Every crypto content creator now signs off with; ‘this is not financial advice’ and ‘do your own research (DYOR)’. What does this actually mean and is there a proven sequence of steps that one can take to adequately research a coin? This post looks at what processes go through. Hopefully, our readers can learn a thing or two from this step-by-step description;
1. Basic Research
When first learning about a coin, basic research would involve investigating things such as the past price movements of the coin, and all associated charts that might describe its growth history.
This is basically called Technical Analysis and will mostly involve some version of charts. Find out which exchanges offer your token for trading; the more the number of exchanges that do, the better. Crypto coins will typically have to meet a set number of conditions and jump a number of hoops before they are accepted at exchanges; this would be a sufficient filter.
After the Technical Analysis, it pays to also conduct a Sentimental Analysis which provides insight into the general feeling about a crypto project. Are people generally optimistic about the project? What are the news articles saying about the upcoming coin launch? Are there notable influencers backing the project? All these makeup sentimental analysis which is an attempt to get a feel of what the market thinks about the project.
Sentimental Analysis must be followed by Fundamental Analysis which is when a potential coin holder looks at the main driving ethos and ideas behind the project, the team composition, and the project progress since the whitepaper.
It is probably a good sign if team members have lots of reputation to their name, or if the project is attractive to thousands of open-source developers from around the world. Some or all of the companies listed as using the token should be recognizable to you, as should some or all of the listed board members and notable figures
2. General Selling Point, Potential Drawbacks
Every crypto coin must have an identifiable selling point that justifies the coin's existence. Knowing this, one gets in a better position to identify the strengths and weaknesses of the coin, which provides a direct correlation of how many people may eventually buy the coins. Every crypto coin project must solve a concrete problem in the real world that is easy to articulate, complete with a system and roadmap to attain these desired outcomes.
Every crypto coin must be backed by well-written logical Whitepaper that explains how the outlined purpose of the token would be attained. A common thread amongst all crypto projects that turned out to be scams is that their whitepapers all seemed rushed, unclear, and poorly edited.
3. Coin Tokenomics
You must find out the token economics aka ‘tokenomics’ of the coin that you are researching. This includes information such as how many coins were minted at the beginning of the project and how they were initially distributed, complete with percentages.
These pre-mint details are important to get an idea of how many tokens were distributed to early users, the founding team, miners, and developers. It is generally a good sign if the majority of the initial coins were allocated to the community rather than the founding team. This way, it would be much harder for the members of the founding team to dump/sell the tokens once the prices start to rise.
It should also emerge at this point whether the coin is inflationary or deflationary, and what the strategies are that exist that will help maintain the chosen monetary policy.
Inflationary coins mean that the crypto project in question will continue to print more coins in the future, which in turn means that the coin price might fall if people stop purchasing the tokens.
A deflationary coin/token on the other hand means that there’s a finite supply of the coins, like BTC and LTC, which means that the price will keep on rising for the foreseeable future.
In summary
Conducting your own research on potential crypto projects and coins is a reliable way to identify projects with immense growth potential as well as when and how to invest in bigger projects.