In this article, I will go over how you can do your own research on a cryptocurrency project, from gathering basic information on the project to analyzing key metrics. The motivation for writing this article comes from always seeing/hearing the phrase “Do your own research”, but it’s not always clear how you should actually go about doing your own research. Where do you start? So this is an article to address this exact issue of starting. This guide is not comprehensive, as no guide can be, but hopefully it will serve as a good starting point. One thing I want to mention is that while there are rules of thumb for what you want to see in a project and what can be red flags, things aren’t always so black and white, and you need to dig deeper to get meaningful insights. Let’s dive right in!

So before you start your research journey and go around gathering information, you need to think about where and how you will store that information. While you can use any tools that you like, I prefer using excel. The main benefits of writing down everything that you look up and storing it in excel:

• You don't waste time looking up something you’ve already looked up before. I can’t count the number of times that I’ve had to re-look up something I’ve already looked up many times before because I don’t remember the information.

• I can easily compare metrics across projects. Many projects, especially projects in the same category, have similar metrics (eg. market capitalization is a metric common across all projects), and comparing these metrics can be helpful in spotting undervaluation or overvaluation.

• I can conduct calculations and quantitative analysis. Sometimes I want to compare ratios or create new metrics, and I can easily do that in excel.

First and foremost, you need to understand what the project is about. Some basic questions you should have an answer to include:

• What problem is the project trying to solve?

• Is it a problem that is a real pain point?

• What solution is the team providing?

• How is their product differentiated from their competitors?

• What is the project roadmap, and have they met their previous roadmap milestones?

The key here is for you to actually understand what you are investing in, that way you will have the conviction to hold through the tough times, and trust me, there will be tough market conditions. I personally don’t invest in anything that I don’t understand. The main sources to find this information include: 1. The project’s official website, 2. CoinMarketCap, 3. Messari.

Once you have an understanding of what the project is all about, the next thing you need to look at is the team. I would argue that this is perhaps the most important determinant of whether or not the project will succeed. First and foremost, you need to check if the team is public or doxxed. If you can’t find any information on the team or if the team is anonymous, then the risk of the project is higher. An anonymous team can more easily rug-pull or disappear without a trace, though not all do. Assuming that the team is public, these are some things that I focus on:

• Is the entire team public or just a few members?

• Are the profiles comprehensive or very basic?

• Are the profiles linked to external platforms (eg. LinkedIn, Twitter)?

• Does the team have the relevant business, technical, and product skills?

• Do the founders have the necessary industry connections?

• Are the founders active publicly (eg. active on Twitter, interviews on TV)?

Ideally you can find the team info directly on the website. While it’s not a red flag per se, I don’t like it when I can’t find the team info directly on the website. If you can’t find the team info on the website, you can try googling or joining the project’s Telegram or Discord group and asking the admin for the team info.

Another major determinant of success is the funding that the project has been able to secure, both the amount of funding as well as the sources of funding. The importance of having enough funding cannot be overstated. For one, it requires a lot of capital to successful build a product, deliver it to market, and acquire users. If the team’s funding is too low, they might not have enough financial resources to deliver everything that they have laid out in their roadmap. Especially if the market enters a bearish period, you want to be sure that the project can survive until bullish momentum returns. That said, more isn’t always necessarily better, especially if you are considering whether or not to invest in a project in the primary market before the token is listed on an exchange (eg. IDO, IEO, ISPO, etc.). You need to evaluate if the team is raising too much/at an elevated valuation. For example, if the project has only two founders and is still in the idea stage and they want to raise $100M at a $1 Billion valuation (ie. selling 10% of the tokens), then you might want to ask why they need so much money at such an early stage.

The source(s) of funding is also very important; a $1M investment from Elon Musk brings with it a very different set of value propositions compared to a $1M investment from Warren Buffett, each with its own benefits and constraints. Likewise, a heavy VC-funded project can be very different from a community-funded DAO, each with their own risks and rewards. The benefit of seeing a project securing VC funding is that it lends further credibility to the team as VCs can typically conduct more in-depth due diligence on projects (though in a raging bull market many funds might throw a little bit of money at everything to spread out their bets), shows the strength of the team’s networking and fundraising abilities, and brings more connections and thought partners to the project. It is not without cost, however, as VCs often acquire the tokens at substantially discounted prices compared to later retail investors (ie. you and me). This can result in VCs dumping their low cost-basis tokens unto the market and causing a sell-off. It is therefore very important for you to find out the rounds of fundraising the team has conducted, how many tokens were sold during each round, and at what prices.

Similarly, a community-funded project has its upsides and downsides. On the plus-side, you likely don’t have VCs with a lot of cheap tokens (at least fewer compared to a project heavily backed by VCs). However, retail investors might be more prone to selling out of fear when there is fud, so getting community funding doesn’t necessarily prevent large sell-offs. Of course, if the project founders can build a community of die-hard token-holders who believe in the vision of the project, then that’s another story. With regards to the resources and connections that funding brings, here the story can also be two-sided. If the community is very passive, then the funds raised might not bring with it further benefits beyond the money. However, if the community is dedicated to the success of the project and contributes their time and effort to the project, then the benefits of a community-funded project can far outweigh that of a VC-backed one. As with everything, the devil is in the details, so you have to dig deeper to get an edge.

You can find information on funding from the investors section of the website, or from third-party data providers such as Messari and ICOHigh.

