🌍Beyond the Hype: A Practical Guide to Crypto Investing and Due Diligence

In the middle of the tumult surrounding the launch of SatoshiVM’s $SAVM token, we’re seeing some worrying trends. Crypto influencers and Launchpads are creating a lot of excitement around token, evidently focused at dumping the token onto retail investors at higher prices. This situation really highlights the increasing significance of conducting thorough due diligence, a practice that is becoming ever more crucial.

Particularly with an anticipated bull run on the horizon, a scenario that often sees a rapid increase of new projects, the importance of due diligence cannot be overstressed. It serves as a vital safeguard against financial losses, ensuring that investments are made with a clear understanding of the project’s fundamentals and the intentions of its key stakeholders.

Despite the recent SEC approval of the Bitcoin Spot ETF, a sign of growing maturity in the industry, the crypto world can still feel like the wild west. Crypto influencers have the power shill projects they’re tied to or invested in from the early stages. They hype these projects to their followers and can dump their tokens for a profit. What’s concerning is that often, these influencers don’t face any serious consequences for these actions, leaving their followers at risk. It’s a reminder of the need for caution and thorough research in this rapidly evolving space.
While I have never encouraged anyone to invest in $SAVM, as I am aware of my limitations and lack of expertise in financial investments, I did advise my audience to participate in Testnet activities, hoping that this project would reward early users with an airdrop. However, I must admit, I too made a notable error by putting too much stock in the recommendations of crypto influencers. I fell into the trap of thinking, “If all these influencers are praising this project, it has to be a solid investment,” which led me to buy in. Unfortunately, this decision ended up costing me more than was financially comfortable. In the end, I know the responsibility falls on me and it was a tough lesson. To prevent others from making the same mistake and to remind myself to act rationally in the future, I have decided to create this guide. I aim to emphasize the importance of conducting thorough due diligence and understanding all the critical factors surrounding a project before making any investments. This way, we can make informed decisions and avoid unnecessary losses in the future.

Step 0: Risk & Reward

Thinking about the risk-reward ratio is crucial, not just in crypto, but in all areas of life. It’s essential to understand your own tolerance for risk. Always start by asking, “How much am I willing to lose on this investment?”. Considering the risk-reward perspective, getting involved early in a project can mean higher risk but also the potential for greater rewards. Early involvement can significantly increase your chances of earning more if the project and its token succeed. This is somewhat similar to angel investing at the pre-product stage, which is at the far end of the risk spectrum. The first practical step is to head over to ICOAnalytics. Here, you can gather insights into the project’s financial backing. Ideally, you want to see substantial funding, a limited number of diverse VCs, and the involvement of reputable names like Coinbase Ventures or Binance Labs. This information can provide a solid foundation for understanding the project’s potential and assessing if it aligns with your risk tolerance. $SUI serves as an interesting case study of successful funding, even though FTX Ventures is noted as a lead investor :-) It’s also crucial to consider the distribution of tokens among investors. Ideally, investors should receive a modest portion of their total allocation at the token generation event, typically between 5–10%. This approach helps maintain a balanced and sustainable ecosystem, preventing any single investor from gaining excessive influence or the ability to drastically impact the market by selling off a large portion of tokens at once.
© by ICOAnalytics

Step 1: Crypto Code

One of the great things about the blockchain world is its open-source nature. This allows anyone to dive into a project’s GitHub repository and examine the details, offering invaluable insights into its development activity and potential. Let’s break it down, using SUI as our exemplar again:

1. Activity Overview: On the right side of the main GitHub page, you’ll find a graph detailing the project’s activity over the past year. Ideally, this should look like the opposite of a healthy crypto chart, marked by fluctuations with high activity initially, gradually stabilizing as the code matures and requires fewer bug fixes. This trend typically reflects a project’s transition from a phase of intense development and frequent updates to a more stable and refined state.
2. Stars of Approval: The number of stars a project has received is a good indicator of its quality. When other developers recognize the value in a project, they “star” it on GitHub. A high star count often means the project is well-regarded in the developer community.
3. Code Reuse and Adaptation: A repository that has been forked numerous times suggests that its code is not just good, but also useful. It means other projects and developers find the code valuable enough to adapt and build upon for their own purposes.
4. Issue Management: A healthy balance between created and resolved issues is key. While the presence of issues indicates active interaction with the repository (a good sign), the team’s commitment to addressing and resolving these issues is equally important. It shows dedication to maintaining and improving the project.
5. Continuous Updates: Lastly, regular updates to the repository are crucial. No code is perfect; it requires continuous refinement and improvement. Recent updates are a positive sign that the project is actively being maintained and enhanced.

