According to coinmarketcap.com, there are currently 2,238 cryptocurrencies and 18,902 markets for crypto trading. There are a number of new tokens being launched in the crypto space every day, which makes it challenging to differentiate coins with good fundamentals from the rest. To top that, cryptocurrencies, unlike securities, put the buyer at risk from the time of purchase. This calls for disciplined and exhaustive due diligence processes before making an investment decision.
We have drafted an ingenious due diligence process to keep your funds safe from projects that lack fundamentals and potential. Let’s get started.
Why are you investing?
It is important to get clarity your reasons for investing because your personal needs and motivations will help assess how much risk you’re willing to take to make expected profits as well as the term of investment. Understanding the term of investment will also help you decide what percentage of profit you should target for daily trades.
Let’s consider a hypothetical situation in which you have invested in a coin expecting 30% returns in 6 months, but it took 12 months to hit 10%. Your choice is to either HODL or exchange the coin for one that might yield a better return.
Knowing your reasons at the beginning of the process will help you determine the right strategy in order to plan your trades in advance.
Survey the coin team and project
Once you have the reason for investing and your strategy in place, conduct thorough research on the project, the founders, and the development team. Be sure to research their business model, read the whitepaper, check potential for scalability. These are things that signal the potentiality of the project.
Coin teams that deliver on their roadmap should indicate that the project is a good investment choice. Look at the timeline for development and project launch. If the timeline looks unreasonably long or impossibly short, that should raise a red flag. Steer clear of projects with glaring issues in the timeline or development plan because it might signal the inability to to sustain themselves beyond the initial pre-ICO or ICO phase.
Check for advisors, partnerships and profits
ICO projects have advisors who often have diverse backgrounds and proficiencies so, as mentioned before, conducting research on their background and work history will give you insight. Study the partnerships that the projects are aligned with as this helps to evaluate its core fundamentals and glean a broader scope of what they’re doing and who their target market might be. Look for listings on exchanges and ICO websites like ICObench.com and Airdrops.io to find reviews and compare your research.
IEOs are currently all the rage so it’s important to check the credibility of the token before participating in its token sale. You will probably see that there is negative ROI on 98% tokens from Binance Launchpad.
When tokens conduct an IEO, look for omissions in their product roadmap. An exchange that encourages all traders to participate without sharing a detailed review or report should make investors pause. When there is a lack of transparency, especially on lesser known exchanges, we advise traders to exercise extreme caution before investing in their token sale.
Rate the Project based on the Community Activity
Crypto communities can make or break a crypto project. Evaluate metrics of a crypto project by browsing their social media accounts and activity. Projects with good fundamentals have a flurry of activity on their Discord and Telegram, even if they have less followers. A good community helps you trust the project’s potential and team’s progress.
Coins with a high number of followers and no engagement should raise a red flag. The absence of an active crypto community indicates an underlying scam or inefficiency in the project.
Don’t get carried away by bounty rewards and airdrops offered by a project. Remember, a lot of nothing is still nothing. Take these factors into account and rate the project according to your research.
Looking into a project’s fundamentals, team and community is a good place to start. While there is no assurance that taking these steps will assure that a cryptocurrency project is a sure bet, it is a good starting point for conducting due diligence.
Cryptocurrencies are volatile in nature and IEO/ICOs are speculative and highly risky. If you are a beginner in this space, consult an expert or qualified professional before making investment decisions.
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