A Beginner’s Guide To Finding A Decent Cryptocurrency Project To Invest In

The world of cryptocurrencies can be a very confusing place. Each project strives to differentiate itself from its competitors and all (at least the legitimate ones anyway) are trying to make their niche in becoming the next big thing solving one perceived problem or another. As investors, it is a very confusing environment to pick which project to invest in as there is little to go on sometimes and it is really easy to be fooled into thinking that a project has potential when in reality it could be a scam. Couple this with the fact that there are literally thousands of crypto projects out there with new ones seeming to pop up literally every day and you can understand the difficulty.

However, with some estimates predicting that this entire industry can climb to at least $30 trillion over the next few years, investors are willing to forego the risks and take the plunge. So that said, what does one invest in then? Bitcoin? Ethereum? Ripple? Perhaps some lesser known ‘altcoin’ project? What I would like to humbly share with you are some indicators and steps that I use to look for when investing in such assets. Note that this is not investment advice; just some of my personal thoughts and general guidelines on how to approach these types of investments. Always remember to do your own homework with any investment.

Step 1: Market Capitalization Ranking

One of the leading indicators that I like to look at is a project’s market capitalization ranking on coinmarketcap.com. I start by analyzing the top 100 projects ranked by market capitalization (the total amount of coins or tokens in circulation multiplied by the USD value of one coin) and look at each of their movements in rank relative to each other over a period of the past three weeks. As an example, if a project moved from the 70th highest project in market capitalization to the 50th, it will have moved up 20 spots. If that is the highest move out of all of the projects analyzed, then this project would be on my radar. If a project is not even in the top 100 at the beginning of the analysis period but ends up as say the 80th, I would treat this as moving up 20 spots in rank. What you will find is that regardless of whether or not the overall market is rising or falling, some projects will tend to rise in rank relative to others. In a rising market, this means the project’s market capitalization is climbing higher relative to others. In a falling market, it means that other projects are selling off more than others relative to it. Find the top five projects that have moved up in ranking based on the number of spots as discussed earlier during the most recent 3-week analysis period (I like using 3 weeks because I think it is a fairly sufficient amount of time to spot these movements). Now you have whittled a large amount of projects out there down to five. While there are at least a billion other methods to find out which projects to invest in, this one at least is a quantitative approach that gives you some basis due to price movement.

Step 2: Read Each Project’s Whitepaper

Once you have whittled down your search to a handful of cryptocurrency projects, the next step is to look at each project in depth. Go to each project’s website and download their whitepaper. A whitepaper is kind of like a handbook for each cryptocurrency which is supposed to tell you what the project is, who its management team is etc. Here you will determine what the project is trying to accomplish and what benefit it will provide that will make others want to buy into its ecosystem. How will this endeavor make money? Is it sustainable in the long run? Is there a road map and have the project’s founders been able to follow this road map? Has their business model addressed the potential for government regulation in any way? Who is on the management team? What kind of experience and connections do they bring to the table? Has there been significant financial backing already? All of these questions are important ones and hopefully the whitepaper will be able to answer at least some of them. Believe it or not, one of the most important aspects of any whitepaper is if you understand it or not. Even though these types of investments can be a bit hard to understand sometimes, they are still business opportunities at the end of the day and you are an intelligent person with money to invest. If you want to put money into something, it has to make sense to you. If the authors of the whitepaper, the same people who are responsible for the project’s success cannot articulate this concept properly, move on. If you know someone with a financial or technological background read it for you and they can’t understand it, that’s an even bigger red flag. Once you’ve read these whitepapers, you should know how many of these five projects you would like to invest in. If you don’t like any of them, try going back to Step 1 but instead of three weeks, try six weeks and see if anything new comes up. The trick at this point is to spot a quality project that has also shown to be a price mover.

Step 3: What Do Other People Think?

So now you’ve spotted some projects that are price movers, have read each project’s whitepaper and at this point, you may still have some questions. It’s good to still have questions. The whitepaper alone tends to be a static document where the crypto world is constantly changing. This is where it makes sense to get multiple opinions from different people on what they may think about the project. Some of the best sources for these opinions are social media. There are many analysts who make a career out of doing independent reviews for various crypto currency projects on YouTube and can watch videos of their analyses. If you want to read about a review instead of watch a video about it, blog sites such as Medium are excellent for many independent analyses on various crypto projects. It is here that you should learn about each project’s competitors and if the project you want to invest in has a plan to deal with them. You may encounter opinions on whether or not the project may be a scam. You may encounter news or announcements about something the project is doing that may bring it further along on its road map, or if a large company or government entity wants to use its technology for its own operations. Finally, you may even get various price predictions to give you an idea as to what value this project may one day become. It is in this step that you will be able to determine the good and bad aspects of a crypto project from multiple people. Remember, the key word here is MULTIPLE. Do not base your entire investment decision on one person’s opinion! This is because not everyone’s opinion is accurate and some may even be purposely misleading you in an effort to artificially pump the project. However, if you expose yourself to multiple opinions, you should be able to get a good idea as to what each project is about. Remember, you would have already read the whitepaper on each project you are trying to invest in so you would be entering in with an informed opinion.

