How to Perform Crypto Research!

The crypto industry is considerably more dynamic than other asset classes in a lot of ways and can thus feel very overwhelming even to seasoned investors with experience in investing in crypto. Having an investment research checklist ensures that you don’t overlook any telling factors that might affect your gains or even wipe out your entire portfolio.

Similar to investment in other asset classes, crypto too has its own intricacies and based on my research, this is the most comprehensive diligence checklist that I would personally use.

This is the first part in a crypto series focused on crypto selection and research. There's a part 2 that deals with crypto investment management and part 3 that discusses the concept of asset tokenization.

‍1. The Team

For crypto, you need to kind of put your venture capital hat on rather than always thinking like a trader even if you are in it for the short term because of how fast the crypto market can move in the exact opposite direction. Venture Capital investors focus a lot on the founding team because so much changes in a business when you just build out a company and you really need to have a strong team that's really able to pivot execute on delivering great products and over a long period of time really create an outstanding company. Similarly, crypto as part of the landscape also has to have a good founding team to ensure the base product actually can serve the consumer for as long as possible. Some good things to keep a note of for researching the team is as follows:

Founding team should be public and have a proper online presence beyond just text on a website. This can be appearances in podcasts, tech conferences, reddit forums, YouTube and news interviews anything not just to learn about them but also about the project. Being public doesn’t necessarily mean a winning team but its much better than unknown founders.

The founding team members should also be vetted on LinkedIn to see what kind of a background the top-level management or even middle level engineers have and what kind of jobs they are hiring for currently if any. If a few members have really good brand names for schools or work ex, this demonstrates that people were willing to leave their high paying and secure jobs to join a new crypto project which is considerably lot riskier.

2. What It Does

Specifically try to understand what problem does the project solve using the company's resources like their website, white paper, blogs. Usually founders and key employees on podcasts and youtube interviews will will explain their projects in a lot more digestible manner than a white paper so you can start with that. Beyond this, social media presence of the project is also important to analyze.

This includes medium articles reddit posts and twitter threads and there's a lot of really great information out there from retail investors and also institutional investors you kind of have to look through all of the noise in order to get the best stuff but still.

If you're confused about something and want a simple explanation, google “eli5 + “ and then your term so something like eli five tera reddit and then articles will come out like you see here explaining what the project is like as if you're a five-year-old (eli5 = explain like i'm five).

3. Exchanges

Being listed on top exchanges isn't necessarily an endorsement, but it does show it's a relatively well-established project. Newer crypto investors may prefer to stick to cryptos they can buy on a centralized crypto exchange. More experienced or adventurous investors may decide to use a decentralized exchange to access less-common cryptocurrencies. Whichever route you go, make sure you'll be able to buy a crypto on your platform of choice before you spend hours researching it. Things to keep in mind:

a. Liquidity: Ease at which an asset can be bought or sold. If there is a lot of liquidity, then there will always be a buyer or seller waiting on the other side of your order request.

b. Security. When your money is on an exchange, you are trusting them to hold your funds, so you better hope that their security is up to par. Exchanges are constantly under attack.

c. Fees: Can affect your margins a lot

4. Adoption

No matter how much retail or institutional investors pump up the prices for crypto the only thing that will truly create sustainable and really drive crypto's growth in the long run is the adoption of projects. Things to look for include:  

1. Number of applications built on the protocol which the project usually keeps track of on its website
2. % staked which can be found on stakingrewards.com
3. Total value locked which can be found on d5lama.com
4. Number of wallet users which most projects have a dashboard for or you can google. For e.g. “tera wallet users”
5. Github contributions which you can find if you click this insights button here

• Social media figures: twitter, telegram, discord especially to compare against other projects. Additional news aggregators for crypto news are: CryptoPanic, FAWS, Crypto Research Report
• Find out if it is active- If a project is not active, it could have been abandoned or could be a crypto scam. Things to look out for this are:
• Social media, website activity: Is the website up to date? Does the project post regularly on social media? whether it's on Reddit, Telegram, Discord, or elsewhere.
• Developer activity: More the developer activity on github or wherever the project is hosted, the better
• Trading volume: High trading volume is a sign of greater liquidity and more stability

