How to Research and Pick Cryptocurrencies
Any time the market rising people flock to cryptocurrency looking for “the next big win” and are constantly asking others to tell them what the best opportunity is.
Because in many countries the cryptocurrency market is not a regulated industry, it is one that is ripe with manipulation and scams.
Given this, it’s important to be able to do your own research and so I’ve assembled this handy guide for you.
Some tools that might be useful:
- CoinCheckUp.com – this is my preferred research site as they have a lot more data, and more diverse data than other price monitoring sites.
- Coinmarketcap.com – this is one of the oldest price tracking sites, and is more popular than CoinCheckUp, but has less data.
- Delta Portfolio Tracker – A popular cryptocurrency potfolio tracker.
- Blockfolio – A popular cryptocurrency potfolio tracker.
- Crypto isn’t an investment strategy.
- Crypto is highly volatile and highly risky. Any money put into crypto could be lost in a crash. It could take years to recover. It could never recover.
- The following information is not financial advice.
- This is a guide on how to perform research, and is formed from an individual opinion. It’s focus is helping you debunk some of the under qualified advice that others try to give in this space. It should not be considered complete or sufficient. You should never base any decisions on things you read online. Use your own best judgement.
Here is my personal approach to researching coins:
Step 1 – Understanding your risk profile:
A lot of people advocate for users purchasing cryptocurrencies and tokens that are “low-cap” ($10M – $100M) because they have the most opportunity to grow.
While this may be the case, the smaller a coin, and the earlier the project the more risk there is that the project can go to 0.
In traditional stocks some people are happy to make a 3% – 4% annual return, but would be in financial hardship if they lost money, and will invest in larger, safer and more stable stocks.
Other people, would only be satisfied with a return of 7% – 12% annual return. These people may also be willing to lose all of their investment. In their case they’d look at higher risk and turn around companies.
We say these two people have different ‘risk profiles.’
It’s important with any purchase (even something like a car) to decide what your financial risk profile is.
My personal view is that just because something has the highest chance of return, doesn’t mean that it is the best opportunity.
Step 2 – Identify New Coins:
There are three ways I generally discover ‘new’ coins:
- 1) Bitcointalk.org forum posts in the altcoin and token announcement sections.
- 2) Coins mentioned on /r/cryptocurrency
- 3) Coins newly listed on https://coincheckup.com/newly-added as coins tend to list on price trackers very early on.
Step 3 – How I rule out coins:
One of the first things I do when examining new projects is find really strict criteria to remove projects from the list.
Everyone should come up with their own list of things that voids a coin from being on their list, but here are a few I personally use:
- I don’t buy coins in industries I don’t understand.
- I don’t buy coins in regulated industries.
- I don’t buy coins that are inactive in communication on social media.
- I don’t buy coins that are registered in countries where I can’t validate that a corporate entity.
- I don’t buy coins if I can’t find their executives on LinkedIn and validate it is a real profile.
- I don’t buy coins that spam low quality partnerships on channels like /r/cryptocurrency
- If a coin is building a brand new technology, I won’t buy it unless there is a detailed technical paper explaining the new technology.
- If a coin had an pre-ICO with discount, I tend not to buy it. If I do, it would need to be a small ICO discount and significant time would have needed to pass so that early investors have likely already dumped on the market.
- I don’t buy coins if I wouldn’t use them as a customer.
These criteria I use to quickly filter down my list before I do some more detailed analysis.
Step 4 – Doing detailed research:
First and foremost I read the white paper and then I ask myself the following questions:
- Would I use this as a customer?
- Would I pay that price as a customer?
- Does this project require a new technology to be built?
- If I look at the team behind the project, do they have a previous track record? Have they run a successful company previously? What happened to that company?
- Does this team have the ability to build this technology? Are their engineers published in this industry? Do they have product managers and customer support?
- Is it clear how the project will get users/customers?
- Why are they using the blockchain – does it add value here? What are the pros and cons to using the blockchain here and why would the blockchain improve the current alternative? (Remember, right now blockchains are slow and costly in most cases)
- Watch out for absolutist claims. Every projects has downsides and cons, a real project will be realistic in outlining those.
After that, if it is an already launched project I check out the coin’s detail page on CoinCheckUp for example the Bitcoin page: https://coincheckup.com/coins/bitcoin/charts
I then look at:
- Tab “Analysis” > “GitHub Development” to see if there is active engineering development on the project.
- Tab “Analysis” > “Coin facts & figures” if it is a company I check the information on the CEO/CTO as well as some info on the team.
- Tab “Markets” – I check where the coin is trading to see if any of my preferred exchanges are available yet. If it’s on limited exchanges, I look for non-sketchy ones. I also may look to see if there is a large spread between currencies.
