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Searching for the next big thing in the cryptocurrency world? Be careful — tons of scammers would love to take your money, while others are creating cartoonish websites to sell memecoins, where the only return may be a good laugh. If you’re on the hunt for a winning cryptocurrency, it’s vital to understand what you’re buying, and that means you need to do your crypto research.
Here’s how to research cryptocurrency like the pros to find a coin that could skyrocket over time.
5 ways to research crypto
1. Read the crypto’s white paper
The best place to begin is by looking at the cryptocurrency’s white paper. This document outlines how the cryptocurrency works, what problems it’s attempting to address and its technical underpinnings, including what are called the tokenomics. Tokenomics — a combination of token and economics — shows how the supply of the coin is managed, how many coins are issued and at what rate. Tokenomics is a key to how much a cryptocurrency will be worth.
For example, three well-known cryptocurrencies — Bitcoin, Ethereum and Dogecoin — each have quite different rates of issuance and total issuance. Bitcoin’s issuance is limited to 21 million coins, while Ethereum and Dogecoin have an unlimited total issuance but an annual limit. A limited supply or deflationary issuance can help bolster the price of a cryptocurrency.
2. Track coins with strong price appreciation
Given the potential in cryptocurrency, traders don’t need to be in on the ground floor to still make a lot of money. Traders in Bitcoin could multiply their money in just the last few years, and the coin has had a long runway of price appreciation. While it can feel good to find the next big thing, you have more than 20,000 crypto coins to dig through, and most of them won’t be winners. Instead, focus on coins such as Bitcoin that have already attracted attention and money.
Cryptocurrency is only worth what the next trader will pay for it, and so its value is based entirely on sentiment. You need to find the most popular coins that have proven to have strong trader sentiment, and the best indicator of that is their strong appreciation over a period of time. Coins that have a solid price history spanning multiple years are also more likely to have it in the future, too.
3. Find coins with strong functionality
As you’re researching coins, look at what the cryptocurrency can do. A high level of functionality can draw the interest of developers and pique traders’ interest, meaning the crypto can attract further investment and adoption.
- How fast is the network and is it scalable?
- How much do transactions cost? Is the network efficient?
- Are a significant number of projects based on the cryptocurrency? Is that number growing quickly?
- What plans do the project’s backers have for greater functionality, and are they realistic?
In contrast to highly functional projects, new cryptocurrencies may be just trying to raise money for what amounts to lottery tickets, and they may have little to no functionality at all.
4. See what experts in the field are saying
Because sentiment is so important in cryptocurrency, it’s important that you stay plugged in to what experts in the crypto world think about existing and emerging cryptocurrencies. Follow experts on social media, in Discord and other chat rooms and see what they’re saying.
- What do these experts think about a cryptocurrency?
- What coin ecosystems are they using to build their next project?
- Where do they see the crypto world going and which coins are well positioned for that future?
It’s useful if you follow well-known authorities in the crypto world — those with a reputation to protect — but it’s all too easy for a knowledgeable scammer to pose as an expert.
5. Find a project with proven leaders
Whether you’re investing in stocks or crypto, one of the best strategies is to find proven leaders who are looking to repeat their success with their next venture. Look for well-regarded crypto investors or pillars of the crypto community who are beyond reproach and have a good track record.
- What projects have these leaders been involved with before?
- How are these leaders regarded by other members of the crypto community?
- Have they been involved with any dubious projects?
- What are they saying about their own crypto project?
If you’re interested in a very early-stage crypto project, knowing the leadership is one of the best data points to have, because you won’t have price appreciation and other proofs to guide you.
Bottom line
Finding the next great cryptocurrency can take a lot of work, but it’s important to put in this work so that you understand the opportunities in a given coin. By becoming more knowledgeable about the crypto world, you’re more likely to know where the real hidden gems lie.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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