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A Simple Framework to Analyze any Crypto Project

Validated Individual Expert

A 5-step process to analyze any cryptocurrencies

In the past years, blockchain and cryptocurrencies have gained huge traction all over the world, and people are rushing to invest in that space. While the potential reward for good decisions is huge, the number of new projects that launch every day makes it difficult to filter the noise from the signals. Hence, one of the biggest questions that seem to come over is how to know if a given project is a good one.

Cryptocurrencies can’t really be assessed through the same lens as traditional markets. Owning a token isn’t owning equity, so classical methods don’t quite work. Therefore, it is important to carry out our analysis using a different process.

Successfully analyzing projects is an art that requires practice, good judgment, and a clear process. In this post, we are going to focus on the latter by going through a step-by-step framework to become a better crypto analyst.

1. What is the project about?

At the end of the day, a project will only have value if it solves a problem. Hence, the first step of our analysis is to try to understand what problem is the project solving. Some questions to ask ourselves are:

  • In what sector does the project belong? (Metaverse, L2, Gaming,…)
  • Is this just short-term excitement over a given narrative? Or is the project here for helping the long-term health of the ecosystem?
  • What technology do they use? Is it open-source?
  • Is the project actually realistic?

Those pieces of information can be found on the project website as well as in its whitepaper. The latter is an important document as it outlines the technology, purpose, and potential of the given blockchain project.

Other useful websites to pull information from are Messari and Binance research. There, you can find the latest reports concerning different projects and institutional-grade analysis.

2. The tokenomics

Tokenomics is a fancy word to say the economics of an asset. It is a crucial part of Fundamental Analysis because it describes the economic and financial principles that govern the behavior of a cryptocurrency or blockchain project’s token. Remember, owning a token isn’t the same as owning the equity of a given business. Therefore, it is important to understand the key properties of the project token to gain insight into whether or not the latter can be a great buying opportunity.

  • What is the total supply of the token?
  • Is it deflationary or inflationary? (Meaning is the supply of the token fixed? Or will it increase or decrease at a certain rate through time?)

By the simple law of supply and demand, an inflationary token with a growing total supply will be worth less than a token with a fixed supply, ceteris paribus.

  • How was the token initially given to the public?

The initial token distribution is the way in which you allocate tokens between the different stakeholder groups. These are usually insiders, the project team, the community, and the general public. It can give us great insight into the incentive of holders.

  • Are there a lot of tokens given back to the community?
  • Are large holders ready to dump their bags into the market?
  • Is a large portion of the project token in reserves for further development?
  • What is the utility of the token?

Again, the whitepaper is a good place to look for those figures. Further websites like CoinMarketCap or CoinGecko can also be useful.

3. The team

At the end of the day, the team is the people you are going to trust with your money. Therefore, it is essential to bet on winning teams that have a high chance of putting the project to fruition. Some key questions to ask ourselves are:

  • Has the founder/CEO already achieved something meaningful? Does he have experience in the space?
  • Is the CEO putting its reputation at stake?
  • Are they hiring new talent?
  • What kind of people work there?
  • Have they been involved in any questionable projects or scams?

A great place to start looking for those pieces of information is on the Linkedin of the project. If there is no team, it can be useful to look at the community they have on GitHub.

4. Project activity

In addition to betting on winning teams, it is important to bet on projects that are gaining traction. Hence our analysis should focus on identifying growing metrics.

  • Is the project’s social media good and increasing?

Social media is the tool that helps a project gain interest. A good project should have a social media that is increasing.

  • Is it being followed by well-known names in the space?

Here again, if well-respected names in the industry follow the project, it is a good sign that the project solves real issues and has a high growth potential.

Some other important metrics to look for are:

  • The current market cap
  • The number of active addresses
  • The amount of money being transacted within the network in a given timeframe
  • The fees generated by the network

While the list of useful data is endless, those would be able to give you an overall picture. You can find them using resources like Dune or Glassnode (Take into account that not all projects will be there).

5. Risk

This is probably the most important part of any research as the worst thing that can happen is to see your fund disappear due to a project not being legit.

  • Has the protocol already been hacked in the past?
  • Who follows them on Social Media? (For instance, if CZ follows the project, you can be reassured that the project is legit).

Another thing to bear in mind is the liquidity of a project. The latter refers to the ease with which an asset can be bought or sold in the market without affecting its price. If it is a big project, there will not be any liquidity problems. Nonetheless, it is useful to check if there is enough trading volume.

Then, it is important to verify that the token allocation is healthy so that there is no big whale ready to dump tokens in the market. A good tool to use is BubbleMaps. It allows one to see if there is any individual or cluster of wallets that owns a big portion of the token. If it is the case, it is important to be careful as a single seller affects the price significantly.

While this framework can give us essential insight into a given project, bear in mind that a good analysis is only half of the story. Another essential aspect is proper market timing. When to enter and get out is as important as knowing if a given crypto is good or not. A good project at a bad price is a bad bet.

But hopefully, this article will have helped you understand some of the key elements to look for in any crypto asset.

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