Altcoins are a real Wild West. In fact, every now and then new projects are launched on the cryptocurrency market, which in addition to proposals to solve new problems and improve existing solutions often offer unusual options for return on investment. However, how to sift through thousands of altcoins and choose the ones that are worth investing in? And one more thing: where to look for such projects and what to pay attention to when making a choice? In the Wild West you have to fight for survival.
Cryptocurrencies are still a new and not fully discovered field of technology. It is an industry that is subject to creative mechanisms all the time and as such is full of opportunities, but also pitfalls. In addition, new regulations are still being implemented and some of the systems are still being developed and not always completely robust. As the industry matures, however, it is becoming increasingly stable and reliable. However, it is still far from perfect.
Investing in altcoins can be broken down into 3 general rules:
Rule 1: Expect to lose everything
Altcoins are extremely risky. This space is full of scams and rug pools. You are putting your money in the hands of a random team of people. They may be the best in the world, or they may simply abandon the project because they no longer feel like working on it. All of this means that you shouldn't put any money into altcoins if you're not prepared to lose your money.
Rule 2: If you can't explain it, don't invest in it
A great way to find out if an altcoin is worth investing in is to see if you can explain the fundamentals behind it to your colleague, for example. You should only invest in projects that you understand and can communicate information about to other people. What problem does the project solve? What is it? What is its tokenomics?
Rule 3: DYOR
Do Your Own Research means no less no more than having to do your own in-depth market analysis. Don't take anyone's word for it. Never succumb to FOMO (fear of missing out on an investment opportunity - Fear Of Missing Out). Instead, seek information from the source. Read whitepapers, join channels on Telegram and Discord, ask questions to the creators. At the end of the day, it's your money. Don't underestimate that responsibility.
High risk, high reward
If altcoins are so risky, why risk investing your hard-earned cash in them? Altcoins have the potential for parabolic price movements, which often create the opportunity for not inconsiderable profits... Let's say you buy 4 altcoins worth $100. One of them records a staggering x10 profit. But the other 3 fall to zero. Even though 3 of your types ultimately fail, that one success still covered the losses....
When investing in altcoins, some of your types will inevitably turn out to be misfires. Either way, try to learn something from this failure.
Aim low, but... not too low
We talked about the tokenomics of digital assets here. The gist is that market capitalization is created by adding up the price of each token. This is a great way to gauge how "big" a project is.
Henry Gruett does not invest in a project with a market capitalization of less than $10 million. This may sound like a huge number, but in reality a market capitalization of $10 million is quite small. If a project is smaller than that, it is simply too risky (even for altcoins).
In general, projects with a market capitalization of more than $100 million are worth investing in. Projects that have broken that barrier will be much safer than projects with a market capitalization below $100 million. To be clear, they are still very risky (they are altcoins, after all). But it's much less risky than a very small project.
You won't find them on Coinbase...
"Small" altcoins/tokens you won't find on a centralized exchange like Coinbase or Binance. Instead, you will have to use decentralized exchanges. There are many DEXs, but the most well-known are Uniswap (for the Ethereum network) and PancakeSwap (for BSC). Unfortunately, decentralizing cryptocurrencies comes with the risk of you falling victim to fraud. The most popular method of scamming users is called "rug pull". This involves developers suddenly selling all their tokens and running away with the money people have invested in their project.
In search of the real gems...
The vast majority of altcoins you will come across will not be worth the investment. Many of them will be scams, pointless projects or simply never get off the ground. You'll have to sift through tons of projects to find those real, uncut diamonds.
But ... where to look for them?
CoinMarketCal
This website is one of the best places to find new altcoins. It is basically a giant calendar for various altcoin projects. Any big event announcing the launch of a project will be posted there. Other people can then vote on the event to verify its authenticity.
Icodrops
ICO Drops is a website that lists upcoming cryptocurrency projects that are conducting their ICOs. Just remember that there is almost always a dump after an ICO.
CoinMarketCap ICO Calendar
CoinMarketCap also has its own ICO calendar. It's just an alternative to the ICO Drops page.
Twitter
You'd be surprised what you can find on Twitter. You might be able to come across some great gems there. Keeping track of the right profiles can be very helpful.
CoinGecko
CoinGecko is a great site for researching and researching new projects. The site will show you the latest projects to add to its CoinGecko database. Of course, this is not necessarily a list of top quality projects (DYOR:)).
