The crypto space is one of the most volatile markets. You have to make decisions about your investment with most times with limited information.
As a result, you may have to rely on tools that are not available in the traditional finance world.
In traditional finance, investors have several tools they use to make investment decisions. But in the crypto space, the benchmarks used for investment decisions are different.
Source
For example, in Tradefi, you can most likely use fundamental analysis to make decisions. With crypto, there are no records to rely on, the way you can rely on how a particular stock behaved in the past. And that's because no one is running the show, it's a decentralized system and no one is in charge. There wouldn't be anyone waiting around to lay down the expenses, profits, and revenue of a particular token for you to make your decision.
But this doesn't mean that investors can't have something to fall back on, they do. Although crypto is decentralized, there are lots of factors that one can look into before investing in a particular project or buying a certain coin.
Tokenomics
It's one of the popular ways by which you can analyze a Blockchain project. A good crypto project has good tokenomics, because it will have a sound plan, value-oriented incentives, and mathematics. With tokenomics, you will be able to know how tokens are distributed, how they are burned or removed, and whether it's inflationary or deflationary. When you have answers to these questions, you will be able to determine the long-term viability of the token before you decide whether to invest or not
Whitepaper
As much as tokenomics is important, you wouldn't know everything about a particular coin if you do not have access to the whitepaper. This is why the whitepaper is an important analytics tool in the crypto space.
You will find a wide range of information governing the token because the creators would have everything pen down for easy access and digestion. The developer's intent will be discovered in the whitepaper, and what sort of problem the project is trying to solve. Once you understand the "why" behind the project and it matches your preferences and values then you can decide to invest time, money, energy, and resources in that project.
But if the promises pronounced in the whitepaper isn't realistic enough or sound too good to be true then you can move away from that project. Especially if you find that the background of the developers has bad histories, for example, failed projects, rug pull, Ponzi schemes, etc.
Transparent analytics
This is one of the most amazing parts of Blockchain. The fact that everything that's done is transparent for all to see. You can't find this in Tradefi, unless you are an insider or you want insider information. But in the cryptocurrency space, you can find the data that you want and can track the activities of the tokens you are interested in.
With this, you can use the information found on the blocks you are verifying and investigating to understand market movement and sentiments. You can tell if a token is making waves and getting popular with other investors or if it's declining.
For instance, here on Hive, you can tell which of the Tokens especially Hive engine tokens have an active market. Depending on the buy and sell volume, one can predict if a coin is doing well or not.
It's the same with the entire crypto verse, investors would use such data to analyze the worthiness of a crypto project or tokens.
Are there other ways?
There are more ways to make crypto investment decisions, analysts and investors can use the following tools to make their crypto investment decisions:
• Market Capitalization
Track how a coin is performing in a specific market.
• Price/Volume Ratio
The ratio between the price of a coin and its volume traded over a while.
• Volume
The total number of coins traded over a given time.
• Market Cap Ranking
A ranking based on a coin's market cap relative to other coins in that same market.
• Coin Ranking Sites
Sites rank coins by various factors, such as community activity, development progress, or quality of team members. Etc.
Conclusion
You have already seen that there are many different factors that analysts and investors take into account when making investment decisions. For example, they look at the project’s roadmap and whitepaper, its team members, the company’s current financial state, the token distribution model, and the project’s social media presence.
Analysts also keep an eye on how a certain coin fares against Bitcoin or Ethereum which is a good indicator of whether it will be successful or not. Once you get a fair picture of the tokenomics, whitepaper, and on-chain analytics, it will be much easier to make up your mind.