6 Things to Consider When Vetting a Crypto Investment

Jack Choros

Content Marketing

In a crypto investing world where assets can fluctuate hundreds of percentage points in value within weeks or even days, properly vetting crypto investments can be the difference between getting rich and going broke.

We don’t want you to go broke, so in this Netcoins Progressive Investor post, I’m going to tell you about six things you should consider when vetting a crypto investment.

None of the six things you should consider are isolated variables. They must all be considered together. Even in doing your research and trying to understand what’s going on in the market, you also have to understand that you’re still taking a risk and whenever you invest in something, whether it’s crypto, stocks, or any other kind of security, there is always a chance you could lose your entire investment.

Nevertheless, this post is about putting a positive spin on crypto investing and setting you up for success. The goal is to teach you how to avoid losing value and make you aware of the differences between good crypto investing opportunities and not-so-good ones.

Here are the six things I’m going to ask you to consider when choosing your next crypto investment:

  • Your Personal Crypto Investing Goals
  • Specialize In Specific Sectors of Crypto Investing
  • Read the Whitepaper, Evaluate the Technical Roadmap, and Learn about the Team and Investors Involved
  • Monitor Branding and Marketing
  • On-chain analysis
  • Technical Analysis

By no means is this a complete list of things to consider. Think of the above factors as a great starting point.

It’s time to separate the great opportunities from the 99% of projects that are probably going to flop in the next five years.

Is Investing in the NFTs of Your Favourite Things a Good Long-Term Investing Strategy?

Your Personal Crypto Investing Goals

This first point of consideration for vetting potential crypto investment opportunities is between you and you.

What are your crypto investing goals? Answering this question is easier said than done.

It involves a high degree of self-awareness and a willingness to evaluate yourself honestly, including in terms of both where you are in life financially and what your intrinsic goals are as well. 

Here are just some of the questions you might want to ask yourself in trying to clearly define your crypto investing goals:

  • What does your financial situation look like outside of your crypto investments?
  • Where are you in your career and how old are you?
  • How much of your crypto capital are you willing to lose?
  • What is your own level of crypto knowledge? Do you consider yourself to be a beginner, intermediate or expert crypto investor?
  • Are you going to track the volatility of your investments on a daily basis or do you hope to just ‘set it and forget it’?
  • What are your assets and liabilities?
  • What streams of income and expenses do you already need to consider?
  • What do you plan to do with your investing proceeds? Are you starting a business or buying a home for example?
  • Are you trying to get rich quick off of a meme coin pump?
  • Are you investing for the next few months or the next few years?

The above list of questions is far from a complete list. 

That said, if you answer the questions honestly, you’ll be ahead of the game.

Doing a proper self-evaluation is no guarantee of future results, but it does put you in the mind frame of somebody who really cares about the future of crypto and the growth of their overall portfolio.

Specialize in Specific Sectors of Crypto Investing

There are so many new crypto investing opportunities popping up on a regular basis it’s hard to keep track of them all. That’s why I recommend becoming a specialist in specific sectors or types of cryptocurrencies.

If you’re really into the idea of crypto as a store of value, perhaps you’re a Bitcoin maximalist. 

But you might also believe that gaming is a great on-ramp for younger crypto investors becoming interested in blockchain technology for the first time.

Do you think smart contracts really are the future and that they are going to replace lawyers, escrow services, and other third parties? Maybe you want to dive deep into Ethereum, Cardano, NEO, Tezos or EOS or other smart contract projects as a result.

What about virtual real estate? Do you think it has fundamental value? Do you understand how to sell advertising? Do you understand the concept of building a following that will want to keep up with your own personal brand in a virtual world? Perhaps investing in metaverse projects like Decentraland is for you.

Either way, investing in specific sectors of crypto investing affords you the opportunity to become an expert in that particular sector, and it also keeps you from getting distracted by the latest fad to hit the crypto world.

Billionaire investor Warren Buffett says that you shouldn’t invest in things you don’t understand. Just because you understand the basics of crypto, doesn’t mean that you have a deep understanding of all of the different types of projects that are out there. 

Try mastering something that you really understand and become an expert. It will help you make better investing decisions.

California gold rush

Read the Whitepaper, Evaluate the Technical Roadmap, and Learn about the Team and Investors Involved

If the whitepaper isn’t written in proper English, that’s a red flag. If it’s detailing things you don’t understand, you should back away. If it details solving a problem that you don’t think is important, don’t invest.