While the idea of ecosystem system applies more to layer1 and layer2 blockchains and smart contract platforms, it can also apply to other types of projects as well, so I will cover this briefly. First and foremost, look at how much funding is dedicated to ecosystem development; more funding means more incentive for developers and projects to join and build in the ecosystem. Secondly, you need to look at the sources of the funding; I personally prefer for the funding to come from multiple parties, especially third-party partners and funds. It shows that people outside of the core team are also bullish on the ecosystem and willing to deploy funds and resources to help it succeed. And since each fund also brings with it their own resources, talents, and connections, you get exponential value accrual with more parties supporting ecosystem development.

The third thing I look at is the currency being used for funding ecosystem development (eg. the native token, fiat dollars, stablecoins, BTC, ETH, etc.). Here I want to see a healthy mix, as the native token can bind people to the ecosystem, but too much of it being released can cause price depreciation. This is another reason why I prefer to see outside funds help fund the ecosystem development, because they are typically funding with fiat currency while the project foundation typically provides the native token. Lastly on the funding side, I look at how the funding is provided to teams and projects; what is the mechanism for securing funding? Does the community vote on proposals? Does the foundation decide? Is the funding a grant or is it an investment in exchange for a new project’s tokens? There is no right or wrong model here, just what you believe makes the most sense for the project you are researching.

In addition to funding, there are other factors to consider. One important non-funding factor is user experience, especially when it comes to software development. Does the project provide developer friendly tools and SDKs/APIs? What about hands-on support to help projects launch? I also look at the events that the project hosts in order to encourage people to build on the ecosystem, including educational seminars, online and offline hackathons, conferences to promote existing and new projects in the ecosystem. Then there are the ad hoc value adds such as providing security audits, advising the project teams, conducting co-promotion campaigns, etc. In summary, you want to see a project provide amazing support to founders, both financial and non-financial.

Information on ecosystem funding and support can be a bit harder to find, but following the project’s Twitter can keep you updated as such news is often posted there. Additionally you can ask in the Telegram and Discord channels and do some good old googling.

Token economics, or tokenomics for short, is about understanding the supply and demand dynamics of the token, including but not limited to the token emission schedule, token utility, and token burning/buyback. The first thing to look at is the current market capitalization and compare that to the fully diluted valuation (i.e. the market capitalization assuming all of the token are released). The rule of thumb is that the closer the current market capitalization is to the FDV the better because it means there are fewer tokens that will be unlocked and dumped onto the market. I prefer to see the current mkt cap / FDV ratio at above 50% and I am very cautious when it is less than 10-20%.

The ratio of the current mkt cap / FDV is just a starting point, however, and you need to take a deeper look at the token emission schedule to see how many tokens and how fast those tokens will be released over time. This is super important because this way you know when there will be large amounts of tokens that will be unlocked, and therefore potentially when there will be large selling pressure. You can also calculate the inflation rate by dividing the amount of newly released tokens by the circulating supply of tokens. A rule of thumb is that the higher the inflation, the higher the risk that the token could face heavy selling pressure. Another thing to keep in mind is the speed of the token release. For example, two projects that both have 50% of tokens already released can have very different inflation rates because project #1 releases the remaining 50% in 1 year (and therefore inflation is 50/50=100%), and project #2 releases the remaining 50% in 10 years (and therefore the inflation is 5/50=10%). All else equal, I prefer project #2.

In addition to the token release schedule, it is important to look at the distribution of the tokens amongst the stakeholders and where the newly released tokens are going. Tokens released to fund ecosystem development is very different than tokens unlocked for early investors who got in at huge discounts. The former will likely increase the overall value of the ecosystem while the latter will likely lead to sell pressure. When looking at the distribution, I also prefer for the team to not hold too large of a percentage of the total number of tokens, ideally less than 10% while >20% is a negative for me. And these tokens should ideally be locked up for a number of years and be released slowly over time.

Another very important consideration is the token utility or how the token will be used. You just might be surprised to find out that the token has no use case and isn’t tied to the project whatsoever. Assuming that the token does have a use case, you need to understand exactly what those use case(s) are (eg. governance, network fees, in-game purchases, etc.) and analyze how strong those demand drivers are for the token. Additionally, you need to take into account measures for reducing token supply, if any. Those can include token burning, as we see with Ethereum being burned with each transaction on the Ethereum network. Projects can also initiate token buybacks, whether manually or through some automatic mechanisms. Lastly, you need to look at value accrual. Simply put, does the value created by the project accrue to the holders of the tokens, whether that’s through fee distribution, or reducing the token supply through token burning/buybacks, or some other way. The best sources of tokenomics are the project website and Messari.

Technical analysis, or the study of price charts, is the last thing that I look at after I’ve already conducted fundamental research into a project and believe that it is a quality project that I want to hold long term. I then use technical analysis to find potential entry zones for me to scale or dollar cost average into the project. I don’t buy into projects purely based on technical analysis. Because I only use technical analysis as a supporting factor, I try not to complicate things too much. I look at key horizontal support and resistance zones, the 61.8 Fibonacci retracement, and I mark out percentage drop zones (eg. 50% drop, 67% drop, 75% drop, 80% drop, 90% drop) because they give me an easy understanding of my return potential (eg. a 50% drop means a 2x to return to high, a 67% drop means a 3x to return to high, etc.). I then look at confluence zones where these areas overlap. I also look for RSI and MACD to be in the oversold region for an entry.

In this post, we went over how to start conducting your research on a cryptocurrency project that you are interested in, particularly when it relates to the project overview, the team, funding, ecosystem development, tokenomics, and technical analysis. As I said in the beginning, this is not a comprehensive guide, but hopefully it can be a good starting point in finding an edge. If you find this post useful, please follow me for future posts.

Twitter: @cryptokevin2011