How to Review Crypto Projects and Make Wiser Investment Decisions
Despite their rather lacklustre start, digital currencies have emerged as one of the hottest investment options in recent years. Apart from their high return potential, there were other factors that contributed to this rapid rise in popularity, such as decentralization, lack of government control, transparency, and increased acceptance from businesses and organizations. The ease of access and low barrier to entry also played an important role in the crypto boom. These days, one can buy Ethereum with debit card with the same ease they buy other services and products available online.
Given the benefits, it’s easy to give in to crypto’s appeal and join the crowd of traders and investors that have jumped on the bandwagon. However, one should not forget about the pitfalls. As tempting as digital assets may be, the crypto market is still young and incredibly volatile, so the risk of losing your funds is just as high as the earning potential. Besides, not all cryptocurrencies are created equal, and with new crypto initiatives emerging regularly, it’s getting more difficult to separate the wheat from the chaff and identify potentially profitable projects.
Fortunately, difficult doesn’t mean impossible. If you know what to look for, you can spot opportunities with greater ease and thus make better informed and hopefully more lucrative investment decisions. So, here are the main aspects to consider when evaluating crypto projects.
The whitepaper
Crypto projects don’t materialize out of thin air. It takes plenty of planning and preparation to take a crypto project from idea to fruition. And all of the steps required to launch a crypto are laid out in the project’s whitepaper. A whitepaper is basically a guide that provides a detailed description of a cryptocurrency, including commercial, technical, and financial data. This gives investors the chance to explore new projects and evaluate their potential.
If you don’t speak tech fluently or are not in any way familiarized with the cryptoverse, you might find it difficult to decipher these documents as they contain a lot of technical terms and jargon. Nevertheless, you should put in the effort to read them and try to understand what the crypto is about. A well-written whitepaper should offer comprehensive information about the project’s goals, use cases and vision, as well as the methods and strategies that are being employed to reach these objectives.
The team of developers
Getting a crypto project off the ground also requires a lot of work and resources, so most cryptos have a team of skilled developers and experts working hard behind the scenes to bring their vision to life. Since a crypto is only as good as the people who created it, you should do some investigative work to find out who the founders and developers are and learn about their skills, professional background and experience.
This shouldn’t be too difficult given that most crypto projects have a dedicated page where they present all their team members and their respective roles and achievements. If you can’t find any data about the people behind the project, it’s usually a sign that something’s not quite right.
The community
Developers can pour their heart and soul into launching a new crypto on the market, but it’s users who have the final word and can ultimately decide the fate of a project. Digital currencies can’t evolve without help from a supportive community. That is where their worth and value derive from.
If you want to find out how popular or unpopular a crypto is, all you have to do is spend some time on crypto forums or look at its media coverage. If no one knows or talks about it, it’s highly unlikely for the project to thrive or survive. But if there’s a large community of people backing the asset, it’s a sign that growth might be on the horizon.
The figures
When evaluating a crypto’s potential, beyond vision, community support and media coverage, the figures tell a story of their own. Don’t worry, you don’t need to do any complicated mathematical equations or be a financial expert to understand how things work. You just need to pay attention to the three main factors that impact a coin’s value, also known as tokenomics.
First, we have the circulating supply which refers to the number of coins that are currently in the market. Then there’s the total supply that determines how many coins have been released into circulation. Finally, the maximum supply refers to the total number of coins that will ever exist. These factors play an important role in the supply-demand dynamics, and thus in crypto prices, so understanding the correlation between them is essential for investors.
The evolution
Different crypto projects follow different trajectories. Some take off immediately after launching while others take some time to prove their potential and capture users’ attention. While past performance is not always an indicator of future success, it’s worth taking a look at the project’s past performance and how it developed over time.
Learning about a crypto’s history and price evolution can help you figure out if the project is growing or stagnating. All cryptos are subjected to constant price swings, but if a project’s value hasn’t increased in a long time, the chances of doing so in the future are quite slim.
Developer activity
On a similar note, developer activity can be quite telling about the growth potential of a crypto project. Although digital currencies are not tied to a central entity that can dictate their development, they do rely on developer activity to thrive.
If no one is actively working to maintain and improve the project, eventually the ship is going to sink. If there’s a large number of active developers behind the project, the crypto is better positioned for future growth. So, this is another important metric to keep your eye on when you’re looking for potential winners.
There are many variables to take into account when evaluating the viability of a crypto project as an investment venue. Doing the necessary research is a must in this case as it can help you make better-informed decisions, and keep risks and errors at bay.
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