Insider Cryptocurrency

8 Smart Ways to Analyze Crypto Token Before Investing in It

There are endless opportunities surrounding crypto tokens. Here are some techniques to guide you in making a safe choice.

Ejiofor Francis

Entrepreneur Leadership Network Writer

Entrepreneur, Freelance Writer

August 13, 2020 6 min read

Opinions expressed by Entrepreneur contributors are their own.

The world of cryptocurrencies is vast and doesn’t revolve around Bitcoin and blockchain alone. There are over 5,000 cryptocurrencies on the market in existence today, according to crypto market capitalization aggregators, and more are being launched by the day — which makes it a bit challenging for Investors to decide on which to invest in.

In fact, there are many of them out there that aren't real. Scammers have seen the potential opportunities in the crypto space, and they’ve designed some tokens in order to get people’s money. Whether you're a beginner looking to invest in the crypto market or a seasoned investor, below are some techniques that will guide you in analyzing any token.

Note: Scammers are very smart, they are always out to lock into the endless opportunity surrounding crypto tokens; therefore, there are no perfect methods for analyzing crypto tokens. The following are just precautionary ways to help you analyze any crypto token — whether it is currency token, utility token or asset token — and also guide you in making a safe choice.

1. Scrutinize the token's whitepaper

A token's whitepaper is where you'll find the team's aim for the project and the token's use cases. As such, it'll help you decide if realistic goals have been outlined

And even if you've found realistic goals, you need to be sure they weren’t lifted off the pages of another project's whitepaper. Because let's face it, the latter has happened time and again.

2. Assess the team behind the project

After having a good knowledge of the project's offering, the next step is to assess the team backing the project. Has anyone worked on reputable projects in the past? Are they reputable members of the blockchain ecosystem? What are their qualifications?

The goal of this assessment is to be confident you're investing in a token backed by people who actually know what they're doing. Consider this as a fundamental analysis that'll save you from investing in a company that's only out to cart away gains. But remember, images can easily be lifted off the internet.

3. Check out the project on social media

A surefire way to invest in an ICO is to keep a close eye on the token's community on social media. Here, you'll get to know if the project has a large community supporting its cause. Facebook, Twitter, Telegram and Reddit would be a good place to start.

On the same note, you'll get to know what others are saying about the project and, thus, make informed decisions. Needless to say, there are bounties out there, whereby people are rewarded to make positive statements about the project. Hence, such reviews may be biased.

4. Ascertain legality Issues

So you've found a great token’s ICO to invest in, but you're not allowed to participate due to your jurisdiction. You'd be breaking the law if you still forged ahead to make an investment.

That being said, you need to be sure that regulators in your country have not restricted participation in such offerings. Nevertheless, ICOs are still unregulated in a good number of regions, and regulators in some are working on more friendly rules.

5. Verify if the token’s project is solving a major problem

Verifying this is another key factor you mustn’t miss when analyzing a token you are about to invest in because it determines the utility value of a token’s market value. So, as a smart investor, one question you should answer before investing in a token is this: What unique problem is this token solving?

Let’s take, for instance, Atayen Inc. It is redefining the advertising industry and especially the influencer sector with its SaTT solution, allowing anyone to be rewarded for their posts on social networks, with a platform developed at the cutting edge of technology. Another is Vinchain; it’s creating a worldwide blockchain database of used vehicle information that is 100 percent secure, transparent and accessible by all, and so on.

Practically, blockchain projects that uniquely solve a major problem will have more surge in demand, thereby boosting the tradable value of its token.

6. Find trusted people

It's true you may have a lot of work on your hands, and may not always have the time to carefully scrutinize every project. If that's the case, it should not be at the expense of your money.

It'll be useful to follow trusted people in the cryptocurrency space. This should be experienced individuals who have good knowledge about the ecosystem and can give you sound advice. It'll save you from spending hours in front of the screen analyzing a project.

7. Get abreast of the token’s project announcements

You do not want to invest in a token and go to sleep, especially when your money is on the line. Therefore, it's good practice to follow the project on various social media channels. You'll find the latest announcements on these channels to keep yourself updated.

What's more, there's a Bitcoin Talk Forum and more forums where most projects publish announcements. And given that anyone is free to comment, you'll garner user sentiment pertaining to such news. It's also a good time to ask questions you may have on the Forum.

8. Timing

Timing is everything. It may come in last on the list, but it's just as important because choosing the best time to invest can impact on your return on investment. Accordingly, you need to know if it's the right time to invest in cryptocurrencies given that there are bear and bull markets.

At this time, it can be said that the market generally is on the boom. The same applies to consider if the ICO industry is on the boom.

To analyze any crypto token isn’t a walk in the park. However, having these tips in mind will guide your selection of potential coins that'll stand the test of time, and yield immense profit in the short and long run.