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8 Smart Ways to Analyze a Crypto Token Before Investing in It

By December 19, 2020 No Comments

In this article, you’re going to discover 8 smart ways on how to analyze crypto token before investing so you can make a sound decision.

Cryptocurrency is by far the most lucrative business with a ton of investment opportunities with China controlling over 75% of the mining network. What people don’t know is that when it comes to cryptocurrencies, there is more than Bitcoin or Blockchain.

Currently, there are more than 10k cryptocurrencies on the market- and new ones are being introduced to the market each day.

As you can guess, with mountains of cryptocurrencies out there, it’s not easy for new investors to decide which ones to invest in. Besides, not all of the cryptocurrencies are real. Worse, scammers have invaded the cryptocurrency ecosystem and are launching unauthentic crypto tokens to scam people.

To trade safely in this market that’s full of risks, you need to exercise as much caution as possible. This involves finding authentic crypto assets to invest in.

Unfortunately, scammers are getting smarter each day. Even with the advancement in technology, they are always finding ways of scamming people.

Practically, there are no smart ways of analyzing crypto tokens. However, the following methods will guide you before investing.

Understanding Crypto Tokens

Also known as crypto assets, crypto tokens are a form of virtual currency tokens that are often used to fundraise for crowd sales as well as a substitute for other assets.

With that, let’s take a look at how to analyze crypto tokens before on-boarding the bandwagon.

1. Study the Token’s White Paper Carefully

As stated above, there are arguably more scammers in the crypto field than the investors. If you’re not careful enough, then the shock is on you.

Generally, the token’s white paper is the legal documentation created by the project owners to help build trust with potential investors. In this paper, you can get to know about the project plan, concerns, goals, etc. Typically, the token’s white paper helps investors to see whether thorough research was conducted on the project.

As a rule, the white paper needs to be as detailed as possible outlining the financial models, legal concerns, roadmap for implementation, SWOT analysis, etc.

While analyzing the token’s white paper, you should make sure it addresses the following:

  • The unique selling proposition of the project. Of course, there are competitors and the project needs to stand out from the crowd.
  • What the project leaders aim to achieve and the exact approach they are planning to use to be successful.
  • The processes the company aims to follow to realize its goals.
  • Where and when the tokens can be used.

As a rule, you should be suspicious when you come across a company that doesn’t have a white paper. And even if a company has it, you shouldn’t be convinced easily as companies can create a resounding white paper. PlexCoin fundraised more than $15 million using a convincing white paper before their account was frozen by the U.S. Securities and Exchange Commission.

You should make sure all the checkboxes are ticked before investing in crypto tokens.

2. Do Thorough Background Checks on the Project Team

After scrutinizing the crypto token’s white paper, the next step is to find out more about the team leaders of the project and or the owners.

Remember that these are the people who are backing the project. You should know their reputation in the Blockchain world, their qualifications, etc.

As a rule, you should ensure the team leaders have accomplished or tackled a reputable project before. They also ought to be experienced in the blockchain landscape as well. In a nutshell, they should be people who know the industry well. Some companies are in the business to make profits but are unethical. 

As mentioned earlier, scammers have gotten smarter and are finding opportunities to navigate around this. Many have created fake founders of their projects with dubious biographies. Some even use other people’s identities without the consent of the owners.

To stay safe in this area, you need to do thorough research.

If you can’t find detailed information about the team leaders of a certain project, just don’t invest in their tokens.

3. Understand the Laws Governing the Tokens

Finding a great token to invest in is one thing, and participating is another.

See, the cryptocurrency landscape is full of challenges. Some countries have tough laws that govern participation. The last mistake you want to make is to find a token only to find that you’re not allowed to participate by the laws of your land.

As a rule, you need to find tokens without legality issues in the region you reside in.

4. Find out more about the Token’s Community On Social Media

Today, almost everyone is on social media. When analyzing crypto tokens, check to see whether people are backing the project. You could start by checking on Facebook, Twitter, and other popular social media platforms.

If there are any suspicious dealings with the project, you’ll get to find people complaining about it on social media.

Remember that companies can buy people to leave positive reviews about their projects so you need to exercise caution while reading the reviews.

5. Take a Look at the System and Token Sales Progress 

Typically, crowdfunding with all ICOs is done through a token or currency system.

As a rule, you need to observe the token’s sales progress over time.

The best thing is that many companies have made it easy for investors to observe their sale progress by allowing you to look at their system. This also helps them build trust with potential investors.

Besides, cloud-based business models are becoming popular hence Blockchain-as-a-service is also growing in popularity. This is helping to increase transparency in the cryptocurrency landscape.

If a company doesn’t allow you to observe the sales progress of their ICO, treat that as a red flag. Conduct thorough research on this as well before making any move.

6. Find Out The Specific Problem a Token’s Project is Solving 

Generally, the token you wish to invest in should be able to solve a specific and unique problem. This ensures that your investment is worthwhile in the long-term.

So before investing in any crypto token, you need to find out whether the token is solving a specific major problem.

7. Security

Since the inception of cryptocurrency, security has been of great concern for everyone looking to invest in any cryptocurrency.

Crypto tokens were brought about by Bitcoin, however, currently, there are a ton of crypto tokens that are founded on optimized Blockchain networks.

You want to do a thorough background check on the crypto token you want to invest in as well as the technology it is based around.

8. Determine the Token’s Utilization

As stated earlier, there are more than 5,000 cryptocurrencies that serve different purposes.

You want to know the exact utilization of the token you’re planning to invest in before you make any move.

The last mistake you want to make is investing in a token that won’t help you achieve your goals.

Bonus points

Determine Whether It’s The Right Timing

Like any other business, before investing in crypto tokens, you need to know whether it’s the right time to do it.

You want to invest in your chosen crypto tokens when there are higher chances of getting a good ROI.

As a rule, you need to invest when the market is on the boom.

Find Trusted People to Work With

Practically, if you’re a beginner in the cryptocurrency landscape, it might be tricky for you to do everything we’ve shared above.

And given how risky investing in this field is, the last mistake you want to do is going it alone when you know nothing about it.

Besides, you don’t want to make the mistake of taking anyone who purports to be knowledgeable about cryptocurrency space.

The internet has mountains of information on how to find trusted people you can work with who can scrutinize projects for you and give you sound advice concerning the Blockchain ecosystem.

Final Thoughts 

How to analyze crypto token is a tough task that requires more of your time, effort, and sober mind.

While the cryptocurrency and ICO ecosystem can give you a ton of investment opportunities, not conducting in-depth research could make you take an uninformed investment decision that could lead you to huge losses in the long run.

As stated earlier, these landscapes are full of risks and it’s easy to land in the hands of scammers and fraudsters if you don’t exercise great caution.

In summary, to analyze crypto token and make a smart investment, follow these techniques:

  1. Study the token’s white paper carefully
  2. Do thorough background checks on the project team
  3. Understand the laws of your region around cryptocurrency and ICO
  4. Find out more about the token’s community on social media
  5. Take a look at the system and token sale progress
  6. Find out the specific problem a token’s project is solving
  7. Security
  8. Determine the token’s utilization
  9. Determine whether it’s the right timing to invest
  10. Find trusted people to work with