By considering these factors, you can form a more informed and comprehensive investment thesis, increasing your chances of success in the dynamic and ever-evolving blockchain sector. You should also visit CryptoMISO to monitor and compare the development activity of various cryptocurrency projects. This platform ranks projects based on their GitHub commit history, offering a transparent and quantitative insight into how actively and consistently projects are being developed. It’s a fantastic tool for assessing the technical commitment behind a project.
If diving into GitHub and analyzing code seems a bit too challenging, don’t worry, there’s an alternative. You can hire a developer from platforms like Upwork or Fiverr to analyze specific repositories for you. They can conduct a thorough technical due diligence and compile a detailed report. The cost for this service can range from $70 to $300, depending on the depth of analysis you’re looking for and the time you’d like them to dedicate to the task. This way, you can get expert insights without having to navigate the complexities of code and development yourself.
Also, it’s wise to investigate whether the project has organized a hackathon in the past. A project that invests in hackathons demonstrates a commitment to software quality. It indicates that they value external developers and testers who can examine and enhance their code. This openness to critique and improvement not only helps in refining the product but also builds a community around it. Generally, a project willing to allocate resources for such events is more likely to be genuine and less inclined towards fraudulent activities.

Step 2: The Team

When analyzing the team behind a project, a key consideration is whether they’re anonymous or doxxed about their identities. For investors, there’s a clear benefit to having a team that’s open about who they are. It allows you to research and understand the individuals you’re considering investing in. For developers, on the other hand, anonymity can sometimes be preferable. However, it’s important to recognize that a project with an anonymous team might carry a higher risk of being a scam or executing a rug pull, although it’s not a certainty. For instance, the team behind SatoshiVM has remained anonymous. As an investor, it’s advisable to look for project leaders with a visible online presence, such as a LinkedIn profile, where you can confirm their technical expertise and professional background. This level of transparency can offer additional confidence about the legitimacy and potential of the project. Also, listening to interviews with the founders of a cryptocurrency project can offer valuable insights into its potential. These interviews are essential for clarifying doubts and understanding complex aspects of the project, often providing unique information not available elsewhere. They’re a key resource for a deeper understanding of the crypto initiative.

Step 3: Partnerships

We should pay close attention to the partnerships a project has established. Collaborations with prominent VCs and other well known projects are particularly promising. It suggests that the project is well-funded and has robust backing, especially from liquidity providers. However, it’s crucial to examine the vesting schedules for any pre-sale tokens that these VCs might have acquired, often at a discounted rate. Understanding these schedules can give insights into potential market movements as these tokens become unlocked.
For instance, the recent partnership announcement between Babylon and AltLayer is quite encouraging. Such collaborations can be mutually beneficial, enhancing the value proposition of both projects. The professionalism and progress demonstrated by both Babylon and AltLayer thus far add an extra layer of confidence in the potential success of this partnership.

Step 4: Tokenomics

Tokenomics is a huge and complex topic, deserving of not just one but several in-depth blog articles. It’s a crucial part of your research journey. Once we’ve identified a promising investment, it’s time to dig into the tokenomics to understand how they benefit the token holder. Many projects take pride in their governance tokens, which grant voting rights on project decisions. However, these tokens often lack direct, tradeable value. Personally, I like projects that implement mechanisms to drive long-term demand for their tokens. This could be through using protocol or exchange fees to repurchase and burn native tokens, thereby reducing the supply. Alternatively, offering attractive incentives like staking rewards or liquidity provision opportunities can attract investors and encourage them to hold onto their tokens. When comparing blockchain projects, it’s crucial to look beyond the token price. The market capitalization of a project, which is the total circulating supply of tokens multiplied by the current token price, provides a more comprehensive valuation. This figure is widely used and offers a reasonably accurate gauge of a project’s worth. Understanding these tokenomics nuances is key to making informed decisions and spotting projects with a robust economic framework, setting the stage for potential long-term success.
$AVAX presents a effective case in the world of tokenomics. Validators staking AVAX can earn an attractive APY of up to 11%. The token has a capped supply of 720,000,000 AVAX, yet only 367,082,288 are currently in circulation at the time of writing. This limited availability adds a layer of scarcity and potential value appreciation. An interesting aspect of $AVAX’s tokenomics is its release schedule. All vested AVAX tokens are set to be fully released by 2030, gradually introducing new tokens into the market. Furthermore, the allocation of these tokens is thoughtfully planned: 50% are assigned to staking rewards, incentivizing validators and securing the network. The other half is distributed among community initiatives, public sales, and airdrops, ensuring a balanced and community-focused approach to token distribution. This structured approach to tokenomics showcases $AVAX’s commitment to fostering a robust and sustainable ecosystem.
It’s also crucial to monitor the token release schedule to ensure that there isn’t a sharp increase in the number of tokens entering circulation over a short period. A gradual release helps maintain stability in the token’s price.
For detailed insights, the Token Unlocks App is a valuable tool. It provides a clear view of when new tokens are scheduled for release. Take $DYDX as an example: the app reveals that 10.63% of its circulating supply is set to be released in the next 7 days. This significant influx of tokens can apply downward pressure on the token’s price, making a short-term price increase less probable. Monitoring such data is key in anticipating market movements and making informed investment decisions.

