If you visited any crypto-related social media by now, you most likely encountered the “do your own research” (or “DYOR”) catchphrase. However, very few seem to explain or exemplify HOW to do your own research on cryptocurrency investments.
The good old “information is power” saying is especially relevant for crypto investors. That is why researching a project before investing is a crucial step. I’ve put together a step-by-step DYOR guide that I use before every new crypto investment.
My approach on DYOR:
1) Information gathering
Once you find out about a new and/or interesting crypto project, don’t just jump straight in with a buy order. Take the time and look into what they claim to offer. What does this mean? Well, here’s how I do this:
First of all, I check if the project shows up on CoinMarketCap. If it’s not listed, I skip it and move on (investing in ICOs is not among my priorities). If the coin is listed, I take a look at their website.
Usually, the first impression I get from looking at a website is what I would call a bullshit detector. For example, do they have a website that looks like it was hastily put together? Is their team completely anonymous or composed of just one person with different haircuts? Do they use made-up statements, like “building the internet of blockchains” or “tokenizing the web4.0”? Do they have a copy-pasted whitepaper? Noticing such things on a first visit is a strong indicator of a scam.
If I still have the tab open by this point, it means that the coin might be worth digging into further. So I’ll next check their team member’s LinkedIn profiles, the project roadmap and progress and also read the whitepaper. I try as much as possible to understand how the coin works, if it brings something new and how does it try to create value. Again, if I don’t see anything exciting in a project by this point, I just move on. What do I mean by “anything exciting”? Well, here is a recent example of such a project. And here is one that I discarded right away. Can you spot the not-so-subtle differences between these two?
Once the initial verification is complete, the next step is to look at the numbers. In the whitepaper, the crypto project should have listed the maximum supply. This represents the total amount of coins that will ever exist for that cryptocurrency. To make sure that the project is legit, I usually look at the supply percentage reserved for the team and also at the amounts of coins held by big players. If the team owns more than 15%, or if the whales control more than 50% of the circulating supply, I stay away. How can you find how much the whales own? Either through CoinMarketCap holders section or by checking out the blockchain explorer for that token.
Also, it is important to note how much of the maximum supply will be burned over the project’s lifetime.
I usually filter out cryptocurrencies that have a way too high a maximum supply (over 100 billion), but this is just a personal preference.
One other thing to be aware of in regards to tokenomics is the market cap. This is calculated by multiplying the price with the circulating supply. If a newly launched coin has an exaggerated market cap (hundreds of millions or more), most likely the current price of that coin is way too high.
3) Github progress
The development progress of most cryptocurrencies can be tracked on their Github pages, by checking the most recent commits and how often the code is updated. There are also websites that aggregate Github info from various projects and rank it based on the actual work done on each project. If there was no Github activity for a crypto project in the past few months, it might be a sign the project is dead or that no one maintains the code anymore.
4) Social media evaluation
If a cryptocurrency has a strong presence and growing follower base on Reddit, Twitter, Facebook, or Telegram, it can be a good sign. Might mean that the marketing team knows what they are doing. Even further, following or subscribing to their social media is a good way of checking what kind of community that crypto attracts.
For example, is their Telegram channel filled with “moonboys” asking retarded “when Lambo” questions over and over? Or maybe there are discussions on project improvements where people ask pertinent questions or provide good feedback? Do the moderators delete all inconvenient questions? It makes sense to have an overview of these before proceeding to the next step.
5) Top dog comparison
Based on the info you have so far, try answering the following questions:
- How does this crypto differ from top projects such as Bitcoin or Ethereum?
- Does it offer something new or unique?
- Is it faster or more secure?
- What other features does it have that are not found in other cryptocurrencies?
Finding out what differentiates it from the competition is key. For me, this information is more important than the current price or market cap of the coin. Creating value is not something that every cryptocurrency can do, especially newly launched ones. In fact, it is something extremely rare. You will have to dig through a lot of bad projects before finding a worthy prospect.
6) Finding a good entry
If all the previous steps have been cleared, the last thing left to do is to determine the entry price and the position size. For this, some technical analysis knowledge comes in very useful.
Some rules I follow when it comes to finding good entries:
- never buy a coin if price is at a recent all time high
- never buy at major resistance unless there was confirmed S/R flip or reversal
- after the initial entry, build a position by dollar-cost-averaging or by buying dips
- have a plan for best and worst case scenarios before the entry
The entry price can be the current price if the technical analysis confirms it is good enough. Just keep in mind that you don’t have to go all-in with your first order. Also, always calculate how much of your total portfolio you want to allocate for this particular cryptocurrency.
That’s pretty much how I do my own research when it comes to crypto investing. Of course, this model can be improved or customized in many different ways. You could even build your own DYOR model. The idea is that having and following such a framework in place before making a crypto investment will give you a considerable advantage compared to other investors. Also, you will gain the confidence and peace of mind required for the long term, knowing that your investment decision is based on solid fundamental and technical analysis.
For additional learning tools on crypto, investing, trading, fundamental and technical analysis, check out my resources section.
If this is the beginning of your crypto quest, learning how to do your own research will prove to be extremely useful. Crypto investing is first of all about survival, and to survive, you need to learn how to spot a scam from a good project. This will save you money and headaches and will set you on course for those awesome rewards.