How to Evaluate a Cryptocurrency before Investing
Cryptocurrencies are still a new thing for us, and they are not regulated by any traditional authorities. This means investing in cryptocurrencies is a matter of significant risk. What if the project fails? What if the team runs away with your money? There is practically not much you can do if your crypto investment fails. But, there is definitely something you can do about choosing the right cryptocurrency or project to invest in. It’s called due diligence.
Due diligence or project research is very important in the crypto investing space. Since you do not know much about a new project and have no way to verify the authenticity of the project and the team, research is the only best way to evaluate a crypto project before investing in it.
In this article, we will talk about the factors to consider and how to use them when evaluating a crypto project.
1. Cryptocurrency Activity in the Market
The first thing you need to check is whether the cryptocurrency is active in the market. Is it listed on leading cryptocurrency websites like CoinMarketCap and CoinGecko? If so, read the crypto information and check out its market movements. Also, check whether the coin is listed on top exchanges for trading. Libra Coin, for instance, is listed on the popular XT.com crypto exchange. Avoid investing in or buying a cryptocurrency that has no real trading activity and volume.
2. Do Your Research
When investing in a new project or cryptocurrency that you don’t know much about, it’s important to do your own research besides acknowledging what the industry experts are saying about the project. There are a number of resources that you can use to research cryptocurrencies. These include YouTube, Messari, CoinMarketCap, etc. The things you need to look into are the crypto’s foundation and history, team, technology, concept, objective, governance, applications, trading activity and volume per day, among others.
Although it’s recommended to stay away from all kinds of ICOs and token sales, some new projects coming through token sales can be really good. So, completely ignoring all ICOs is generally not a good idea. Instead, you can use tools like ICO Drops, etc. to research a new ICO before investing in it.
Most importantly, research the people behind the project. Avoid projects that are being secretive about the team or people behind them. Use tools & resources like YouTube, LinkedIn and social media to research, read about and watch interviews of the key people of a project to make sure they are genuine and credible professionals. Better, if you could find the official YouTube and social media channels of the project, where content is posted regularly by the team.
Last but not the least, check the project documentation, including the white paper, to find out more technical details about the roadmap, tokenomics, use cases, ICO, inflation, and other things. This you can find on the project website, which is also a good source to keep yourself updated with the latest developments on the project. If it’s a genuine crypto project, it will most likely have a blockchain explorer, which you can find on Etherscan (for ERC20 tokens) or BSCscan (for Binance Smart Chain tokens).
