Doing Your Own Research for Crypto Projects
DYOR is a term that I’m pretty sure you must have seen or heard a lot whenever crypto projects are discussed but what does doing your own research really mean?
Well, here’s an analogy:
Imagine wanting to loose weight and you seek for advice on how to go about it. What you will eventually get from different persons will be different tips on what you should and shouldn’t do. Some will tell you diet, others will say exercise or drink a lot of water.
But in reality it is most likely a combination of all of these factors combined.
In the same way, a good research process is influenced by different types of analyses.
Types of Analyses
1. Technical Analysis:
This is the study of the previous price movements of an asset, it is done using the cryptochart, and making educated guesses in relation to how you think others will respond to the market. But you cannot make an entirely great decision using just technical analysis.
2. Sentimental Analysis: This is analysis based on people’s psychology, comments, feelings and emotions towards a project. It is actually a biased way as it can easily be manipulated by the wealthy and influential (as it is just basic marketing). It’s not advisable to rely entirely on sentimental analysis, but always take into consideration the general opinion about the project you intend to invest in.
3. Fundamental Analysis:
This is the study of the actual ideas behind a projy, the team doing the work, and the progress a specific project has made. Fundamental analysis focuses on evaluating the “intrinsic value” of an asset. By considering various internal and external factors, you can evaluate whether a cryptocurrency is overvalued or undervalued.
Doing your own research is not
- black/white, it isn’t
- either/Or
- this/ that.
And good research is usually a combination of all three types of analysis.
THE GOAL OF RESEARCH
The goal of your research should be to make an investment look bad. This may sound counter intuitive but the idea is to look at all the draw-backs and negative sides of a project, inorder to assess if what remains of it that can actually be a good investment. Good research usually takes a lot of work and effort but it is most definitely worth it.
SPECIFIC ACTIONS ON RESEARCH
There are some areas you should specifically focus on when carrying out your research and they include but are not restricted to:
1. Tokenomics: This is a fancy way of saying; the economy of an asset/token. It is a great source of information because ultimately a project that has smart and well-designed incentives to buy and hold tokens for the long haul is more likely to outlast and do better than a project that hasn’t built an ecosystem around its token. You can view the tokenomics of a coin on the project website or their whitepaper. Always always read whitepapers before investing in any project. For terms you do not understand, you can always consult Google.
You should also find out if a coin is if inflationary or deflationary.
Inflationary simply means that the coins will continue to be created and minted. These coins tend to decrease in price as time goes on if demand for it drops.
And deflationary means that a percentage of the coins would be destroyed eventually. They increase in price as time goes on since there are less tokens available to buy.
Some tokens are a mix of both. An example is the Bitcoin, for now it is more inflationary than deflationary.
2. The Presale data: Some tokens are given out to early users, some sold to private investors while some are mined by a closed group of miners. What you need to do basically is to find out how tokens initially get out to the miners, how it is introduced to the general public, the launch mechanism of this token and how it eventually affects the overall tokenomics. Many tokens are usually given to users through airdrops. Airdrops works well but it depends majorly on the long term vision of the project. Some tokens are introduced to users via airdrops first.
3. The Team: Before subscribing to a project as an investor, you need look at the credibility of the team, their past records and their previous achievements. Integrity has a way of impacting and sustaining a project.
4. Social Media: The content creators on social media communities have ways of influencing a project in a massive way. Although a huge social media acceptance is not an assurance of a good project, it sure helps.
5. What problem are they solving and how are they going to use your money to solve it?: Bitcoin was created to solve the problem of inflation. Ethereum solves the problem of expensive and slow banks amongst other things. You have to determine the use case of the project, what problem it’s trying to solve and how exactly it plans to achieve it’s objectives. Check if the aspirations are feasible and it the methods will work.
6. Read the Whitepapers: Whitepapers are official documents releases by the developers and the team where they describe and give information on the problems they intend to solve, how they want to solve them and their motivations. If a project doesn’t have a whitepaper or has a poorly written one, that’s already a red flag and it most likely is not an investment you should get into.
7. Ask yourself where the coin deserves to be placed on the hierarchy with other coins: You can make your estimate based on previous history and market cap to evaluate the position a coin should be when compared with others. This can also help you in your research.
If you made it to the end, I’m sure that you now have a clearer idea on how to do your own research before investing in a crypto project. Remember, always take the time to perform your due diligence and never invest in a project you do not understand.
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