How to do crypto research wisely?

80% of new cryptocurrency projects are scams, according to a study by Statis Group. Of the 20% of real projects that are left, 50% will fail. Among all the crypto projects, only 10% will wind up surviving and achieving some level of success. What is the best way to ensure that you do not lose money 9 out of every 10 times when you invest in cryptocurrencies? This article is just about that!

If we knew what we were doing, it would not be called research, would it?

Albert Einstein

What is DYOR?

I began my cryptocurrency journey just before the notorious ICO bubble in 2017, when the bull run was at its height (bull run is a period when prices of crypto are rising). Even though I had a lot of experience trading on traditional markets, the cryptocurrency space was entirely new to me, with a number of challenges and traps. I lost money more often than I would like to admit. 

But there is a way to protect your capital when investing in crypto. What can you do to pass on 90% of these opportunities? The answer is simple: DYOR – Do your own research!

DYOR is one of the most important abbreviations in the world of investment, and it is especially important when it comes to cryptocurrencies. When you get scammed, the chances of getting your money back are pretty slim in this space. The easiest way to limit the risk is to stick to the big projects with established track records and legitimacy. Most of the biggest projects today are legitimate, but in this world you can never let your guard down. The famous Bitconnect scam was once among the 20 biggest cryptocurrency projects in the world. Pretty good for a scam… In case you want to dive deeper into the world of altcoins, DYOR is your best friend and you should always hold his hand on this journey. 

Here is how to do it:

Step 1: read the whitepaper

Crypto whitepaper

This is where you start. A whitepaper describes the project in detail. Spend some time here. By reading the whitepaper, you should be able to glean a fairly thorough understanding of the project’s goals and objectives. 

It will be helpful to ask yourself questions like:

  • What are they trying to achieve? Is blockchain technology even needed in this specific space? There are a lot of projects that are here to take your money and ride the new-tech hype wave, just like in the dotcom times. Answering this question will help you determine most scams quickly.
  • How big is the market they are entering? If you know the answer it will be easier to determine the possible market cap in the future and their growth potential.
  • What is the token distribution model? You want to be super cautious when investing in a project that has a big chunk of the coins controlled by the team, or even worse, only by one person.
  • How far are they from having a working product? Just imagine the risk difference between a project that has a working product with real use cases vs. one with only the whitepaper full of ambitious goals and no product in sight.
  • Do they have a clear roadmap to achieve their goals?

The whitepaper is an industry standard. In the crypto space, every project has one. If the one you’re researching doesn’t it’s a big red flag—stay away!

Step 2: take a look at the team

Just like in the world of traditional businesses, the team ALWAYS determines the success of the project. 

  • Who are the leaders?  
  • How experienced are they? 
  • Have they worked with this technology before? 
  • Do they have some previous successes that can be used to determine their skills? 

When researching the people behind the project, dig deeper. Be sure that they are real and will do what it takes to realize their vision. The team doesn’t have to be huge to achieve success but it has to be real, driven and with some proven track record.

Make sure you visit the GitHub profiles of open source projects when researching them. GitHub is a platform for collaborating among software developers. This real-time view of development work is a fantastic tool for investors. 

Step 3: join the community

There is no cryptocurrency without the community.

Piotr Borowiec

Go and join their group on all the different platforms like Telegram, Discord, Facebook and Twitter. Follow their threads and join their discussions. 

  • Are there people excited about this project?
  • How many of them are there? 
  • Are people engaging?
  • Are the discussions meaningful? Or is it just a ‘moonboy gathering?’ 
  • Is the team engaged on these community channels?

Ask questions, especially the difficult ones and see what kind of answers you get. 

The best research you can do is talk to people

Terry Pratchett

If you are interested in learning more about a project, your best bet is to research the community. I promise you, the time you spend here will be totally worth it. Along the way, you might make some awesome friends and learn a lot about a certain cryptocurrency project and cryptocurrencies in general. Even if in the end you decide a project is too risky to invest in, it’s OK; this research just made you a more sophisticated and smarter investor.

Step 4: understand the risk profile

When you already know a little about a project it’s time to assess the risk.

When evaluating smaller projects, liquidity risk is one of the most important factors an investor should consider. Liquidity means an ease (or lack thereof) with which an asset can be converted into cash without affecting its price. The best resources for this kind of research are good old coinmarketcap.com and coingeco.com. A good rule is not to invest significant amounts into projects with an average daily volume of less than $1 million. 

Regulatory risk is another factor you should consider. It is essential to make sure the team behind the project is following and understanding the recent regulatory changes. Are they prepared for the possibility of future changes in rules imposed by local or national jurisdictions? Asking questions in the project’s community channels is the best way to conduct this kind of research. 

Then we have the product risk. If the project is still far from having a working product, there is a higher chance that something will go wrong along the way. You should always keep in mind how far the team has to go before delivering a working product.

In general, as you can imagine, the newer the project, the higher the risk (and the reward potential).

If you’re just starting your crypto-investment journey, try sticking to already proven projects with a lot of capital and developers’ backing. Followed by some other established projects (producing passive income if possible) with no more than 10% of your crypto portfolio invested in low cap, more risky altcoins.

Your first step to successful blockchain investments is to understand the risk profile of a given cryptocurrency. 

I know, this is a lot of work… But this work will pay off.

How to speed up the research process?

If the time is tight, and I can imagine it is in most cases, you can do 2 things to speed up the research process:

  1. Focus your investments on the launchpad projects. The launchpads find the best projects, vet them, and provide community support to the ones they select. They are usually led by experts with a lot of experience in the crypto industry, who know a lot more than any of us. The downside to these platforms is that, in most cases, you have to stake a considerable amount of tokens in order to take part in their allocation. All of the blockchains have these kind of launchpads, here are a few links to the most popular ones: 
  1. As a second option, if you are too busy to conduct all your research, you can join a group or newsletter that does all the research for you. Although it will still be necessary to evaluate the projects that they find, the benefit is that you do not have to search yourself, and you only evaluate coins that have already been vetted by experts. There are a lot of options available when it comes to these. After being a member of more than ten, I settled for a couple of them that made me the most money. At the moment, my favorite products are DEXLAB and LowCaps from Mr.Advice Crypto Trading and Education group. Both of them focus on the new projects with potential that are the part of bigger trends (like DeFi & NFTs at the moment).

If the budget is tight, here is a list of useful free resources you can use while evaluating a project:

One of the oldest cryptocurrency websites that was bought by Binance in 2020 for $400 million.

Allows you to track your portfolio, even if you have multiple wallets.

CoinSocialStory is a crypto market live data monitor. It delivers vital data on the most popular cryptocurrencies in a visually engaging manner. Whether you are a professional trader, media outlet, or just crypto curious and newbie, CoinSocialStory offers indispensable tools to stay updated on the slightest cryptocurrency market movements.

Also, make sure to check out my blog.

Let me know in the comments below what is your favorite project that no one is talking about, and what steps you take to evaluate new gems.

I wish you only profits!

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