How Do I Analyse Cryptocurrency?
To evaluate a cryptocurrency, you should always read the whitepaper to learn about it. Most reputable projects also have a vision for the problem they are addressing, a roadmap, an engaged community, a team of developers with considerable experience, and a method of using the cryptocurrency within the system.
It’s also important to be aware of fraud attempts; learning how to analyse cryptocurrencies can teach you that too. Here are the basics to consider when evaluating a cryptocurrency.
Key Points While Evaluating Cryptocurrency
Investing in cryptocurrencies requires a basic understanding of what these coins are.
When choosing a cryptocurrency, you should learn about the project and its vision.
Cryptocurrency analysis is similar to fundamental stock analysis.
If a project makes promises but doesn’t talk about how it solves a problem, it may not be a good investment.
When choosing a cryptocurrency, it’s important to learn how to avoid cryptocurrency scams.
Study the White Paper of the Cryptocurrency
Most crypto projects provide a white paper that helps define the goals and technical details about the role of blockchain and cryptocurrency. True white papers contain terms and language that data scientists, programmers and developers can understand. For example, Solana has a white paper explaining how the blockchain will work and what the token will be used for.
A cryptocurrency with utility or a reason to exist should have a white paper that clearly defines the goals of the project, how they will be achieved, and how the cryptocurrency will function. Legitimate white papers describe a problem that is solved with the blockchain and token, and this problem and solution should be crystal clear to investors.
Research the team
Cryptocurrencies are often created by a team of founders and software developers who help create a solution to a problem. To better understand how a project can perform, you should research the professional experience of the project team.
This may include reviewing the professional background of technical or leadership staff. And reviewing LinkedIn profiles to learn about projects that team members have previously launched. Also, the ‘About’ page on any cryptocurrency’s website should clearly state who is helping to build the project and what their expertise entails.
A red flag could be a team of anonymous founders or developers who do not publicise their identity, or an inexperienced team that has not built or scaled any projects in the past.
Learn About Leadership
Crypto projects with the potential to make a difference have a clearly defined executive team that manages their execution, finance and marketing. Finding out who leads a cryptocurrency team can provide insight into a project’s likelihood of success.
Here are a few questions to ask when researching the leadership of a crypto project:
- Do they have a track record of successful leadership positions?
- Are they respected/recognised leaders?
- Do they have a history in the crypto industry, good or bad?
- Are they public or anonymous?
- Some projects with anonymous founders, such as Bitcoin, are started with good intentions, while others are not. A cryptocurrency is unlikely to be legitimate if its leadership is unclear or avoids important issues.
Get to Know the Crypto Community
Most cryptocurrencies are community-driven projects that need a strong, supportive community to grow. Learning about a cryptocurrency community can help you gauge whether a project will succeed or whether it is pure hype and speculation.
Joining the community’s Discord, Telegram or other social media channels can help you learn. You can learn more about the project and get answers to your questions about the project itself. If a large community base is well organised and frequently supports the project, this can be a sign that a cryptocurrency has growth potential. Communities should discuss blockchain-related issues and improvements that can be made. Or have similar discussions, in addition to the regular conversations that can take place between people with similar interests. If all you find is hype and pumping, it is a good bet that the cryptocurrency project is not legitimate.
Please note that cryptocurrencies are classified as high-risk assets. This article is for informational purposes and is not investment advice. You may lose your assets.