Here’s the thing. A lot of projects can make their whitepaper sound great, and maybe they have an amazing-looking technical roadmap. But are they actually achieving the goals of the roadmap in the time they’ve allotted for those goals? Are a few of their roadmap milestones on the back burner?

Many projects will invest a ton of branding and marketing and try to convince you that they have a clear vision for how to change the world using cryptocurrencies and blockchain technology. 

But the reality is very few projects will cash in on every step in their roadmap. If a project is already behind on their goals and those goals seem too ambitious, you might want to look elsewhere.

By the same token, if you’ve been involved with cryptocurrencies for a while and you don’t recognize anybody on the executive or technical team, or you don’t recognize any of the investment firms pouring capital into the project, odds are you should steer clear of it.

Monitor the Branding and Marketing Strategy

Did a project you are considering investing in pop up out of nowhere? Are the social media pages getting little to no traffic? Is the project listed on a major price tracking website like CoinMarketCap or CoinGecko? Is somebody that you recognize or trust on the advisory board for the project? Does the project have a unique value proposition and highlight it well in the marketing material?

If something is marketed well, people will buy into it. A sound branding and marketing strategy doesn’t necessarily mean that a project has fundamental value or that it’s going to skyrocket in value.

On the other hand, a lackluster branding and marketing strategy, a lack of an online presence, or a lack of a community on social media is almost always a red flag when considering a particular crypto investment.

On-chain Analysis

On-chain analytics tools like Glassnode Studio and Messari are two of the most popular on-chain analysis tools in the industry.

The above tools give you in-depth background information on the team and the mission of thousands of cryptocurrency projects, but the charts and data they provide related to on-chain analysis are what’s most valuable.

On-chain analysis includes tracking things like the number of new wallet addresses being generated for a given cryptocurrency, the number of transactions occurring on a particular blockchain, how much users are spending on fees, and whether those transaction fees are increasing or decreasing in value, among a host of other details.

This is a great way of evaluating a project based on how many people are actually using it, how many are holding said crypto, how many investors are whales versus retail investors, and many other types of information that can help you draw conclusions as to whether a particular crypto project is a good investment or not.

Technical Analysis

Technical analysis involves studying chart patterns, volume, trends, and moving averages, to try to gauge whether or not a particular cryptocurrency is overbought or oversold. 

Studying patterns and understanding what might happen next is both an art and a science. While you may never become an expert in technical analysis, understanding it and considering it in coordination with the other factors I’m encouraging you to consider when vetting a crypto investment will help you make better choices that reflect positively on your crypto portfolio.

cryptocurrencies

Other Things to Consider Before You Invest in Crypto with Netcoins

Remember that no matter what you do to vet a cryptocurrency investment, there is always a certain degree of risk involved. Keep in mind that if you’re looking at projects that rank outside of the top 5 by market capitalization, you’re looking at relatively small projects even if they have hundred-million-dollar market caps.

That’s because 75% of all the money in cryptocurrency is invested in the top four or five projects by market cap.

Also, consider that you should never put all of your eggs in one basket. Don’t necessarily put all of your wealth into cryptocurrency. 

Whatever capital you do decide to put into crypto, don’t put it all into one project or invest it based on what one specific influencer or founder says about how great a certain project is.

If you consider the six things you need to be aware of before investing in a cryptocurrency, you’ll likely be ahead of 99% of investors who just give in to the fear of missing out or get out of a project too quickly because they see the price dip and don’t understand that the fundamental value hasn’t changed.

If you don’t believe that cryptocurrency is going to change the world decades from now, you’ll probably always be worried about the short-term.

But if you’ve already gotten past that hurdle and it’s time for you to invest, get started with Netcoins. It’s the most trusted cryptocurrency exchange in Canada and it’s free to register for an account.

More and more crypto investors are doing just that because Netcoins offers you some of the best rates on the top cryptocurrencies that you can get.

Remember to vet every crypto investment you’re considering using the criteria above. Once you become an experienced crypto user, don’t be afraid to trust your critical thinking skills and develop your own ways of vetting projects.

The main thing is, make sure you don’t invest blindly. 

Remember that even if most of your investing goals are short-term, make sure you fundamentally believe in the long-term potential of crypto. 

That’s because long-term investors can typically ride out short-term losses with less mental stress while exposing themselves to a higher probability of significant gains over time.

Written by: Jack Choros

Writer, content marketing at Netcoins.