Doing your research on crypto does not have to be tedious; once you understand the necessary information to look for and where to look for them, making informed investment decisions become easier.
This article is intended for crypto investors and the crypto curious—with a breakdown of all the important things to consider.
If you've delved into the crypto space for a while, you will have seen these words many times: “DYOR (do your own research) before you invest”, “this is not financial advice, DYOR”.
All your sources of information are advising you to do your own research before investing, and this is sound advice. The Crypto industry is an economic experiment happening in real-time, and more often than not, the market can act irrationally. Market participants (investors) need strong, clear, and measurable incentives not to panic sell in the event of a downturn or “FUD” (fear, uncertainty, and doubt). If their sentiment towards the investment is not one of the community but zero-sum, then you can expect massive dumps at irrational moments that would otherwise not require such action.
Tokenomics (a portmanteau of the words token and economics) is very important, and you need to understand the unique tokenomics of a coin before you consider investing. However, research, especially in the crypto world is never really straightforward.
Tokenomics example by Oraichain
We will walk through what you should look out for, where you should look for the relevant info and why you should consider these.
Always remember that the behavior of market participants can't be accurately predicted. Even during bull markets, learning about tokenomics can help you stay away from bad projects, and occasionally, catch the good ones early.
Some key things to consider when researching a project/token/coin
- Utility: Is there a utility to the token beyond mere speculation? Does the roadmap show a clear plan to achieve adoption and growth?
- Total Supply (Distribution, unlock schedule, and so on)
How many of the tokens exist and how many are already in circulation? How are the tokens being distributed? How is the remaining supply going to be unlocked (open to distribution)? What is the annual inflation and deflation rate?
The supply of tokens in a project is very important. A high allocation of tokens to internal team members or investors makes the token vulnerable to a few large holders and highly centralized. Unlocking dates is also a very important thing to consider. If unlocking is accelerated, it makes the tokens susceptible to large dumps during unlock "(investors are cashing in), which almost always drives the prices of a token down.
Does the token have a deflationary component? It is always best to understand the deflationary economics of a token; this is known as “burning”, which limits the number of tokens in circulation, to prevent inflation and an oversupply. A good sign is when the token is deflationary and further has a burn mechanism that grows with usage.
- Demand Drivers (growth drivers, holder incentives, adoption)
What will drive the demand for adoption?
A good way to gauge this is by looking at the whitepaper, joining the social channels of the group, and listening in on conversations. However, this is a double-edged sword. A lot of this information has an element of bias in it and may not necessarily give you the broad perspective you need to make an informed decision. This is called “hopium” (hope + opium).
So, research what will drive demand and adoption beyond pure speculation. What are the incentives to buy, hold, stake and lock the token? The more the incentives (which must be sustainable), the higher the chances of growth. A good way to also gauge adoption is how incentivized developers and builders are to come to the project and build there.
Ethereum saw massive adoption due to its vibrant developer community, building all manner of dApps (decentralized apps) and Dexes (decentralized exchanges) projects on the Blockchain.
- The White Paper- Check the white paper for the utility, use case, road map, and vision of the project.
- The Community- Are they invested in the long-term growth, or just interested in the short-term gains? Are they paid hype men or passionate investors like you? Check the socials, are the active participant's hype men? Is it full of bots and fake followers? These are always red flags.
- The Team (developers, advisors, partners).
- The project Website.
- The Competition- Who are they competing with? Is there an early mover advantage or it is an over-saturated market? As a piece of general advice, be wary of highly speculative projects with low market caps competing in an oversaturated space.
- Trading Volume and Liquidity- You can get most of these charts and data from reputable crypto-focused websites, which we will discuss below.
- The Market Cap of the Project — the market cap is gotten by multiplying the circulating supply of the token (the tokens in circulation) by the current price of the token.
Also Read: 7 crypto-trading apps for Africans
What sour ces should you trust?
As a rule of thumb- even with the most trusted sources, NEVER BELIEVE EVERYTHING YOU READ.
After a while, you will always find a source you most likely trust the most and always go to them first for information, but never make them your only source. One way or another, you are bound to make a bad investment decision if you do. No one is right all the time, and no matter how pure the intentions, they will be wrong from time to time.
DYOR involves using different sources and social channels to give you a more informed opinion and perspective on a project you're interested in. The more opinions and mediums you engage with, the more confident you will feel in coming to your own conclusion.
