5 Essential Research Tips for Investing in New Cryptocurrencies

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Anyone who has invested in cryptocurrency or is considering investing in cryptocurrency knows the importance of doing their own research before parting with their hard-earned cash. But when we’re constantly being bombarded 24/7 with seemingly infinite new altcoin releases, influencer tweets, and unsolicited financial advice from our brother-in-law, it can be hard to cut through the noise and figure out which investments actually live up to the hype.

1. Research the team

You’ve heard about betting on the jockey and not the horse, right? Knowing that a good team is behind a project is crucial before giving them your money. Most websites for cryptocurrency projects will have a “team” page where you can see who the developers are, look at their Twitter and Linkedin accounts, and see what projects they’ve been involved in previously.

Chances are you might not immediately recognize the names of the developers or the projects and companies they’ve worked with, but a quick Google search should help you get a grasp on whether they’re real people or not. If their profile pictures are fuzzy and they only have 12 followers with no recent posts or activity, that could be an indication that the developers aren’t very credible.

That said, there are plenty of legitimate projects that were created by an anonymous team (ever heard of Bitcoin?) and so this isn’t necessarily a dealbreaker- just something to be aware of. In the event that a project has an anonymous team, exercise extreme caution and pay close attention to the other criteria listed below.

2. Look at the tokenomics

The world of crypto is full of confusing lingo and terminology, and there is no other document on the face of the earth with more of that nuanced lingo than a project whitepaper. However, over time you will come to better understand the terminology and find that a tokenomics whitepaper can be your most helpful resource in determining whether you want to invest in a new project. All project websites should have a whitepaper with tokenomics and a roadmap (if they are missing one or both of those things, or they are difficult to find on the website, this could be a red flag).

Consider researching important concepts such as minting, burning, inflation, and market cap, to name a few crucial ones. These concepts help you to understand the intrinsic worth and economy of a coin or a project. Although learning these concepts might seem daunting at first, there are a plethora of resources such as videos, articles, and podcasts to help you get a better grasp of how they apply.

For a more in-depth description of tokenomics and how to understand a project whitepaper, check out our article here.

3. Understand the utility

With the rise of meme coins like Dogecoin and Shiba Inu, it seems like any crypto with a picture of a dog on it can make you a profit. Even though there are plenty of people who have made some ridiculous gains with hyped-up meme coins, those instances are few and far between. More often than not, these types of projects are incredibly risky investments because they have no long-term use or utility.

Utility is adding or creating value in some way. Bitcoin is valuable because it created a method of exchange that was cheaper, faster, global, and cannot be counterfeited. In other words, it solved practical problems that previous methods could not.

Just like technology and software and constantly advancing or being improved, there is infinite room for innovation in cryptocurrency and blockchain technologies. A great example is Ethereum, the second most popular and valuable cryptocurrency after Bitcoin. Ethereum added additional value to what Bitcoin offered by enabling smart contract technology which created a framework and infrastructure for future crypto projects to be built upon. When researching new cryptocurrencies, consider what utility or value they are creating, as this is a very strong indicator of whether it will be a good investment.

4. Research the community

In addition to researching the team of developers behind the project, it is equally important to research who is already supporting and backing the project. A great way to find social proof is to observe their social media presence and communication channels.

Join their Telegram and Discord channels and look for how many members are in the channel, how active the admins and staff are in the chat, and what kind of things they’re talking about. If their Twitter page is constantly providing updates on the progress or goals of the project, that is a good sign. If there is low admin activity on the Discord or Twitter feeds, this could be an indication of an untrustworthy project.

Remember, it’s important to not get too fixated on the noise surrounding a project. Whether people are shilling (telling people to hold or HODL a coin in order to inflate its value) or spreading FUD (fear, uncertainty, and doubt) in order to drive the price down, almost nobody has your best interests in mind except for you. Although a strong and active community is a good sign of a strong project, be careful to not rely too heavily on the opinions of others.

5. Research who is backing the project

One of the greatest indicators of a strong project is when it is backed by credible investors. Check for a list of investors on the website, or see if it is associated with an “accelerator” or “incubator” such as Binance, Bluezilla, or Gamezone. These incubators invest in the launch of new projects that meet their criteria, and so it is usually a good sign if a project is associated with one. Keep in mind that anyone can put an incubator or investment firm logo on their website and claim to be backed, so it is important to do your own research and go straight to the source to validate those claims.

Remember, if a project is backed by investors it doesn’t automatically mean it’s a guaranteed moonshot and you should turn in your two-week notice at your 9–5 job and prepare to spend the rest of your life drinking Pina Coladas poolside- it just means that the likelihood of it being a scam or a rug pull is greatly diminished.

The Takeaway

Cryptocurrency is an exciting and potentially lucrative opportunity, but like all things in life, it carries inherent risks. Understanding the importance of doing your own thorough research will help you avoid scams and rug pulls, find the hidden gems, and become a skilled investor.