A Comprehensive Guide: How To Do Crypto Market Research
If you're a newbie in the crypto world, knowing what coins to buy can be difficult. Before you invest in any coin, it's important to do your research. Investigate the whitepaper to understand the project's goals, tokenomics, products, features, and information about the team.
As a newbie in the crypto world, one of the most important questions you must have asked is this: “how do I know what coins to buy?” You also must have heard the popular phrase "do your own research” (a.k.a DYOR), but they really don’t tell you how to go about it.
Market research is important because not every coin will do well or make you money. In fact, not every coin is legitimate. A simple internet search and you’ll be amazed by the number of scams run in the name of “prospective new coin”. That’s why it's imperative that you do your due diligence before buying any coin, regardless of the hype around it.
How do you research cryptocurrency, and what are the things to look out for before acquiring a crypto asset?
Investigate the Whitepaper
Maybe to you, the word “whitepaper” is just one of those buzzwords that you don’t even know what they mean.
A whitepaper is a document that outlines a project's purpose, vision, and philosophy.
Whitepapers for cryptocurrency are usually published alongside the project's launch to attract investors. Whitepapers usually include an overview of the project's goals, tokenomics, products, features, and information about the team.
The primary purpose of a white paper is to illustrate the fundamentals of a project and explain how it can benefit potential investors. Basically, every information you need to know about a coin should be available in its whitepaper.
A solid whitepaper should contain:
A solid whitepaper contains the purpose of a project and how it works. That is, why the coin exists, what it does or what problems it aims to solve.
Bitcoin, for example, according to its whitepaper, serves as a proposed solution to the flaws of the traditional payment system. Some of these flaws include non-reversible transactions, fraudulent transactions, and the need for third parties, i.e. the banks.
A coin worth investing in should solve a problem, which should be the goal of the coin's creators, not making money. If you don’t see a clear and feasible purpose in the whitepaper, you probably shouldn’t get involved with such a project.
Utility is another important piece of information that should be present in any solid whitepaper. Many cryptocurrencies today have more than one use aside from being a medium of exchange. Some coins, like Ethereum, are used as native fuel to power a blockchain, while others are NFTs that provide proof of ownership.
Before investing in any project, it’s important to know the total supply of that coin and the maximum supply that can exist (mined and yet to be mined), and how much supply of the coin is actually in circulation. Some coins, like Bitcoin, have a fixed supply of coins, making it scarce. This information should be available in the whitepaper.
A roadmap is a timeline of events that shows the expected progress of the project. It helps to understand what a crypto project wants to achieve in a given timeframe. If the timeframe given in the roadmap is too short, it’s probably not realistic. The whitepaper should contain information such as the token's launch date, an initial coin offering (if there’s one), and the length of the sale.
The whitepaper has to be good, and if a coin doesn't have a whitepaper, that’s a big red flag.
But having a whitepaper isn't enough.
Investigate the Team
Cryptocurrencies, much like any other product, are created by a team (usually founders and blockchain developers).
When choosing a cryptocurrency, you should understand who is building the project and its vision. Of course, you don’t want to find out that the team responsible for your project is either incompetent or non-existent after investing in the coin. That would be disastrous.
Hence, it’s important to research the professional experience of the team running the project. If these people don’t have solid experience in the blockchain industry, then you should be wary of investing in such projects. The whitelist contains basic information about the team, but you should do your own research on major social media platforms, like LinkedIn and Twitter. Are they really who they say they are? If you can’t find the profiles of the team members as claimed in the whitepaper, then we can assume it’s a scam.
The founder(s) of the project should also be investigated. Unless cases where the founder chose to be anonymous, like Bitcoin, the profiles of the founders should be investigated across major social media platforms. An anonymous team is often a bad sign.
Investigate the Community
Cryptocurrency is largely community-driven. So, an active, strong, supportive and well-organised community is usually a good indicator that the project is legit and will do well. In contrast, the lack of a community or an inactive one could indicate a scam.
Social media platforms like Telegram, Reddit, Slack and Discord are some of the tools crypto projects use for their community. Any investigation about the community should be done on these platforms. You can learn more information about the project from the community.
Although a large and active community is not the only litmus for the legitimacy of a project (there have been coins with a massive community following that turned out to be a scam), the lack of one is likely a red flag.
What exchanges is it listed on?
According to CoinMarketCap, there are currently 22,820 cryptocurrencies. You’ll agree with me that no exchange can list every single one of these coins. So, a project being listed on major exchanges could indicate its legitimacy. Although a coin being listed on a major exchange is not necessarily an endorsement, its absence might be a reg flag.
Before you invest in any project, you might want to consider how or where it can be sold when it’s time to take your profit. So, find out where you can sell or use the coin.
The internet is where you can get information freely. But this also means that anybody with access to the internet can put out any information (including the wrong one) as facts. So, you can’t accept everything you see as gospel; information has to be thoroughly verified.
There are official channels through which information about particular projects can be verified. These can be the websites of the projects themselves or top crypto blogs.
Doing your research on crypto does not have to be tedious; as long as you understand the necessary information to look for and where to look for them, making informed investment decisions becomes easier. Don't believe everything you see, especially on the internet. Take extra effort to verify every information.