How to do research on a cryptocurrency coin?
January 1, 2022
Investing in a cryptocurrency today is a smart move. But doing it with the right research is what sets you apart from the rest. Now what does doing your own research exactly mean? What does it actually look like? Is it difficult?
Here are a few methods that help knowing a coin before investing in it.
1. Tokenomics
Tokenomics is nothing but the economics of an asset. Most of the time you can view a coin’s tokenomics on their website or their Whitepaper. The first thing to check about a coin is if it’s inflationary or deflationary. Inflationary assets usually decrease in price over time if nobody continues buying. Deflationary assets increase in price. These assets are destroyed with time. So as time goes on, there are less tokens to buy. The demand stays the same, but the supply decreases and hence the price increases.
2. Presale data
Some tokens are sold to private investors, some are given to early users and some are mined by a closed group set of miners. Basically you need to find out how the token initially got out to the public. Each of the launch mechanisms affect the overall tokenomics. Many tokens are given to the users by a method called airdrop. Depending on the project in a long term vision airdrop could be good and bad both. Other ways a coin is typically launched in an ICO, a premise or a presale.
3. Social Media
One good signal of a coin increasing in price is the content creators mentioning it on social media. If someone spends their time and energy to bring new people into a coin by creating content, it doesn’t necessarily mean that the coin is fundamentally a good project. But it does mean that a community might form and it might lead to new investors to the project. This may or may not be good, but is a potential piece of information to know as an investor.
4. What problem are they solving?
In the case of Bitcoin, it simply solves the problem of inflation. Or Ethereum solves the problem of expensive and slow banks. Ethereum solves many more problems, but the existence of banks is the main one. Any coin will be trusted based on the problems they solve and how they make people’s lives easy. It is your money that will be used in solving the problem. If the problem they are solving is going to benefit a huge number of people, then naturally it will need more money to run the project. That is when more people will invest in the coin.
5. Read the Whitepaper
A Whitepaper is an official paper where the developers describe the problem that they will be solving, how they want to solve it and why they are solving it. A whitepaper is not hard to read as it is portrayed to be. Its basic job is to give all kinds of investors an idea of what the intentions of the project are. It also gives a good amount of technical information about the coin, which is crucial in deciding its market capabilities.
Now that you have read the fundamental factors to be considered before cryptocurrency trading, you can now jump into the crypto market.