How to analyze Crypto projects

How to analyze Crypto projects

Some of the main aspects to consider are exactly the ones in every other type of investment, with the right due diligence behind it; others are more peculiar to this industry. A first fundamental analysis allows us to understand if a project may be a good longer-term investment, or not.

Who’s behind the project – the team, who are they? What have they achieved before? Very often you bet more on the people than on the idea.

The idea – obviously it matters a lot, and you have to be able to understand it, analyze the market and the competitors.

The token issued by the project is an asset with demand and supply that make the price; therefore, it is essential to understand its mechanics to try and predict the price action; with the so-called Tokenomics  

Market Cap – how “big or small” a project is in comparison to the market and its direct competitors; how many tokens there are in circulation; is the supply fix, or more will be issued? These are the questions to answer, while in an environment of constant price discovery. 

Distribution – Where are the tokens allocated? Who controls them? Usually the founders, early partners and advisors have bags of it. It is important to check if they are locked, and for how long, or if they can dump on the market at the first price rise.

Utility – What is the token good for? What is the purpose? Often, it is just a vehicle to raise money with a story backing it up, but some of them have a purpose: governance, zero-fee service, staking for passive income, etc…

To conclude, two more general aspects that must be of interest are:

Narrative – there has to be a story that is trending in the crypto space: before it was ICO, then it has been De-Fi, next maybe Insurances, or Non-Fungible Tokens (unique tokenized assets, backed by something real, or just digital). Smaller projects in particular live of short cycles, and “hype” of the market for something new.

Community – That is effectively one of the most important things. There are several projects that even with mediocre ideas, incredibly go high in price, and survive long because of their engaged community. The community provides a project with support (financial and non), criticism, feedback,…and all the ingredients to grow. 

The smaller the market cap of a project, the riskier the investment; with more unknown variables, a bit like for shares. One must be selective, critical, and emotionally detached from a project; everyone has his/her favorites; but do not fall in love and hold things forever. Study the fundamentals, look at the market and try to understand it’s cycles and dynamics, while you keep yourself informed. Opportunities are always behind the corner, for Le Globless Matteo. 

Kinza Vierik