The world of altcoins can be quite daunting. There’s literally thousands on the market. And many of them will never amount to anything.
After you’ve seen a few projects, you’ll build a feel for a few things:
- Undervalued innovative projects:- This is where the money is made. Finding the gems that can and will grow exponentially.
- Obvious scams and dead projects:- We want to avoid bad projects and scams at all costs. They’re easy to spot when you know what to look for.
- Overvalued, faultable hype coins:- Unfortunately there’s a lot of these, and fathoming out these projects will save you a lot of money where there’s little-to-no upside, despite the market’s FOMO tendencies.
In this article, I’ll share with you the core pointers and the process I use to research altcoin investments.
After all, I want you to maximize your potential when investing. Ultimately, we want to avoid scams and ride those alts that are due to skyrocket.
Scouting out good altcoins
First, you need to find some coins that are accessible. The most accessible coins are available on exchanges. Coins available on exchanges have had some level of vetting before listing.
These are the 3 exchanges I’d advise you search for projects on:
- Binance: a little advanced, but well priced and a wide array of coins
- Coinbase: for beginners, but a little expensive
- KuCoin: similar to Binance, well-priced, and has a great pool of small-cap coins
Choosing an altcoin
By trial and error, I want you to pick an altcoin. Literally, pick one at random. Your decision should be based purely on the coin’s:
- Name:- choose a coin with an attractive name
- Logo:- make sure the logo looks professional
A projects name and logo have a huge influence on initial attraction. Sure, we shouldn’t judge a crypto by it’s cover, but frankly that’s what humans do.
And yes, there are no doubt some hidden gems with awful logos and names. But, if these poorly branded projects want to grow any time soon, they need to check their marketing.
Researching via CoinMarketCap
CoinMarketCap aggregates cryptocurrency price data. It also indexes multitudes of other data about cryptos. We should start here and search for our coin.
Coinmarket cap is great for the following reasons:
- Information: Non-biased pricing and market information
- Links: It collates important links and details on the project
- Comparison: Enables easy comparison with other cryptos
The depth of research that we can go into is boundless. But this is my checklist, and it has served me well over the years. When looking at our coin you should ask the following questions.
Evaluating market cap
Market Cap(italisation) is simply the price of the coin multiplied by the circulating supply (the amount of coins in existinence).
Though the market cap number does not hold much weight, it’s still a good indicator of how much a project is worth, and how much room of growth it has (price-wise).
Market Cap ranges
These ranges are based on my own opinions. I quite adventurous, and my use of “mature” should be taken with a grain of salt. There are literally no mature projects at present, bar perhaps Bitcoin.
I categorize coin’ market caps using the following scale:
- $10b+ most mature
- $5b+ mature
- $1b+ somewhat mature,
- $100m+ medium moon potential,
- $10m+ good moon potential,
- $1m+ uber-high risk
- $1+ probably a scam, or dead project
The sweet spot for me is somewhere between $1b and $10m. Though, there are projects with huge potential that have already exceeded $1b market-cap valuations. For example Polkadot.
Bitcoin and Ethereum both have market-caps in the hundreds of billions, we could still see these projects’ market caps grow exponentially.
Circulating supply & diluted market cap
Once we’ve assessed the market cap, we need a deeper picture of the market capitalisation. We can get more granular information be assessing the supply and diluted market cap.
The circulating supply: tells us how many coins currently exist. This is an important indicator as you’ll soon find out.
The diluted market-cap: tells us what the market cap would be if all coins were in circulation at the current price.
Some coins are released with the entirety of their supply. I prefer coins that have most of their supply in circulation, but not all of it. For the following reasons:
- Coins with low circulating supply:- will likely see their prices wane over time as more supply is introduced. This is simple economics.
- Coins with all supply in circulation:- make me question whether the distribution was fair. How were the coins obtained? Who owns them? Will these mega-whales dump their holdings?
- Coins that have some supply left:- evidence incentive for people to partake in the network through mining or staking, attracting users and investors.
Look at the price chart
When looking at the charts, there are numerous insights that can be determined. We want the core ones.
- How long has the coin been trading
- How does the price compare to previous levels
- How does the price compare to the 2017-2018 bubble
- How does the price compare to Bitcoin
- What does the price trend look like
- How volatile is the coin
- Have they been any worrisome pumps/dumps
- How much volume is there
- What is the trend of the volume growth
Using the NEO chart above as an example. We can see that the coin has been tracked on CoinMarketCap since 2017. A long time in the crypto world. Great, we’ve got something that’s aged over time and hasn’t gone to 0.
