation, don’t believe everything you read. Consider what issue the initiative seeks to address and how workable a solution it offers. Additionally, pay close attention to the project’s roadmap, frequently available online. Has it fulfilled its promise yet?
Step 3: Online Presence
A project may have been abandoned or a cryptocurrency hoax if it is not currently operating. There are several specific activities to look out for.
- Check if the website is up to date. Are there frequent social media posts from the project?
- A vibrant Reddit, Telegram, and Discord community is a further positive indicator.
- If there is no developer activity for some time, that is concerning. Go to GitHub and see how active it is there.
- You should always confirm that others trade the cryptocurrency. Higher liquidity and higher stability are indicators of a large trading volume.
Step 4: Keep Track of the Project’s Team
You can discover more about the project leaders if it is worthwhile. Examine their social media profiles, look up more information about them online, and determine whether you can trust them with your money. Be cautious if the team is anonymous or provides first names and Twitter handles. It is a good idea to look at the size of the supporting staff, any important strategic partners or investors, and the team’s location.
Step 5: Competitive Analysis
Consider how your cryptocurrency stacks up against those operating in a similar market and look at the competition. This will also assist you in developing an opinion on the potential long-term performance of that industry. When choosing a cryptocurrency for smart contracts, speed, scalability, and security are essential considerations. Consider how much users spend on the network for the decentralized finance (DeFi) project.
Step 6: What Exchanges is it Listed on?
According to data from CoinMarketCap, there are currently more than 17,000 cryptocurrencies available. Being listed on a Tier 1 exchange doesn’t imply endorsement, but it does indicate that the project has more legitimacy than others listed on Tier 2 or Tier 3 exchanges. Check to see if you can purchase a cryptocurrency on the platform of your choice before investing hours in study. Some investors buy coins on Tier 3 or Tier 2 exchanges in the hopes that they will be listed on a Tier 1 exchange and the price will skyrocket due to increased exposure.
Step 7: Price History
It is impossible to predict the market and buy at the bottom. Many successful investors prefer the dollar cost averaging (DCA) approach. However, if a coin is past the initial launch phase, it is essential to consider the price history before investing. When was the previous all-time high (ATH)? How far below ATH is the current price? Price history helps you understand the potential fluctuations in a coin’s worth from the bear to bull markets. Price does not always reflect a company’s or project’s fundamentals and cannot determine future outcomes. When making a long-term investment, it is better to consider price history as complementary to a crypto’s long-term outlook for mass adoption and to stand the test of time.
Step 8: Market Cap and Tokenomics
A currency with a large market cap is more established and likely to be more stable. However, the more significant the market cap, there is room for growth. Many investors looking to make large profits will search for projects with a market capitalization that has the potential to double multiple times over when compared to the market cap of the competition. The market cap of Bitcoin and Ethereum are often used as ceilings of reference for the potential growth of any token or cryptocurrency. Most cryptocurrencies will not reach a comparable market cap, and if a 10x market cap for the coin you are researching requires surpassing the market cap of ETH, then it isn’t very sure to reach your desired target.
Tokenomics is the study of a token’s economics. Anything that feels off should be noted. Perhaps a small number of people control a significant portion of the tokens, or the number that can be produced is unlimited. There are many factors to consider about a coin’s tokenomics. People devote their entire careers to becoming experts in this topic. Thus a complete explanation is beyond the scope of this article, and the dedicated reader should pursue further exploration of the subject.
Conclusion & Avoiding Scams
Let numbers and logic guide you rather than feelings of missing out (FOMO). Lastly, it is essential to stress the need to be careful. No amount of research will stop a hacker from draining your wallet if you click on a bad link or send crypto to a scam wallet. There is a large market for scammers who create wrong links and fake sites for existing projects that can be used to drain your wallet. As long as you research before buying in and stick to your trading plan with an entry and exit strategy – you may one day be able to outperform Goxx, the hamster.