Cryptocurrency has become a hot trend for ordinary people without prior knowledge of how it works. Currently, so many cryptocurrencies exist, and most of them frankly do not have a promising future. Many investors are glued to Bitcoin and Ethereum as starting points as they are the most valuable, with the longest track records and future potential. However, the deeper you get into crypto and engage in less popular altcoins, the riskier It becomes. Thus comes the need to evaluate crypto projects before venturing.
Evaluating new crypto projects at the beginning is essential if you are trying to understand how they work. Here is a simple framework you can use to assist you in evaluating different projects.
How to Evaluate a Crypto Project
Examining the primary aspects of a crypto project should be used to make an informed decision. The decisions one makes should be made free of emotions as they are impulsive and could lead to a great financial loss.
There should be key issues you can consider when evaluating:
- What problem is the project trying to solve?
- How does the project plan to solve the problem?
- Who is behind the project? Do they have the necessary experience and expertise to address the problem efficiently?
- Is the technology behind the project sound and secure?
Such issues lead us to establish the key factors to follow when evaluating any crypto project.
1. The Project’s Website
Any potential cryptocurrency project must have a website if you are to invest in it. The website, however, should have various factors to look for:
- If it is up to date and easy to use.
- It is clean and has no spelling or other forms of errors.
- Shows the team members and various partnerships.
- Defines the token’s objectives.
- Offers a white paper.
2. Quality of the White Paper
The white paper is the backbone of the project’s proposal, deeming it one of the most important tools in evaluating a cryptocurrency. It serves as an authoritative document that outlines the goals and strategies for cryptocurrency use. Additionally, it is used as a road map for the token.
An outstanding white paper will be well written and easy to understand without too technical aspects. It should also address the issues about the problem the project aims to solve and the solution put forward thereof.
If the white paper appears obscure and you may not comprehend what is being said, the project is not worth your time. On the other hand, if the information on the white paper has so much information you cannot read, use the project’s litepapers. They are condensed versions of the white papers but contain the same information. An example is the Ethereum white Paper.
3. Project’s Team and Partnerships
The success and failure of a crypto project can be determined by the credibility and the experience of the team behind it. The team must be openly disclosed for any project, bitcoin being an exception. A focus on the team should offer scrutiny on three major points;
- The team member’s experience.
- Their history and level of expertise in the crypto space.
- How cohesive the team is.
Projects with reputable executives or partnerships with established firms portray a positive sign, thus another factor to look for. Look for the project’s partnerships on the website’s landing page. Some well-known partners are brands like Google, Amazon, JPMorgan, Visa and IBM. Do your own research to establish if the partnerships are legit.
4. The Tokenomics
Tokenomics of a crypto project refers to the economic model of the project and the likelihood of its use within the ecosystem. Tokenomics are essential portrayers of a crypto’s long-term survival. Any project with malfunctioning tokenomics will ultimately fail, regardless of its strength.
Crypto is notorious for its volatility, which turns cryptocurrency into a speculative instrument rather than a functional token. Through an economist, tokenomics reclaim the token’s purpose through complex mechanisms.
For instance, if a token is a means of payment, its value will likely fluctuate along with the market. However, if the token’s use case is to power a decentralized application (dApp), the tokenomics become more complex, and the value becomes more stable. Understand the tokenomics of a project before you invest, which gives you the potential value of the token.
5. Market Capitalization
Market capitalization represents the total value of all the tokens that have been mined and becomes a better gauge of the overall size of a project. It can be used as a good indicator of an asset’s stability, given the likelihood of crypto being volatile.
Hence, cryptos with larger market caps tend to be more stable than those with smaller ones.
6. The Utility of the Crypto
Not all cryptocurrencies have a practical purpose. It would be best if you always looked for coins that offer utility in the blockchain ecosystem. You should determine if the project seeks to solve an issue within the network or enhance its functionality.
Conversely, other coins merely exist as jokes, mostly including meme coins. Social media influencers push them. However, it is notable that you can also make money with such coins but understand the risks of investing in them.
If you decide to invest in meme coins, learn how to do it safely.
7. Trading Volume
A crypto project having a low trading volume indicates a red flag, as it measures how easily a crypto asset can be bought or sold. In most cases, the higher the volume of cryptocurrency transactions, the more liquid the market for that particular coin or token is likely to be.
8. Circulating, Total and Max Supply
Circulating supply represents the number of tokens circulating the market, while the total supply is the total number of coins or tokens created. On the other hand, max supply indicates coins that will come into existence, which can be fixed or infinite.
Many investors place a higher value on low investments than on abundant ones.
With the current developments of new crypto projects, you should be able to evaluate them before venturing. One should try to go beyond the mere hype and the marketing engine of the project. Do thorough research on the project, read the documents, technical explanations and the media coverage offering different views of the project.
Consider a project worth your time, from the project’s vision and tokenomics. A project having a strong community of early adopters or beta testers indicates a project’s validity.