The price is cheap if we factor in what the price was back in 2018. Though, this may be to do with the dilution of market cap.
NEO’s price compared to Bitcoin has fallen recently, despite seeing a growth in the USD price. The trend since Jan 2019 is generally bullish, though not as a volatile as in the past. Volatility is low currently, compared to previously. Great, we’re less likely to go broke tomorrow.
There are no real notable pumps or dumps, perfect. Okay, yes there’s the 2018 price reset, but frankly, everything in crypto followed the same suit. We can see that the volume has been growing too, over time. In fact the volume is exceeding that of what it was prior to the 2018 price explosion. And, the volume is growing.
Given the above, I feel positive about the “high-level” pricing and market capitalisation.
Look at the altcoin’s website
This where we’re going to find the main gems and leaks. Can the project be bothered to put together a website?
If the coin has no website, AVOID. It’s likely dead, an ex-scam, and/or too immature that it should no be invested in. Fortunately, the one we’ve picked looks really promising.
They’ve got a nice, professional website, with animations, and important links to what the project is, how to get involved, the ecosystem, the wallets.
Projects with ecosystems have other projects running on them. This introduces a level of dependency on this project, and further solidifies it as a solid project that is being used, and is desirable.
Determining what a project does
A project that has no use-case is a no-go. Just because there are buzz-words, doesn’t legitimize what they’re doing. It is hard to cut through the jargon, but you’ll build an understanding over time if you research the terms.
It is up to you to learn more about what the projects are offering. Then use common sense on whether you feel the market cap fits its use-case.
Let’s say we find a project that allows the “decentralized” rating /review of ice-cream. But the diluted market cap is $10 billion? This should throw warning signs. Avoid at all costs.
Deciphering the whitepaper
The whitepaper is a document that details what the project is, the technology used, the mission, and technical details.
Whitepapers can be hard to read, especially if you’re not technically-educated. However, they often disclose risks to the project and/or problems they’re solving.
Avoid projects with large risks, and consider the projects with innovative solutions, branding, and a well-documented project.
It’s important to note that whitepapers can be copied and have the projects name replaced. Google some of the paragraphs, check their authenticity. The more you read, the easier it will be to identify
Vetting the team
Many of these sites show the team working on the project. Larger ones might struggle, but for the most part, you’ll be able to find the core developers and execs.
Google their names; have they ever been in a scam before, do they have bad publicity? If they’re worked on previous projects they’re likely a good bet. More experience, the better.
Utilizing GitHub to our advantage
Most of these projects are open-source. If they’re not, be wary, we’re not too keen on centralized projects. Open-source, decentralized projects are probably on GitHub.
GitHub is an open, version-control, storage site where developers store, update and distribute their code. We can physically see how often the codebase for the project is being updated.
We want active projects. Active projects means that it’s improving, adapting and has invested stakeholders working on it.
If the codebase hasn’t been updated in years, then avoid. Simply put, if the developers aren’t working on it, we’re not interested.
The market is still young, and the developers have quit as the first milestone, it’s probably not going to be around in few a months.
Feeling sentiment on Twitter
What is social media saying about our coin? Is the sentiment positive? Is there any coverage of any regulatory action against the coin? Is it being targeted as a pump and dump coin?
By prefixing the coins ticker name with a dollar sign, we can see tweets targeting this product. For example,
Buy some of the crypto
This the final stage. Go to the exchange where you found the coin, and buy some! The easiest step of all!
Before you buy, check if there’s any pricing disparity across exchanges. You could find a cheaper offer. Though, if the coin is worth it’s weight in fiat, bots have probably arbitraged the price across exchanges and they’re probably priced similarly.
There’s a huge level of detail you can get into when researching and buying altcoins. My approach is to first choose a coin that looks and sounds good.
Once I’ve found an interesting altcoin, I’ll look it up on CoinMarketCap, and get picture of the coins price, supply and market cap.
If it seems attractive, I’ll read into their website, determine what the project is/does, then dig into the whitepaper, the team, and their development consistency.
Lastly I’ll research the altcoins sentiment on social media, and scout for any bad publicity or negative sentiment.
Then finally, I’ll buy some!