If you’re new to crypto or looking to make more confident investment decisions, trying to find the answers you need can be difficult.
Imagine your first dive into some basic research. You hear about the market’s potential for large gains and think, “Hmm, maybe it’s time to get involved.” It’s the same story for many newcomers, especially during bull cycles when valuations are soaring.
Without much prior knowledge, you may assume a quick Google search on what token to buy will suffice. Google then explodes with pages upon pages of websites, promotions, news, blogs, forums, and social media posts, all offering the latest investment advice — it’s overwhelming.
Suddenly, everyone is an expert. There are tokens you’ve never heard of, yet somehow, self-proclaimed ‘influencers’ seem to have all the answers and you start wondering if you should trust these total strangers.
However, the fact is that no one knows what’s best for you, and the only way for you to increase your chances of making a profit is to do your due diligence and develop a token research plan.
As with any exciting new venture, you’ll experience twists and turns along the way. To maximize your chances of making a profit and minimize your risk, you must plan, research, and apply critical thinking. If you lack the necessary technical knowledge, you won’t know where to start looking and as such, may fail to spot potential issues and wind up missing out on potential gains or even losing money.
This is why we’ve put together this guide for your token research, to provide you with the tools needed to filter information, analyze crypto projects, and focus on what really matters to you.
How to critically examine a crypto project
Step 1: The Walkaround
When assessing a crypto project, you should first visit its website to study its details: Do the graphics look professional? Does the site have typo errors? Do all its link work? Does the site give you a clear picture of the token’s features?
While these details may not represent the actual functionality of a token, they can still give you a good idea of whether or not its developers are serious about the project.
Step 2: The Deep Dive
It’s now time to examine the whitepaper, roadmap and team behind the project.
The whitepaper is a detailed account of the project. It outlines the foundations of the project and provides details that will give the rest of your research some context.
The roadmap is the business planning technique that looks at the short- and long-term goals of the project. Pay attention to how the project plans to grow and succeed. Are the goals realistic? Does the team have the means to achieve them?
The roadmap also helps you understand the project’s timeline. If it’s an older project, for instance, the roadmap will show you whether or not a project has been delivering on its promises. This will provide good insight into a project’s potential, as well as its problems.
The team of developers, marketers, advisors and coordinators behind the a project also plays a critical role in its success. If the team is not up to the task, the project will likely be short-lived. You can start by studying its track record: Which past projects were they involved in and how successful were they? All crypto projects are different but the team’s reputation is an important factor.
Why does the project exist?
It seems there are at least two distinct groups of investors — those who are in it for the long haul and those who are more interested in turning a quick profit. The former cares about the technology involved and the possibilities related to long-term investments, while the latter tends to chase ‘pump and dump’ schemes.
Projects can differ in a similar way. For example, in the 2017 — 2018 bull run, the crypto market witnessed new project launches on a daily basis. You could find the craziest project ideas, some of which had neither the intention nor the means to develop a working product. As you can imagine, most of them never got off the ground.
Remember that today, launching a token project is not that difficult. Anyone can embark on such a project, even based on something as frivolous as a meme, and sell the token on a decentralized exchange with very little effort.
That’s not to say meme tokens and other community-based projects aren’t profitable but that they have more significant risks, are generally less successful than other types of tokens, and tend to have shorter growth periods.
Still, it is advisable to pay attention to projects that focus on solving real-world problems or issues with current crypto technology. It could, for example, help to overcome obstacles in centralized banking systems, streaming services, data storage, or gaming. Also, crypto technology itself is always in need of projects that connect, scale, and make blockchains faster.
Problem-solving projects typically have more comprehensive objectives and a constant focus on sustainability. Their main goal is not to achieve specific valuations of their tokens but rather, to develop products that enhances their ecosystems, making token price an added bonus of successful project execution.
Price and tokenomics
You don’t have to be a trader to understand a token’s price movement history. You can simply open Huobi Global’s trading interface and observe how the price has moved within various time periods.
For instance, if the price spiked at 500% in the past week, it’s probably not the best time to buy and you’d be better off waiting for a drop.
On the other hand, if the project looks promising in all parameters and the price has been consolidating for some time without significant movement, it could be a good opportunity to gain some exposure.
Tokenomics is another number-based feature you can use when evaluating a project. Tokenomics is the token economy of a project and shows a token’s supply and demand, monetary policy, distribution, and stakeholder earnings.
A project can use its reputable tokenomics as a marketing tool to attract investors, as it provides solid evidence on the project’s. With poor tokenomics, even promising projects built on great ideas are doomed to fail.
Ask yourself these questions when considering a project’s tokenomics:
1. Does the token have a maximum supply? If so, how much?
2. How many issued tokens are in circulation and what percentage of the maximum supply does this comprise?
3. Does the project burn its tokens regularly?
4. Is the token inflationary or deflationary by design?
5. How were the tokens distributed in the beginning? For example, were they distributed through Initial Coin Offerings (ICO) or public sales?
6. Can a large holder manipulate the tokens price by selling their initial investment?
7. Is the project sharing token profits with its users?
The Internet connects us globally, allowing us to create and join communities in which we can share our unique interests and visions. Large companies strive to create brand communities that enable people to identify with their products and each other, in turn creating a loyal customer base.
The same applies to crypto — community equals value. Crypto communities drive self-sustaining marketing and initiate product development, allowing anyone to contribute and give feedback along the way. Furthermore, loyal community members are less likely to panic-sell their tokens in the unfortunate event of a market crash.
You can join and analyze communities on platforms like Telegram and Discord — even at the earliest stage of your research — to get a clear picture of how active the members are and what they are trying to achieve.
By now, you should have a better idea of what to look out for and which elements of a project can affect its potential, development and success. Next time you hear someone suggesting a token, you can use this article to ask insightful questions and figure out whether or not they have done their homework.
For example, if someone is rambling on about price predictions without any mention of other important project features, it may well be that they haven’t conducted thorough research. It may even mean this person has a hidden agenda and simply wants to pump their own holdings, which they intend to sell later for a sneaky profit.
Unfortunately, just like in any other business, there are scam projects, frauds, and egocentric ‘influencers’ in the crypto space. But hopefully, you now have the tools to recognize these bad actors, apply some critical thinking and ultimately, reduce your risk.
Use this lesson to help you create a checklist you can refer to whenever you need to evaluate a token. Reduce your risk, invest with confidence and aim for maximum profitability.