A lot of people, websites, and channels pose as trusted sources for crypto news these days, and it sometimes becomes overwhelming when you have to filter through endless sources. Everyone, including those with dubious credentials, always seems to have an opinion, so it is important to choose your choices carefully in crypto.
Have they been involved in past projects? What is the status of those projects, and what happened to investors’ money? How big is their community or following? If they have a solid following, they have a lot more to lose for spreading bad info so they usually spread legit ones.
If you want to follow websites, stick to the most popular ones, with large followings on all social media channels, as you are most likely to get quality information there. Check the comment sections, what are the opinions of followers regarding the news.
Is the advice or opinion balanced? Always consider the ones that give both sides of the story. The best crypto sources will give both pros & cons about any given project, so you get different angles and make a more informed decision.
Always disregard ad content, where the person you are listening to is being paid. Paid advice is more often than not dishonest advice. Even if there is a motive or incentive to give out that information if the source is upfront about and honest about the bias, they are usually more credible than those that hide it.
Websites are a good way to start, especially when you need high-level information on the project. You can find things like market cap, trading volume, price history, charts, and so on, on crypto-focused websites.
Look at the charts to see how it has been performing recently. A high-level view will give you a rough idea of its risk-reward. The lower the market cap, the more speculative it is generally. This way you can actually filter much of the info you need to know if it’s not the kind of investment you want to add to your portfolio, saving you a lot of time.
Recommended — Coinmarketcap, Coingecko, Crypto.com, Coindesk
Searching Social Media
If the info is time-sensitive, social media is often the best place to get it, especially for projects you are new to and haven’t heard about before. What are the most popular social media channels and how do you use them to DYOR?
Twitter is so useful because of the timeliness of its information. Most announcements, hints and helpful conversations happen on Twitter, especially as it's a public space, so it helps you get in early. You get a lot of the info in real-time, and you can use hashtags and search functions to follow the latest trends. Time is everything in crypto, and the earlier you are in on a project, the better the returns.
Is the coin getting listed in a major exchange? You'll likely get it first on Twitter. Twitter is where the action happens first. However, like all public forums, Twitter is full of people with opinions, many of whom are shilling and promoting the coins in their portfolios for personal gains. Engage different accounts to gauge different opinions on the projects, look through the comment section and follow hashtags related to the project to get a 360 view of it.
It’s also easy to search for new tweets on a project you are interested in – just type the $ sign followed by the abbreviation of the coin eg $FTM
YouTube is much slower for real-time information because creating content takes considerably longer than just sending out tweets. However, YouTube is the best resource for in-depth content on your favorite projects, giving you a much deeper perspective and understanding of the topic, much more than any other social platform. It’s also perfect for beginners who want things explained to them in a simple, digestible manner.
A downside to YouTube is that it is rife with affiliate marketers and click-baits, and what makes it even more worrisome is that these types of content creators have found a way to “game” the algorithm into ranking them at or near the top in search results.
Always prioritize accounts with a good number of subscribers, with consistent likes and views with videos that are informed, reliable, and time-sensitive. Check through their other socials and see if they are actively engaged beyond YouTube; this is an obvious sign of a credible YouTube account.
Never stick to one information source, no matter how drawn you are to the channel. Have at least three go-to sources on YouTube, this helps with variety, a lot of very useful and actionable tips, and a much better understanding of how the market works.
- Telegram / Discord
Telegram and Discord have a clear advantage; they are the best places to actively be part of a community. Being part of highly active chat groups where people are diving deep into specific coins and niche crypto topics is important to understanding the crypto space, and these channels are good when it comes to updates, community forums, trends, and market sentiment analysis.
Consistent usage will give you the needed experience to navigate the communities better and know which crypto groups are legit and which are filled with bots and fake accounts. At the end of the day, all the groups are eventually very noisy and there are always people spreading highly speculative (or just false) information. Always explore beyond the information on these platforms.
Always start by following the official channel and group of the project you are interested in.
Pay particular attention to the admins and how they behave. Be wary when they seem too optimistic on the project and it’s with no actual proof of concept or roadmap to try out. Also, watch out for how they respond to fair criticisms of their projects.
Be vigilant of scams and direct messages; it is always best to avoid clicking on any links that seem too good to be true. They most likely are.
The Website & White paper
Bitcoin White Paper
Checking out a project’s official website is vital if you are considering investing. These days, a quick gig on Fiverr can create a convincing website, so don’t be fooled by the flashy appearance and UI of a website. A well-designed website does not translate to a legit project.
This does not mean both are mutually exclusive; projects with genuine potential will definitely have websites that work and are designed well.