Step 5: News, Timeline And Roadmap

Browsing through a cryptocurrency project’s blog headlines can give you a quick and insightful overview of its progress, commitment, and future direction. It’s wise to pay extra attention to significant updates, like changes in tokenomics or major partnerships. These can be strong indicators of the project’s health and potential. Take a moment to compare how detailed and strategic a project’s roadmap is, using Ethereum as a benchmark. Ethereum’s roadmap is very precisely laid out, reflecting a clear vision and structured planning. This level of detail and clarity can be a good measure to contrast with other projects, helping you gauge their seriousness and potential for success.
© by Ethereum Foundation
Also, spend some time scrolling through their Twitter feed and Medium posts. This will give you a sense of how the project has developed over time and how it engages with its community. Keep an eye out for any incidents or controversies in the past and observe how the team addressed them. Transparency is key. Check if the team openly communicates about their actions, decisions, and the project’s progression. This level of openness can offer significant insights into the project’s integrity and commitment to its stakeholders.

Step 6: Market Cycles

Market conditions are a significant factor too. While there’s a rush during bull markets when the latest meme coins might double in value daily, it’s essential to consider the bigger picture. I’m of the opinion that more sustainable gains are made during bear markets by investing in truly solid projects with a long-term perspective. Remember, investing in the crypto space, especially in assets like Bitcoin, carries its own set of risks. And if you’re thinking about venturing into micro-cap cryptocurrencies, be prepared for even higher risks — it’s not for the faint-hearted. The golden rule is never to invest more than you can afford to lose. Ideally, you should aim to purchase when the price moves inside the red boxes, indicating a potential buying opportunity. Also, it’s a wise rule of thumb never to buy at an all-time high, no matter how tempting or promising the project may seem. Keep in mind that prices don’t increase upward in a straight line indefinitely; they’re bound to retreat and correct at some point. Recognizing these patterns and understanding market cycles can help you make more informed and timely investment decisions.
© by Crypto Crew University — Video: “IT’S SUCH BS! THEY’RE LYING TO YOU ABOUT HALVING — THIS HAPPENS INSTEAD”

Step 7: Market Activity

Even though it feels like this should be Step 1, I must confess that I overlooked a critical step initially. However, since these steps are more about comprehensive coverage rather than sequence, I’ll include this crucial one here. Whenever a new cryptocurrency catches your eye and seems promising, your immediate move should be to check its vitality. Head over to trusted platforms like CoinMarketCap or Coingecko. There, confirm that the trading volume is substantial and the price movement is authentic, ensuring you’re not stepping into a ghost town but a lively market.

Step 8: Branding And Documentation

Branding is the last aspect I might emphasize a bit too much, but it’s crucial. Strong branding tends to stand the test of time. Projects with a robust brand identity are more likely to be recognized and gain traction, especially as the blockchain industry integrates more with traditional finance sectors. Remember, discovering an excellent project is just the beginning; branding’s role in its longevity and success shouldn’t be underestimated. Reviewing documentation is also a vital step. Ensure all your findings are up-to-date and clarify any uncertainties that have emerged during your research. Most of this can be accomplished by exploring the dedicated documents of the cryptocurrency. Well-crafted, comprehensive documentation signifies professionalism and helps developers and other projects in understanding the essentials required to build upon the platform. You should encounter an accessible search feature where you can input critical terms such as tokenomics, inflation, ICO, consensus mechanisms, mining, staking, and any other topics you’re still grasping. Don’t be discouraged by technical jargon or code snippets — your goal is to find clear, straightforward explanations.

Step 8: Fundamentals

In the blockchain industry, focusing on long-term fundamentals is crucial. Personally, I believe the DeFi space has still substantial growth potential. As traditional finance sectors discover and start utilizing platforms like Ethereum for smart contracts, we can expect a significant surge in adoption and development. Moreover, sectors like Decentralized Social Media, GameFi, AI integration, and tokenization of Real World Assets are all ready for remarkable growth. I believe, these domains have the potential to revolutionize their respective fields, using the power of blockchain to offer novel, decentralized solutions. It’s these areas that hold the promise of truly transformative developments in the future of blockchain.

