How To Research Cryptocurrency – Step by Step
The fact that you landed on this site means that you will most likely be significantly more successful with your personal finances than most people.
Because you have realized that you have to inform yourself and know what you are doing. And that of course always requires a certain amount of commitment and time.
Only those who deal intensively with money and assets have a realistic chance to become wealthy over time. Things you put energy into will grow. Great that you have the right attitude!
If you want to research brand new projects and coins, use these listings:
When you’ve picked a coin you’re interested in, then we recommend doing the following research steps. These are the points you should research about a coin:
#1 Fundamental Information
At first you should take a close look at the general raison d’être and get a rough overview of the project.
This includes the following points:
Check Project Website & Whitepaper:
Is the project unique or just a duplicate of an older one? What purpose does it have / what problem does the project solve? Cheap duplicates of older projects are trash unless it has an extremely smart new feature that adds a lot more value to the whole idea.
Roadmap / Plan
Check if they have a clear roadmap with milestones they want to achieve. A serious project will have a reasonable management and a comprehensible plan that makes sense. They will have milestones and goals.
Who’s the Founder?
It’s important to find out who’s behind the project – what’s their CV / qualifications / reputations? Do those people seem trustworthy and serious based on their background data?
Are there famous Investors?
Also check if any famous investors are backing the project, which can be a quality sign and increase trustworthiness.
A project with good fundamentals might already have partnerships with other companies – check if this is the case and who the others are and what they want to achieve together. What’s the background of the partnership or the agreement with the partners? Make sure the partners don’t belong to the same owner in the background, this would be a sign for a red flag.
#2 Technical Data
Important: All technical data should be transparent and easy to find. If this kind of data seems to be somehow hidden, hard to find and not communicated, then this is a sign for a red flag.
Market cap itself isn’t a quality indicator in that sense, because very new coins usually have low market cap and can only grow over time. But as an investor you have to differ between low or micro cap coins and middle to high market cap coins simple because this gives you an idea of how much you can invest. You can’t put a lot of money in coins with low market cap.
Supply: Is it capped or infinite?
Does the entire supply already exist, or how much does already exist in % and how much will still be mined / created and distributed in the future?
There shouldn’t be a big gap between the circulating supply of an altcoin and its total supply. This would be a sign for a larger premine and you don’t want to look for coins where the initiators might hold a too big position of the tokens. Such altcoins are usually a scam.
Circulating supply is in the coinmarketcap table – total supply has to be checked externally: by clicking on the circulating supply link of the altcoin on coinmarketcap.com, you get to the blockexplorer of an altcoin which should show the total supply somewhere, or, click further to the project’s official site. You can also use your search engine to see if a premine has been detected.
Distribution of the Tokens
Do the initiators / founders hold the majority of the supply, or a relatively high percentage already – e.g. 30% or 40% or even way more? If the they hold more than a few percentages, we would consider the coin a scam, unless they have a very very good reason for it, which is usually not the case.
How fast will the coins flood the market from the mining process? Is there inflation? It’s important to know how many coins will still be created and in what time how many of them will get on the market – for example, if the future mining process will release too many coins at once over an extended period of time, than there will be inflation, no scarcity and price can do nothing but drop. So scarcity is one of the major factors for the longer term value of a cryptocurrency.
The total supply of Bitcoin for instance is capped to 21 million, as you might know, and due to the decreasing supply of the mining process (every 4 years less coins get mined due to the Bitcoin “Halfing” event) price tends to rise.
#3 Markets & Community
Exchanges – Where can it be traded already?
On how many exchanges the coin is already tradable may not necessarily be a quality feature as such, because very new coins have to start somewhere first of course and are not immediately available on many exchanges. Nevertheless it can be useful to consider only coins that are traded on exchanges that are practical for you.
You might not want to have to register only for that one risky coin on any tiny single unknown extra platform if it is not yet available on Binance or Bittrex. This is just a thought you might want to consider. However, Yobit and Crex24 can be good spots to have an account for possible coin picks in the future.
There may also be brand new coins that are just conquering the first small unknown exchange, if they are listed on bigger exchanges in the future. If you are very lucky you become an early investor.
Check the Community
Also do some research to find out if there is an active community backing the coin. Compare how many threads in leading forums (bitcointalk.org, reddit.com, etc.) there are concerning an altcoin, if those discussions are still active, if the threads have many pages and if there are still lots of new posts.
Look for quality features like active developers and a certain engagement from the initiators’ side. Do they have active social media accounts with regular announcements or statements (such as Twitter, Telegram channel, Discord)? Sort out the “dead” coins without any social support and no further development.
About Scams and Fraud in Cryptocurrencies
Unfortunately, many people lose their money in scams. Because they are bona fide, do not know the difference between scam and “good coin” or trust foreign promises, which are often very well made. But it is also not quite easy, since there are many scammers in the field of cryptocurrencies. This ruins the reputation of the entire industry.
What is Multilevel Marketing and a Pyramid System?
Sometimes people who are new to crypto wonder whether Bitcoin is a Ponzi schemes. In such pyramid schemes, profits are only generated by recruiting new participants who contribute their capital. Now one could argue that the price gain of Bitcoin comes from new capital in the system.
What is overlooked is that, unlike the pyramid scheme, Bitcoin has a real technology that is used as a means of payment. Bitcoin creates new business models, jobs, industries and is a real hope for many people to live a better existence.
In classic pyramid games there is no or a very overpriced product at all and the founders will soon be long gone with the money. This works as long as people are in good faith and take guarantees like “30% profit in 30 days”, “Getting rich in 100 days” at face value. No person, which is seriously concerned with cryptocurrencies, will speak of guaranteed profits. Possible profits, even high possible profits, but for sure not guaranteed.
What is a Pyramid System for Cryptocurrencies?
Maybe you’ve heard of BitConnect. That was a Ponzi scheme. Basically it is similar to a snowball system, except that the founders themselves advertise the investment. In a pyramid game you don’t know the founders. The first depositors are paid with a part of the money that the subsequent payers bring in. Therefore the first depositors make profits and defend the concept whenever someone says it is fraud.
Very high returns are promised, for which the investors do not have to do anything but deposit. Well, there is simply no such thing. It can only be fraud. By the way, the Ponzi system is named after Charles Ponzi, a Parma-born immigrant to the United States who relieved his “clients” of 150 million dollars in 1920.
Many cryptocurrency projects are scams or at least not quality projects. As said, they are often cheap duplicates of older ones, with just a slight difference to give it a reason for being a separate project.