Today there are more than 5,000 cryptocurrencies on the marketaccording to cryptocurrency market cap aggregators, with more being launched every day – making it difficult for investors to decide which ones to invest in.
However, many are just window dressing. Scammers saw the potential opportunities in the emergence of crypto, and they designed certain tokens in order to steal money from newbie or naive investors.
We then speak of a “Scam”. Whether you are a beginner looking to invest in the cryptocurrency market or a seasoned investor, below are some techniques that will guide you in analyzing any cryptocurrency.
1) The state of the market
The first step before investing in a project is to research the project on a cryptocurrency aggregator.
The two biggest cryptocurrency aggregators are CoinMarketCap and Coingecko.
These sites provide a high-level overview of the project: Transaction history, cryptocurrency ranking, brief description of the project.
- CoinMarketCap is the best known
- CoinGecko is known for smaller cap projects
Check project ranking
Checking the ranking of the project allows you to quickly assess where the project stands against all other cryptocurrencies.
Depending on your investment style and preferences, you may only be interested in projects ranked in the top 100, which exhibit
usually the least risk.
However, if you’re looking for those lesser-known “nuggets” with huge growth potential, you’ll probably want to look for projects ranked in the top 1000+. Projects rated in the 5,000 and above are generally considered high risk projects and should be avoided in most cases.
Market Capitalization, Trading Volume and Liquidity…
Project ranking is determined by Market Cap, which is calculated by multiplying the current Coin/Token price by the total number of Coins/Tokens in circulation. In general, the higher the Market Cap value, the less volatile the investment and the safer it is (relatively speaking).
Trading volume is the quantity bought and sold during a given period. A low trading volume of a mid-cap project can also be a indicator of a project that has been abandoneda lack of real-world use, or a small community, which is something to watch out for.
2) Visit the project and its website
If the initial review of the project details on the site of the cryptocurrency aggregator like Coinmarketcap seems positive, the next step is to check the project website.
Today it is very easy and relatively inexpensive to develop a clean and functional website.
If the site is low quality, has spelling mistakes, is reluctant to reveal itself to team members, or, even worse, is a copy-and-paste from a project earlier, there is cause for concern and avoidance.
For most projects, especially newer ones, it’s the team and developers involved in the project that are the most valuable assets.
It is the credibility and experience of the team behind the project that will have a direct result in the success or failure of the project. It is for this reason that it is particularly risky to bet on projects whose the team is not openly disclosed.
Check the project team (developers, partners, advisors)
When evaluating the team, determine previous experience in the market and previous projects. Is this their first project or do they have a strong track record of developing successful projects in this market?
Unfortunately, many small projects are known to tamper with their team (using AI-generated photos), so just taking what the website says at face value is not enough. If LinkedIn or other team social profiles are provided, it’s always a good idea to follow up and verify their authenticity.
The importance of the Road Map & the vision of the project
As an investor, you are interested in the future potential of the project, including its future objectives and its short, medium and long-term vision which are also essential elements of the evaluation.
A solid project will have a strong, well-defined vision with a Road Map and attached dates providing details for development at every stage. It goes without saying that without a clear vision and road map, the future success of the project is in doubt.
Check the presence of Investors
Does the project already have investors and if so, who are they?
Projects in which well-known investment companies have already invested are an excellent sign. These companies are often specialized in specific niche markets and in the event that they have already invested, there is a good chance that they have also demonstrated global investigation and that they believe in the project.
3) Social networks, a crucial importance
The project’s Twitter page is the first stop on the social media tour. Thanks to Twitter, it is possible to get an idea of the social activity of the project and the most recent tweets. Observing the interaction between tweets is also a good measure as well as the number of followers on the Twitter account.
Telegram and Discord
Telegram and Discord are discussion groups that can give an even deeper insight into the project, the team and its community. The number of followers is a good indicator to follow.
Within the focus groups, take the time to read the posts and get a sense of the type of people interested and involved. Have their questions been answered?
Groups that engage in a way excessive in psychological tactics such as injecting “fear of missing out” (FOMO) should be considered red flags.
Reddit is a very interesting social network in the crypto universe. You will always find a subreddit, because if the token has potential, there is almost always a discussion on Reddit about it. In case Reddit isn’t talking about it yet, either you’re really ahead of the project or it’s a potentially risky project.
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