Step 9: Whitepaper Analysis

Diligently examine the project’s whitepaper. This document is a crucial source of information, outlining the project’s vision, technical details, roadmap, and more. A thorough understanding of the whitepaper is essential for grasping the full scope and potential of the project. When examining a crypto project’s whitepaper, focus on key elements to evaluate the project’s legitimacy and promise. We’ve covered these topics before, but it’s essential to reiterate that they should all be comprehensively addressed in the whitepaper as well. Key points include:

1. Project Vision and Purpose: Ensure the project has a clear, realistic goal and addresses a genuine problem.
2. Technical Details: Check the technology and innovations for alignment with the project’s objectives and industry standards.
3. Tokenomics: Understand token distribution, integration into the ecosystem, and how it drives the project’s sustainability.
4. Team and Advisors: Verify the team’s expertise and track record, along with the relevance of advisors.
5. Roadmap: Review the roadmap for clear milestones and evidence of ongoing development.
6. Compliance and Security: Confirm adherence to legal standards and robust security protocols.
7. Market Strategy: Assess the market analysis, competitive strategy, and plans for market capture.
8. Community and Ecosystem: Evaluate the approach to community engagement and ecosystem development.
9. Use Cases: Consider the project’s practicality and real-world applications.
10. Transparency: Check for regular updates and transparency in the whitepaper, reflecting the project’s adaptability and openness.

Step 10: Evaluating Project Objectives

Reflect on the core issues the project aims to address. Consider how your investment will contribute to resolving these challenges. For instance, Bitcoin targets issues like centralization and inflation, offering a decentralized alternative to traditional assets. Ethereum, on the other hand, aims to establish a comprehensive ecosystem and infrastructure, supporting a wide range of applications and sectors. Understanding the specific problems a project tackles and how it plans to use resources to overcome these can provide significant insights into its potential impact and value.

Useful tools

Here’s a selected list of useful tools that can significantly enhance your cryptocurrency research process:

1. DeFiLama: A comprehensive dashboard for DeFi statistics, providing insights into various protocols across different blockchains.
2. Token Unlocks App: Tracks and displays upcoming token unlock schedules, helping you anticipate market movements.
3. Revelo Intel: Offers in-depth analytics and intelligence on blockchain and cryptocurrency projects.
4. CoinMarketCap / CoinGecko: Reliable sources for tracking price movements, market capitalizations, and other key metrics of cryptocurrencies.
5. Trade GPT: An AI-powered tool by Bybit offering real-time crypto market data and insights. It’s designed to help both new and experienced traders understand trends and make informed decisions in the crypto space.
6. CME FedWatch Tool: Useful for understanding market expectations of Federal Reserve monetary policy, which can indirectly affect crypto markets.
7. CryptoMISO — GitHub Development Activity Tracker: Ranks crypto projects based on their development activity, providing a perspective on the technical commitment behind each project.
8. CryptoFees: A valuable resource for understanding which cryptocurrencies are actively being used, based on the fees being paid on their networks.
9. Nansen: A sophisticated data aggregator that offers insights into blockchain wallets, helping you identify trends and understand market behavior.
10. Glassnode: Provides comprehensive metrics and indicators for various cryptocurrencies, essential for in-depth market analysis.
11. ICOAnalytics: Tracks and analyzes initial coin offerings (ICOs) and funding rounds, giving you the data needed to evaluate new investment opportunities.

These tools collectively offer a wealth of information, from general market trends to in-depth technical analysis, helping you make informed investment decisions in the dynamic crypto landscape.

Conclusion

I’ve created this decision-making tree to serve as a guide, assisting you in navigating the complex landscape of cryptocurrency investments. While this tool provides a structured approach to evaluating potential investments, it’s important to remember that it’s not a substitute for personal judgment. Investment decisions should always be made based on a comprehensive understanding of the market, thorough research, and consideration of your unique financial situation and risk tolerance. This decision tree is a starting point, a tool to aid in your analysis, but it’s crucial to consider additional factors and conduct in-depth research before making any investment.

About me

Hi! I’m ilaNihas, a big football fan (or soccer, if you prefer). After 13 years in IT, I paused my career to explore crypto, blockchain, and Web3. I’m fascinated by the potential and constantly searching for interesting projects, airdrops, and new nodes to explore. Join me as I combine my passions for sports, writing, and tech. Let’s dive into the world of crypto and blockchain together!