- Tab “Charts” – I check that the volume has a decent, growing and steady turnover. It’s easy to get trapped at a bad price in a currency that has a low volume.
Once I’ve gone through those pieces of information, I usually check out the subreddit of the project and ask myself questions like:
- Are they constantly announcing partnerships etc? If so, what will those partnerships do for me? Are they legitimate? If they are frequent low quality posts, I assume they are just trying to pump the market and I’ll avoid it.
- Are the users hostile towards people who are critical of their project, or who are asking questions? If it is a brainwashed, angry, subreddit that can’t have any questions, I usually try and avoid.
- Does their team’s marketing/communication people respond to posts in a genuine fashion or is there a lot of “marketing” language with no real answer?
- Finding “the next big coin” is overrated. When you weigh up the risk the odds are better that a divrese set of coins would be better.
Share your research methods!
Everyone has different research methods, and things they look out for. Consider sharing yours in the thread below so that others, especially new users, can learn from your methods!
How to DYOR (Do Your Own Research)
Doing your own research is not only heavily advised, but it can also save you from investing in projects doomed to fail. But how do you conclude an effective research on a cryptocurrency?
Firstly, the DON’TS:
#1 – Don’t believe any YouTubers with surprised or hyped faces and video titles such as “AMAZING OPPORTUNITY 1000X POTENTIAL COIN”. They usually just buy heavy bags of low market cap coins, pump them in videos, then dump it when all their viewers bought in as well. Rinse and repeat.
#2 – Don’t invest in a cryptocurrency based on one source. Always double or triple-check everything, and take every opinion with a pinch of salt.
#3 – Don’t fall for Pump and Dump schemes. They usually involve organized shilling on Reddit, Youtube, Discord, Telegram, etc., claiming to know the next moonshot that will make everyone rich. They do the same as Youtubers, buy bags of a certain coin, “announce” it to everyone involved, and sell their coins when the price is high enough. All the others are left with heavy losses, and the organizers just pick the next coin afterwards and repeat the process the next day.
#4 – Don’t ignore math behind cryptocurrencies. What I mean here is we see many newbies come here and say they bought XX,XXX coins because the price was $0.001, and what if it moons and reaches $1,000? Yeah, so prices doesn’t work that way. Lovinglyhandmade created a great website to help you better understand market cap potential of alt coins. The website’s name is The Coin Perspective, and it helps you with calculating the price of many coins if they had the market cap of a different coin such as BTC, ETH.
Secondly, what to DO:
#1 – You need to understand the basic terminology of cryptocurrencies first. For example, what is a blockchain? What are alt-coins? What’s the difference between a smart contract platform and a DeFi project? If you know these, then great, you can move on to step 2. If not, I suggest you start by researching these terms, and try to understand how crypto works in general. If you can find the time, I’d also suggest reading bitcoin’s whitepaper.
#2 – After you know which coin you are researching (and what type of cryptocurrency that is), you need to dive in and start reading and watching content. A lot. Also, don’t forget fact-checking, this is crucial. One other thing you should do is list its competitors (for example, if you are researching Ethereum, its competitors include Cardano, Polkadot, Cosmos, etc.), and COMPARE the cryptocurrency you’re researching with its rivals.
#3 – Look at what’s wrong with the coin you’re looking at and understand its weaknesses, not just the strengths that the weird minions tell you about all the time.
- Does it lack adoption? How long will that adoption take to come? What are the barriers regarding that?
- Is the technical protocol incomplete? What are the plans regarding that? How long will it take to have a version that fulfills the project’s goals?
- Is it decentralized? If not, is there a plan to make it so? When will that plan be complete and what will the protocol sacrifice in order to get there?
- Is the project liquid? Will the developers lose interest if the price does not increase and move on to another project?
I find it’s always best to consider the bad things about the project rather than the good things. It’s easy to sell someone on the good of a project, and much harder to talk about the bad and how to fix that.
#4 – Google “[insert coin name] scam” just to make sure nothing serious comes up. If you happen to find something that might indicate your researched crypto is a scam, make sure to get to the bottom of it.
#5 – Do a background check on the Dev team. Can you find them on social media? Are these real people? (Real photos, real posts, real connections, etc.)
#6 – Do research on people who’re already invested in the project. What about the community behind this cryptocurrency? Are they cult-like shillers, talking about nothing but the price of the coin? Conversely, do they talk about tech and its possibilities? Are they optimistic about future updates and developments?
#7 – Check the Nakamoto Coefficient to see whether your researched crypto is decentralized (enough) for you to invest in it.