The website should share useful information about the key people behind the project. Poor designed websites, spelling errors, and a lack of transparency around the team are all red flags of an outright pump & dump scheme.
White papers are usually very technical and may contain a lot of details that average investors may find hard to understand, but reading the white paper of a project is always advisable. The white paper should give a comprehensive explanation of the project, its purpose, utility, future prospects and underlying technology, which all good projects will go into in detail.
Researching the team
Are you backing the right team?
The team is the backbone of a project, and are the main determinants of its sustained growth. Knowing a lot about the team and advisors is a great way to see if a project truly has what it takes to be successful. If you can, a background check on each team member can be a lifesaver when it comes to investing in a project. A lot of projects have gone under due to uncovering illicit activities in the background of core team members.
A good crypto project will be upfront about its team and developers and should have a number of impressive partnerships.
- Is the team or a considerable number of them doxed "(their real identity is exposed), well-known and reputable?
- What is their track record with other projects?
- How responsive is the team to questions and queries?
- Do they have an actual prototype for testing? If not, what is the roadmap?
- What partnerships or collaborations have they struck to see the success of this project?
- Which news outlets are talking about it?
What are reputable crypto-focused news sites saying about the project, and has it been in the headlines recently? If it hasn’t, don’t assume it isn’t a good investment, but it should give you an idea of how unknown/risky/speculative a project it is. A good indicator is if the articles on the news sites are more analytical than informational/trendy.
On Celebrity Involvement
Celebrity involvement in projects can be a good and a bad thing. It is good for the project because it brings it to the mainstream and introduces it to a large audience.
On the flip side, celebrities may just be an avenue to drive prices up and then rug investors; a recurring trend in the crypto space. Because celebs stir up FOMO (fear of missing out), it is easy to drive up prices in the short time.
It is always a red flag if a project is not growing through a dedicated community, but solely through courting and promoting itself through celebs. When a project is big enough, with a large community backing it and a strong foundation, then celebs can be a good sign (an example is NFT collection Bored Ape Yatch Club).
Join Crypto-related meetups and gauge sentimental analysis
Crypto meetups are a way to be part of vibrant communities and feel the pulse of a project. When communities built around a project regularly host meetups and events to talk about the growth and future of a project, it is always a good sign.
Sentimental analysis helps to understand investor behavior in such a highly speculative and volatile market like crypto. With sentimental analysis, you’re looking past the numbers to see what the market is thinking and feeling. As a result, this research is often done through social media, public forums and news stories.
A downside to this is that market actors are not always rational; public figures like Elon Musk can have a big influence on asset prices with just a single tweet. So, the real time sentiment towards a particular crypto may not be a reflection of what is actually happening.
A coin could lose a lot of value because of a single tweet from Elon, but that does not change the fact that the project may be solid and they are still on track to achieve what they have set out in their road map.
DYOR never ends
DYOR always goes on, and you have to always be active and vigilant about your portfolio. This extends to even when you have invested in the project. Things change quickly in the world of crypto, and a single wave of FUD (fear, uncertainty and doubt) is enough to leave you exposed. Investors must always stay informed about the project milestones, changes or additions, announcements and external threats from competing projects, changes to the team and other connected topics.
Don’t believe everything you read
A key component of DYOR is to not blindly believe what you read or predictions/tips you see. The crypto space is unfortunately rife with bad faith advice, mostly hype, coin shilling and sometimes straight-up pump and dump schemes.
Disregard promotional articles on news sites, as they are always exaggerated headlines intended for the sole purpose of generating clicks, hype, and FOMO (fear of missing out). When you’re done reading, always consult other SM channels to try and get the full picture.
Patience is key
Never FOMO (fear of missing out) in crypto, and if you do, chances are you are going to be taught a painful lesson. Never rush into an investment, especially if you don’t fully understand yet.
Realize that we are still in the very early days and that there will always be other great opportunities. Be curious about projects and get interested in the tech and the space in general. Contribute to trending topics and make your voice heard on SM platforms, it makes the process much more fun and engaging.
Trust your instincts and guts. Crypto is a highly sentimental space, and if your gut tells you not to invest in a project, unless there are compelling reasons and enough research done, it is always better to follow your instincts. If something doesn’t feel right, it’s best to stay clear.
Once you are actively engaged and know what you are looking for, you will always find the right community and project for you. Staying unemotional is key, but if something doesn’t feel right about a project or website, try not to “ape in” until you have found compelling reasons to do so.