5. Competitive Landscape

Because crypto projects move so fast you always want to make sure that you're investing into the best projects because those are really the ones that are going to accrue value. Firstly, figure out which category the crypto project falls in

Then find the top 3-5 players in the space, one of them hopefully which is the one that you're doing a deep dive analysis on. The most popular names will kind of pop up frequently in the articles you read read twitter threads you look at or the interviews you listen to. Some of these as of this year are:

‍

Then you have to do focused research based on the category. For example, If you're evaluating a smart contract cryptocurrency, you'd look at speed, scalability and security. For a decentralized finance (DeFi) project, you look at how much money people have on the platform and so on. For crypto projects, focus on relative valuations, based on your project category research, competitor analysis will help you arrive at valuations, upside and downside projections.

Some tools include: Tradingview and Cryptowat.ch for Charting. Coinmarketcap, OnchainFX and CryptoCompare for market data

6. Tokenomics

This is study of the factors that impact the demand and supply of tokens for a crypto project. Some important things to research about the Tokenomics of the project are:

1. Whether or not the token is inflationary or deflationary and also to what extent. E.g. Bitcoin is inflationary but the rate at which the supply is inflating is decreasing eventually to the point of zero. But Cosmos has a high and more stable supply side inflation rate that encourages buyers to stake.

• Token allocation for the initial release: When the project first launched, this can really tell you how the supply may be affected in the future. If for example most of the tokens have been sold to early investors then that could mean they'll be ready to sell whenever their lock-up expires and this is where a project like solana doesn't look too good. Ethereum was mostly sold to the public which means that there probably won't be much selling pressure from early investors anymore since ethereum has been around for so long.

• Actual utility makes tokens more valuable while other projects with bad token design make tokens relatively unuseful and lower long-term value

• Circulating v/s fully diluted supply & Circulating v/s fully diluted market cap:  circulating simply refers to the amount that's publicly available to be traded while diluted includes the supply that is eventually going to be released and added to a project supply which creates downward selling pressure. And even for the circulating supply, if a small group of people hold a big percentage of the tokens, or there's no limit on how many can be minted, if a few whales control most of the coins, they will have an outsized influence on the price. If the project plans to create millions more coins, it may dilute the market and cause yours to devalue.

• Future plans - tokenomics can change if the community votes to do so and this can be a catalyst for a price increase for example tera passed a proposal that resulted in the burning of about 90 million lunar tokens a few months ago which decreased the supply by 9% making the price skyrocket. To view upcoming events at a quick glance, use tools like CoinMarketCal and Coindar.

7. Risks

Some of the most common risks to the project might be:

1. Team may not have a strong background
2. Adoption metrics like total value locked may be shrinking
3. Over-reliance on one project that's carrying the entire protocol
4. New competitor with better tech may come along
5. Poor tokenomics may indicate that a lot of supply will flood the markets soon

One of the best ways to figure out what the risks are is really just looking at reddit and twitter because honestly there's a ton of people who love to hate on projects and if you can filter through the noise, then you can actually consider which ones are bringing up legitimate concerns and better understand what the risks are once you invest into a project. The project's discord which usually has an FAQ channel which provides links to all of the most important blog posts and articles and white papers and everything you really need to know and also feel free to reach out to a bunch of people in the discord as well because usually people are more than happy to answer questions. Even search from that history in that discord because your question may have already been asked. Risk analysis can save you a lot of time and money.

8. Funding

Looking up funding rounds and the venture capitals which back the protocol is crucial because if they run out of money, every other factor will not matter. So, you need to be sure that they have capital available to them for the next few months/years till the adoption increases to a sustainably profitable level.

This is the first part in a crypto series focused on crypto selection and research. There's a part 2 that deals with crypto investment management and part 3 that discusses the concept of asset tokenization.

‍

‍Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. Nothing on this Blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading this Blog we cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Blog are just that – an opinion or information. You should not use this Blog to make financial decisions and we highly recommended you seek professional advice from someone who is authorised to provide investment advice.