The cryptocurrency sector has grown incredibly quickly, especially considering Bitcoin was only invented in 2008. Now, there are cryptocurrencies with market capitalizations in the billions of dollars, and more money is flowing into the markets than ever before. Hedge funds aren’t ashamed to invest in cryptocurrency, and many cryptocurrency startups are thriving.

These days, the cryptocurrency markets are worth trillions of dollars.

New projects and coins are announced daily, and many novice investors can get overwhelmed when researching exactly how to invest in cryptocurrency. Others may understand basic cryptocurrency research already, but are still unsure about what exact cryptocurrency tools they should use or what cryptocurrencies have the most potential.

Understand crypto terminology

If you need to brush up on basic crypto terms, check out this crypto glossary.

It can be exciting to hear about people’s profits from Bitcoin or Ethereum and want to jump into the markets immediately. However, it’s important to understand crypto vocabulary if you want to conduct effective cryptocurrency research. It helps to have a basic understanding of blockchain technology and understand terms like “altcoins,” “smart contracts,” “initial coin offering,” and more. 

In many cases, a whitepaper will lay out information about the cryptocurrency, what it hopes to achieve, and its various use cases. You will need to know basic terminology to understand the vast majority of these whitepapers, though. 

Examine the fundamentals of crypto

investor looking at whiteboardThere are some cases where you won’t need cryptocurrency tools, but you will need your common sense. Unfortunately, the cryptocurrency sector is home to scams with unprofessional websites, plagiarized whitepapers, and fake photos of team members. Other projects end up becoming pump and dump cryptocurrencies, where the entire point was to make a large profit then shut the project down entirely. 

While an excellent whitepaper doesn’t necessarily mean that a cryptocurrency will automatically be successful, it helps investors get some sense of what the team is trying to accomplish. The roadmap can provide a timeline for major milestones and help investors and traders hold the team accountable for their progress. Reading a whitepaper is a fundamental step towards understanding whether the project is legitimate. 

Another fundamental in terms of cryptocurrency research is to figure out your personal investing strategy. If you are hoping to double your money in two months, you might be looking for a different cryptocurrency to buy than an investor who is more concerned about stability than profit. You should also establish how much of your crypto investment you are willing to lose before you exit the markets entirely. The market capitalization of a cryptocurrency can also give you a good idea about how the project is being perceived market-wise.

Cryptocurrency research requires understanding fundamentals about the cryptocurrency: what it will be used for, how tokens will be allocated, how the blockchain is governed, and more. You should also know whether the cryptocurrency can be staked, as this can be an additional way to earn passive income.

Once you know these fundamentals, you can begin asking additional questions.

Ask basic questions about crypto

Here are some fundamental things to consider when thinking about how to invest in cryptocurrency.

First of all, where can you buy it? If the cryptocurrency is not listed on major exchanges, then it might be worth doing additional research about where it can be purchased and the daily volume on the cryptocurrency exchanges where it is listed. One of the best cryptocurrency tools to use for basic market research is CoinMarketCap, which publishes a lot of information on price, volume, market capitalization, and more. 

If you want to invest in cryptocurrency, then you must understand that there may be liquidity issues. It may be more difficult to sell your cryptocurrency than you realized, regardless of whether it is a profitable trade or not. However, if the project is listed on a popular cryptocurrency exchange, such as Binance, you will likely never have trouble when it comes to liquidity. If you invest in a lesser-known exchange, there may even be issues with security. If the exchange is hacked, for example, this obviously can affect your investment significantly.

Here are some other important questions to ask as you research a cryptocurrency:

  1. What are some of its major competitors, and does the project have an advantage over the competition?
  2. What use cases are there for this cryptocurrency besides being a form of payment?
  3. Are there any established advisors that are publicly advocating for this cryptocurrency? Is there any social media “hype” around it, and is there a growing community?
  4. Does the cryptocurrency have partnerships, and does it seem like there are upcoming developments or catalysts for growth?
  5. How long do you want to hold the cryptocurrency?
  6. How much risk are you willing to take regarding your crypto investment?

Before you invest in cryptocurrency, there’s another consideration in your research: 
At what point in the cryptocurrency’s price history are you investing? At the high? The low? Or somewhere in between?

If a cryptocurrency is near its all-time low, then there may be a reason that it has decreased in value. If a cryptocurrency is near its all-time high, you may think twice about investing since it may be temporarily overpriced.

Learn about crypto community and sentiment

hands in a circle communityCommunities tend to rally around cryptocurrencies for specific reasons. Some investors may be invested long-term thanks to the implications of the technology behind the project, while others may be more focused on short-term gains because the project currently seems undervalued. In the case of Dogecoin, the coin was able to make many investors rich simply because it was a “meme coin.” If you want to invest in any cryptocurrency, you should be tuned into social media and understand the general sentiment of the project.

You might be interested in a cryptocurrency, only to find that the community is clearly not interested in transparency. They may remove or immediately block community members that have questions about the project, or speak about “guaranteed returns” that do not make any logical sense. If this is the case, there’s a good chance that the project is a scam. If the team isn’t transparent about its progress, it’s an obvious red flag. 

Here are some things to consider regarding cryptocurrencies and their communities:

  1. Are they transparent? Is the community open to discussion about the cryptocurrency?
  2. Are there clear upcoming catalysts that could boost the price? Is the community speaking about these catalysts?
  3. How volatile has the cryptocurrency been in the past?
  4. Is the team/community actively spreading the word about this cryptocurrency? Is the team attending relevant events, conferences, or making media appearances and announcements?
  5. Are there major influencers/ambassadors/entrepreneurs that are on board with the project?
  6. Are there legitimate criticisms of the cryptocurrency/team being shared, and how serious are the criticisms?

Bottom line: be diligent when you research crypto

It can be overwhelming to invest in cryptocurrency, but it can also be very lucrative. The markets can be volatile, but they’ve also helped mint many millionaires, and even billionaires. Remember to conduct as much due diligence as possible when you research crypto and other investments.

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Michael Hearne

Michael Hearne is the CEO of Decentral Publishing and the host of the Uncensored Crypto docuseries.