Step 4: Have a Longer Term Time Horizon

One of the most alluring attributes of this industry is that incredible fortunes can be made in a very short time period. Especially in rising markets, even the most questionable crypto project seems to rise in value. However, I caution anyone who has such a short term time horizon because you would be going into a position with the mindset not as an investor but as a gambler. Unless you are willing to walk completely away from the investment after you’ve exited the position (ie. the asset has reached some pre-defined price target which you would be willing to exit from), proceed with caution. The reason I urge caution is because you may exit your position quickly, make some profit and then begin to suffer from a very common condition in the crypto industry called “Fear Of Missing Out” or “FOMO”. While the common adage in investing is to “buy low and sell high”, this cursed condition gets you in the mindset to “buy high in order to sell higher” such that you are no longer basing your investing decisions on objectivity but on emotion. And it is here that you run into the potential to lose big. FOMO gives you the false belief that you are somehow capable of perfectly timing the market each and every time you open a position; I caution anyone and everyone that NO ONE knows the future. If you try to time these markets, you will eventually lose because the volatility of these assets are just too high.

My personal preference is to look for quality projects for the long term. These projects are focused on “playing the long game”; in other words they are doing the things necessary now to be successful 5 years from now, not one week from now. These projects (I think at least) are the truly legitimate ones who will still be here five to ten years from now when the whole industry will be (what I think) much higher in value than it is today. Remember that you would have done your homework on these projects by this point so you’ve determined that they have a reasonable plan as indicated by their road map that they are executing on (Step 2) and are following this plan as best they can as indicated by all of the news and opinion you will find by researching them online (Step 3). While, trading a volatile market like this can lead to some great rewards if you know what you are doing, it can also lead to significant losses if you do not. Therefore, be an investor, not a gambler.

Step 5: Don’t Bet The Farm

If you are one of those people who are wanting to mortgage your home to buy one of these things, you are either incredibly desperate or suffering from a severe mental illness. Never, ever….EVER invest with more than you can afford to lose, ESPECIALLY in these markets. This is common sense to most of us but this industry has a habit of making people go a little crazy. Note that it is an industry that is still in its infancy. Many of the projects you see today may not be around in the next year or two. For those of you old enough to remember, the internet boom (and bust) of the 1990s was very similar to the crypto industry of today. One of the big differences is that as volatile as that market was, the crypto market booms and busts in a very short period of time; only to seemingly repeat itself again. If you are investing with money that you cannot afford to lose, could you stomach an 80 to 90% loss of your asset value? Because that is very possible in this market. You may even be one of the really unlucky ones and lose everything, especially if you ended up purchasing a crypto token that turned out to be a scam. That’s why even with following all of the steps I mentioned above and doing all of the due diligence you possibly can do, don’t bet it all. You may not heed this warning and it may even work out for you but I will argue that this will only prompt you to do it again and again. You will eventually lose and lose big. Please heed my warning and don’t invest more than you can afford to lose. No one truly knows the future. Also, you may want to set some money aside in case you want to repeat this whole process and look for new quality projects in the future. Remember that this process only looks at what’s hot over the past three weeks. the crypto world is constantly changing.

Step 6: Make a Decision

You know now how to select a handful of projects from a whole pool of them. You know how to learn more about them and see if they make any sense to you. You know how to go about asking more questions by visiting social media sites to look for articles and videos. You know to look for quality projects and have a long-term time horizon rather than day trading them. And finally, you know not to bet the farm on any of these investments. Now all you need to ask yourself is how many of the five projects do you wish to invest in? Is there one that stands out better than the others? Do all of them seem equally good? That’s up to you. If you invest in one project and it takes off compared to the others, awesome. However, if you diversify and invest in multiple ones, you spread your risk possibly at the expense of excess returns but possibly at the benefit of avoiding excess losses as well. As long as you’ve been able to determine that the projects you’ve invested in are quality ones, you should be just fine.

Step 7: Try and Buy In Pieces

Because of the volatility of these assets, it is very likely that the price of the crypto token you wish to buy will fall after your initial purchase. That is why it makes sense to try and accumulate your desired amount slowly over time in a series of transactions. Let’s say you want to invest $1,000 USD in a crypto project. Instead of purchasing it all at once, buy it in 4 or 5 separate transactions of $250 or $200 each respectively. You would hopefully buy this as the price is falling so you can accumulate more of it. Remember that when you first spot the project from Step 1, the price will have already moved significantly so buying it all at once may not be the best strategy. You are looking to buy a quality project as determined by Steps 2 and 3 so if the price falls, it is okay because you are thinking longer term. You are not trading, you are accumulating. Also, based on your research, there should be a maximum price that you are willing to pay for any token. If it goes above that, don’t bother or else you may be committing FOMO and are buying too high. Be as objective and unemotional about this as possible and you should be rewarded.

In Closing…

Even if you are completely new to the cryptocurrency world and know nothing about these assets, you have to remember that many of these projects behave like businesses or commodities. While you are generally not buying equity ownership like you would stock on a stock exchange, you are buying into each project’s ecosystem which goes up and down in value based on supply and demand: the same principles that govern the stock and commodities markets. These projects have to follow many of the same fundamental rules as any business in order to survive including having a sustainable competitive advantage over other projects, supplying some type of perceived continuous future demand and be able to do this without running into future regulatory trouble. Because if they didn’t, why would you or anyone else invest in it? I wish you luck in your research but my experience is the more you do your homework, the luckier you get.