Researching cryptocurrencies can be overwhelming if you don't know what to look for. With a surge of new investors entering the market, the prices of Bitcoin and altcoins soared by over 350% in 2020. Looking at these numbers, you might think investing is straightforward.
However, many tokens have also crashed in the past few years. It's essential to do your own research before investing. Almost every credible project publishes a whitepaper, which includes details about the project's goals, governance, use cases, and technical specifications.
This article provides a simple yet effective checklist covering the fundamentals of successful projects.
Technical Indicators of the Project
First and foremost, looking at price action alone is insufficient to determine a project's quality. Those who focus solely on numbers might assume investing in Bitcoin is always a wise decision.
So, what aspects should you focus on when selecting a potential investment?
- What kind of blockchain does it use?
- Is the project decentralized? (e.g., DeFi projects)
- What is the tokenomics? (Token policy, distribution, production, and study of goods and services)
- What are the network possibilities? (Staking, file storage, oracles, smart contracts, etc.)
- What is the consensus algorithm?
A perfect example is Ethereum 2.0. One reason for the excitement around it is the significant technical upgrade through "The Merge," with more enhancements expected in the future. Keep in mind that technical summaries don't tell the whole story, but they offer insight into how far a project can go in terms of innovation and scalability.
The Team Behind the Project
As with any venture, the team behind a project is crucial. Before investing your hard-earned money, research the people involved.
For instance, if a well-known industry figure like Changpeng Zhao (CEO of Binance) started a new project, it would signal that the team knows what they're doing and has the expertise. Experience is key, especially in the highly volatile crypto market.
Key aspects to consider when evaluating the team:
- Who is leading the project?
- Who are the core team members?
- How much experience does the team have?
- Is their progress aligned with the roadmap?
- How frequently are project updates released?
- Review the team's GitHub for activity and contributions.
Analyzing the team gives you a sense of their experience, vision, and track record. Always verify individual professional backgrounds through platforms like LinkedIn or personal certifications. In the past, scammers have created fake profiles to gain public trust, so endorsements from seasoned professionals are usually a positive sign. If experienced veterans support a project, the chances of a successful investment increase.
What Solution Does the Project Offer?
Every team has a vision for their product. While some projects seem futuristic, others focus on solving real-world problems. The team's vision and the solvability of the problem are critical for the project's future development.
Multiple projects often tackle the same issue with similar promises. In such cases, thorough research is essential to determine which project is most likely to succeed.
During this analysis, look for:
- What specific solution does the project provide?
- Which other projects offer similar solutions?
- Is there evidence to support the team's claims?
- Which of these projects has the most potential?
After researching the candidates, you can judge which project offers the best solution and which is easiest to implement. Remember, investing in relatively new projects is always risky, especially if you're new to cryptocurrencies. That's why doing your own research is vital for every investment.
Community Analysis—Does the Project Have a Following?
When evaluating a new project, the community is essential. No project becomes an overnight success, but the community behind it can indicate what you're dealing with. A promising project with few followers might be a red flag.
A strong community is crucial because it creates an active ecosystem, generates exposure and trust, and ensures engagement. A common rule of thumb is that as popularity rises, the coin's usability surges too. This leads to extensive articles and information sources about the project. An active and solid community helps boost the project's visibility.
Community aspects to note:
- People investing in the project
- The project's advisory board
- Key partnerships
- Large and institutional investors
After examining these aspects, you can assess whether the project has reliable connections within its industry. For example, projects funded by large entities are less likely to be scams, indicating strong ties with serious investors.
Trend Analysis
Keeping an eye on market trends is highly beneficial. From an investor's perspective, the cryptocurrency market seems very volatile. Observing market trends is an exciting way to gauge a project's potential.
A well-known trend in 2020 was "DeFi" (decentralized finance). Over the past year, investments in DeFi projects skyrocketed, leading to substantial funding from investors.
Popular methods to identify trends in the market:
- Cryptocurrency-related news media
- Consulting Google Trends
- Analyzing price charts (technical analysis)
Trend analysis reveals investment opportunities. Popularity often correlates closely with trend lines. Remember, blindly following trends without proper research is never a reliable strategy. However, combined with the factors above, it can give you a good sense of market sentiment.
Final Thoughts
Since investing always involves risk, investigating certain factors beforehand is wise. Many people understandably don't know where to start or what to look for. This checklist should give you a sense of direction when considering potential investments. When investing in new projects, the concept of doing your own research is always a priority. Regardless, we want to emphasize that even with this list, there will always be risks involved in investing.
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Frequently Asked Questions
What is the first step in evaluating an altcoin?
Start by reading the project's whitepaper to understand its goals, technology, and use cases. This document provides essential details about the project's vision and execution plan.
Why is the team behind a project important?
The team's experience and track record are critical indicators of a project's potential. A skilled and reputable team is more likely to deliver on promises and navigate market challenges effectively.
How does community support affect an altcoin's value?
A strong community drives adoption, trust, and visibility. Active engagement can lead to increased usability and value, making community support a key factor in long-term success.
What role do market trends play in altcoin investment?
Trends can highlight emerging opportunities and areas of growth. However, they should be combined with fundamental analysis to avoid impulsive decisions based solely on popularity.
Can tokenomics influence an altcoin's potential?
Yes, tokenomics—including distribution, supply机制, and utility—affect scarcity, demand, and overall value. Understanding these elements is crucial for assessing long-term viability.
How do I avoid scams when investing in altcoins?
Research the team, check for credible partnerships, and verify information through multiple sources. Avoid projects with anonymous teams or unrealistic promises.