What does the coin do?
The first, and arguably most important, element of finding your next investment is to know what the coin you are interested in actually does. You’ll find that every coin has its own set of unique features which place it above all others in certain aspects. Knowing these features and understanding the mechanics allows you to make an informed decision on whether you think it will grow in price and market adoption. Let’s take an example. Sia (SC) is a cloud storage platform aimed at the corporate industry. One of its main selling-points is that it is significantly cheaper per gigabyte compared to its high-profile competitors such as Google Drive and Amazon. Another argument for its success is that all the data held on its cloud is private and inaccessible by anybody else. If after researching Sia, or any other coin, which you believe has the potential to grow significantly, then it is worth considering an investment. If, on the other hand, you come to the conclusion that the coin does not have much potential for future growth then you should ignore it.
The coin’s website is a good place to start, but if it is too complex to understand then try looking for a couple of YouTube videos which may explain it more coherently.
Read the Whitepaper
Every altcoin should have a whitepaper. It is a marker of how articulate the developers are in regards to their product. A coin or token without a whitepaper is a concern, and that alone is a good enough reason to drop it. The only reasonable exceptions are coins which are in the top five for highest market cap (I’ll explain why later). An example of a high performing coin without a whitepaper is Litecoin (LTC), but this is an exception not a rule.
Whitepapers are notoriously hard to read for those without technical knowledge of either computing or finance. It doesn’t help that many developers fill them with obtuse and unnecessary jargon to hide their poor products. But even still, it is worth an attempt at least. Some whitepapers on the other hand are easy to understand and will give you an amazing insight into the coin.
The developers, what are they like?
Find out as much as you can about the creators of the coin or token. A strong dev team can mean more than anything else, and it is much more important than mere statistics like price and market cap. Request Network (REQ) is a token which is known for its tight and efficient team of workers. Most websites will have a ‘Team’ or ‘About Us’ section which will give you the names of team members and sometimes links to their social media pages. Try and find their GitHub accounts and LinkedIn pages as both show how involved they are in the technology and how seriously they take their work.
What are the pitfalls? Any Competitors?
Learning about why a coin might not succeed is just as important as learning why it might. After gaining a significant amount of knowledge on what the coin does and who the people are behind it, begin to consider why all their positive attributes might not matter. It sounds pessimistic but it is important to understand this before investing. It is better to know before you have deposited a significant amount of money, than to find out afterwards.
Look at their roadmap (or plans for the future). Do they seem a little too ambitious? Aiming high is not inherently a problem but you have to decide whether you think the developers are actually aiming high or simply giving the illusion that they are to reassure fans. Take CampusCoin (CMPCO) for instance. It is a coin which rewards students for using it while at their university, among other things. Its Roadmap states that by 2020 they expect to have their own physical ATMs at various different schools. After looking into this coin and its developers, I personally would consider this to be ambitious and although they seem like a strong team, I would be wary of investing because of this.
Take a look also at the competitors that a coin faces. ICON’s (ICX) rival is Ethereum (ETH), an already established coin used as a platform for tokens. PIVX’s (PIVX) competitor is Monero (XMR). Request Network’s competitor is PayPal itself, not another currency. Now having a competitor or rival is not automatically a bad thing, but it is something to keep an eye on, because if you decide that a competitor is doing better than the coin you are interested in then you might want to back away from it. Don’t place too much weight on competition though; almost every business has them and even if they are bigger that doesn’t mean that there is room only for one competing business. Request Network may very well be treading on PayPal’s shoes but the internet is big enough for both of them so it doesn’t matter too much. Remember also that Bitcoin’s (BTC) first competitor was every fiat currency in the world (plus gold and all other asset classes), and look where Bitcoin is now!
The Stats (current price, marketcap, graphs)
Statistics aren’t super important in my opinion, but it would still be an oversight to ignore them. When looking at a coin, start by checking the price. As of right now Ripple (XRP) is worth £1.61. If you are to invest in a coin this cheap or cheaper then rises and drops in its price will be felt harder than they would be if you were investing in more expensive coins like Ethereum. This can be a good sign if you are looking for a quick profit. Also check the market capitalisation (or cap). This is the price of the coin * the amount of that coin in existence. High market caps are positive indicators of a coin’s future. Coinmarketcap.com uses the market cap as a parameter for ordering coins in a list based on value. Coins which are in the top ten on coinmarketcap.com are often slightly less subjected to scrutiny due to the fact that their market cap is used as an indicator of trust (hence why it is generally accepted if they don’t have a whitepaper). It should be noted this is an arguably flawed system and that there is some backlash in the community regarding the use of market cap to determine value. See two arguments here, and here.
What exchanges is it on?
Knowing where you can actually buy a coin is important, so that you can sign up to the relevant exchanges. Some coins, such as Raiblocks (XRB), aren’t found on major exchanges (yet) meaning that you’d have to pick a lesser known and lesser regulated location to access them. The exchanges a coin is on do not explicitly indicate a level of value but there are some reasons why it should be kept in mind. If a coin is on an exchange that you are not a part of, you will want to sign up in advance before choosing to make an investment, meaning that when you are ready you can make a seamless purchase of your coin. Obsidian (ODN) is not listed on major markets like Bittrex and Binance but it is on Cryptopia. To purchase it you would need to sign up to that exchange or another obscure one. Also note that when coins get added to bigger exchanges their price often rises highly. If you invest before that happens you could come into a pretty significant profit.
This is the least important element of your investment research but it can still help you in your decision. A strong set of fans can be enough to prop up a £0.40 coin into a £3.00 coin. We have seen Reddit do this to Raiblocks in the past, and 4chan’s business forum do so with the value of ChainLink (LINK). An enthusiastic set of fans can do wonders for a coin. They are the most valuable asset in regards to marketing. While checking the nature of a coin’s fans, see how profit-oriented they are. Do most people post about price fluctuations or do they talk more about the tech? If most fans are greedy it can spell bad news for the market as it can lead to unnecessary bull-runs and bear-traps.
Follow these steps to researching your coin, and try not to get whipped up in the pandemonium of FOMO situations. Be patient with your research and possibly even dedicate a week to finding the perfect coin for your needs.