a guide to doing your own research
when influencers tell you to Dyor, do it. because they probably haven't done theirs.
A guide to doing your own research
When I first got into crypto I found it hard to do my own research. After all, you’re coming into a new and relatively young space. Especially if you don’t have previous experience with investing, it can be harder to look through the smoke and mirrors and see things for what they are. Let’s do a quick breakdown of different things that I think are important to look at. Bur first, let’s start with why.
Why you should do your own research
In the beginning of my crypto journey, most of my info and insights came from tweets, word of mouth, youtube videos or people who talked me into investing in something. The thing is that the person giving you information or convincing you something is worth investing in, often has an incentive to do so or they spread (not always on purpose) inaccurate info.
That’s why you shouldn’t be 100% reliant on other people’s opinions, views or content. You should be able to do your own research and form your own opinions. At the end of the day you are responsible for your own decisions and you are the only person who can make sure that you succeed in this space.
Myself, I share info and thoughts about projects that I am interested in. Or have invested in. Even with my own content I urge you to always do your own research and form your own thesis. After all, I am just a random pig on the interwebs.
Research topics for crypto projects
There’s different topics to look at. I personally like to use a checklist to go through any new project that comes my way:
- Whitepaper or pitch deck
- Market cap
- The team behind the project
- Progress so far
- Timing/market trends
Whitepaper or pitch deck
When reviewing a new project I typically read through their whitepaper, litepaper or pitch deck. These are the most important resources on any project. The whitepaper is curated by the team behind the project to show their vision, explain their project, their short and long term goals, the tokenomics, and give an introduction to the development team. A litepaper is usuallt under 5 pages and is basically a TLDR of the whitepaper.
A pitch deck is typically shorter than the whitepaper as well, and shows the info in a shorter, more concise format. The pitch deck is typically presented to investors in the early stages of the project. When the project is trying to raise funds from venture capitalist (VC’s), private investors and other institutions. The pitch deck also shows how the raised funds will be used.
It’s important though to know what exactly to look out for and which parts are important. So, let’s continue with those topics.
What is a market cap? The market cap is the number of tokens available on the market multiplied by the current token price. Basically; what is this project worth altogether. Similar to the valuation of a company. This number is important as it shows you the size of a project compared to others. A mistake people often make is that they only look at the price of a token and not the market cap.
Here’s an example:
- 1 cardano token is currently worth $1,20
- 1 avalanche token is currently worth $95
Which project/company is bigger? Well, the answer is Cardano. They have a market cap of 38 billion, meanwhile avalanche has a market cap of 25 billion. You see, the amount of coins is different on each project. So you can’t compare projects just by the price, the market cap is a way better method of comparison and understanding how big a project already is.
To give you an example using companies you might know and could be easier to understand, we’ll look at Apple and Microsoft. Apple has more shares available on the market. So even though Apple’s share price is lower than Microsoft’s, their market capitalization is bigger. Apple is a bigger company than Microsoft in terms of value.
- 1 share of Apple ($AAPL) is currently worth $140
- 1 Microsoft ($MSFT) share is currently worth $229
Apple has a market cap of 2.26 trillion USD, Microsoft has a market cap of 1.71 trillion USD. Microsoft’s stock price is higher, but Apple has a higher market cap. How can that difference be explained? Well, each company or token have a certain number of shared or tokens that are available for purchase. That’s why market cap is a fairer comparison compared to just token or share price.
Tokenomis – or token economics – tell you a lot about how the supply of coins from a project is distributed. What percentage of the supply is owned by the founding team? What percentage is owned by venture capitalists and institutions, and how many are held by the individual investors?
How long are tokens bought by venture capitalists locked (meaning they can’t sell them yet)? Can they sell whenever or do they receive their tokens in batches spread over a period of 12 – 36 months?
I should clarify that typically, early investors invest into a project, but don’t receive all their tokens yet when the project gets listed on the market. That is to prevent a large amount of selling pressure. Instead, tokens are “vested” – meaning they are released over a certain period of time.
One thing I like to pay attention to in project that are already listed on the market, is the ratio of the circulating supply vs the total supply. That tells you what percentage of the supply is currently available on the market and what percentage still has to be released. Ideally, you want the circulating supply as high as possible.
Why? Locked tokens incur a certain fear from retail investors. A fear that the moment institutional or early investors receive a batch of tokens, they sell them on the market thus driving the price down. Most of the time though, it is this fear and uncertainty during these release periods that have the negative effect. And not so much the early investors cashing out. However, that is only the case for projects who are performing well and have a high enough daily trading volume.
If the project is of lesser quality, or the trading volume is not high enough to absorb the selling pressure, then yes – the unlock will definitely have a huge impact.
The team behind the project
If you’re investing in early-stage projects, you are counting on the projects and its team being able to actually deliver on their vision and idea. In some sense, you are investing into the people and not the company. After all, they are the ones working hard behind the screens to bring the project to a success.
Does the team have relevant experience? ‘Relevant’ is highlighted, because someone who is a first time CEO in a space like this might be biting off more than they can chew. On the other side of that, you have ‘serial entrepreneurs’. Which often can be seen as a red flag.
- How much experience does the team have?
- Have they worked with big companies in the past?
- Are they industry veterans?
- Does the project have a decent backing? Meaning top VC firms, advisors and angel investors.
- Do they have advisors on board who know what they are talking about?
- How big is the team? Big enough to deliver on all their promises?
- Have they already developed or released some things or is it just a whitepaper for now?
Another way to check the potential of a project is to do some research into their competition. Do they have a competitive edge? What market cap have competitors reached? If you’ve got a project where competitors are sitting at 100M+ market caps, and you have a project only at 15M market cap, then it makes sense to buy into that project. That is if they do have some sort of advantage over their competitors. Or if you have a early investment opportunity; which FDV are you investing at?
The roadmap shows the short- and long term development targets/goals of the project. What will they be working on and when? And when do they hope to reach big milestones? Like the launch of the mainnet or their main product?
If it is a relatively older project you pay attention to if they have achieved their roadmap milestones that were planned. If it’s a new project you check how things are lined up. Do they have important milestones in the near future? Is there a long term plan with solid releases and milestones over the course of 12+ months?
Progress so far
If it’s an older project you will want to check what they have achieved so far. Some projects are endlessly stuck in development and the closest estimate they can give is “soon”. Let me tell you that “soon” is one of the most annoying timelines a project can give. Because “soon” can mean anything from a few days to a few months. But I digress.
Some projects manage to build up to multi-billion dollar market caps without ever even achieving anything. That’s where hype and promises can get you. Pay attention to projects who meet their goals and their ETA’s. One thing that is even better to watch out for: teams that keep building even when the markets are looking rough.
If you’re not early, you’re too late. But at the same time, being too early is the same as being wrong.
One thing to pay close attention to is market trends. At some point you will realize that the market has these periods where a certain narrative or trend is dominating the market. Currently, in March 2022, the market is all about GameFi en metaverse projects. And we’re also seeing a small shift towards community/DAO projects.
While the market is mainly going crazy for GameFi projects, other types of projects have been getting neglected. No matter how solid they are. The same thing happened a while back during the Layer 1 season. With big runs from projects like Fantom ($FTM), Avalanche ($AVAX) and Solana ($SOL). Not close after that the market shifted more towards Layer 2 projects like Metis and Arbitrum.
You see, investing in projects where the market is just not interested in at the moment, will most likely lead to profits that pale in comparison to the project that fits the current narrative. If you make a profit at all. Paying attention to the trends in crypto is a skill that is hard to acquire. How to do it? Talk to people. Pay attention to what people are buying, where they are making the most gains.
Don’t get me wrong. The tip above is absolutely NOT the same as your friend who made nice gains on safemoon, shiba or doge, and is telling you to buy in as well. But, if you see multiple people investing in different projects that fit into a certain category or narrative, pay close attention to that.
In the meantime, you can always put in small buys in your favorite “blue chip” projects like Ethereum, Bitcoin and Fantom. Slowly over time through a process we call ‘dollar cost averaging’
I hope you were able to derive some value from this article and that it sets you up to do your own research into projects that come your way.
I am not a financial advisor, I am just your friendly neighborhood pig. Let’s connect on Twitter!
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