CoinMarketCap
Like CoinGecko, the CoinMarketCap site also has its own version of a sub-page about "news" on the market. Same thing. Just a different service.
Comments sections
This is where you need to be very careful because of how risky it is. People love to praise their favorite coins. Sometimes they actually spread information or early news about amazing designs. But more often than not, people will give you hints that are not very accurate and good for your wallet. Worse, some projects use bots to flood the comments section with reports about a project that is actually very poor.
Websites to do your own research on
Once you've found your potential gem, you'll need the right data to research it more thoroughly.
CoinGecko
Here you can review basic statistics and information about any cryptocurrency or token. The site has a huge database on almost every cryptocurrency project in history.
CoinMarketCap
CoinMarketCap is a site similar to CoinGecko. It is owned by Binance and has a much clearer user interface.
The project's native website
Another good place to look at a project is to check out its website. Typically, the project's website can be found on CoinGecko and CoinMarketCap.
The project's manifesto (whitepaper)
Reading the project's manifesto will be the best source to learn about its goals and the means by which the development team behind it intends to achieve them. In this document you should also find data about the assumed tokenomics and a lot of additional information that can improve your evaluation process in the context of a particular coin.
The final decision is always up to you
If you have found a few potential candidates to become part of your investment portfolio, the next step is to take a deep dive into the project itself. There are several things you should look for in a "healthy" project: clear foundations, tokenomics, community, and development. You can learn plenty about a project through its manifesto, website, and social media (especially Medium and Twitter). Almost any "good" project will provide plenty of resources to attract users and investors.
Foundations (features and validity)
The first step is to look at the foundation of the project:
Don't look at price!
As counterintuitive as it may seem, price doesn't really matter. Instead, you should focus on the market capitalization of the project. The price of each token/coin is meaningless because different projects will have different amounts of units created.
Justification for the functionalities presented
The biggest foundation a project needs is a purpose. What was it actually created for? What purpose does it intend to accomplish? Many projects lead users to build the belief that the project has a real purpose, when in fact it does not. Here are the two most common cases:
Punishing deflation: You might think that penalizing users for moving funds would be awesome because it encourages HODLing. But in reality it just creates a pyramid scheme where the last person to join is left with nothing.
Staking for the sake of staking: Staking tokens can be a great way to represent the functionality of projects. Unfortunately, some projects use staking as a function itself. This does not make the project useful in any sense. It simply creates an inflationary model. To be clear, this is different from something like a yield optimizer, which uses staked assets to get you more interest.
The cryptocurrency sector is home to many very innovative technologies that are still in development. However, it is also home to many useless projects that play with real money. You need to know how the project actually works.
"Meme" coins
There is some disagreement on this, yet many people don't invest any money in these types of coins. It may SEEM that your favorite low-capitalization altcoin will have no meaning after a few years.
Anonymous teams
Although it is definitely suboptimal to invest in a project backed by an anonymous team, it is not off key bad. There are many projects with anonymous teams that offer great solutions, such as Pancake Swap. But if a project already has a working product and continues to grow it's a good sign that the project has a vision for the long-term future.
Quality marketing vs. slick marketing
There are some crypto projects that have an amazing marketing team. But the project itself may not actually do much. This is related to what we showed in the point about the purpose of the project. These projects will become difficult and hide the actual use cases. It's a good idea to remain extremely skeptical at the design research stage.
Stimulating transactions
Another trick that projects sometimes use is additional token trading to increase trading volume. This will make it look like more people are using and trading the project than is actually the case. This is something to watch out for.
Tokenomics
Market capitalization and supply
The main numbers you should pay attention to are the overall supply in circulation. Supply is the number of units of a digital asset that have been created. Meanwhile, the circulating supply is the number of tokens/coins that are traded and held by the community. These numbers are very important because they determine how rare an asset is.
Often developers and early investors will not be able to sell their own tokens for a certain amount of time. This is worth paying attention to because a sudden sale will not only cause the price to drop, but will also put more tokens into circulation.
Burning tokens
Sometimes projects reduce supply by burning tokens. These "burned" tokens are sent to the wrong address and are therefore inaccessible to anyone. As a result of this action, the token supply is reduced.
This tokenomics model is also worth approaching with some caution. Make sure the project burns the tokens it has repurchased from the open market, not just the tokens that were in reserves (and not in circulation). Projects sometimes burn these reserves just for marketing purposes.
Distribution of tokens
Finally, look at the token distribution for official project members. How much do developers and initial investors have? A well-managed crypto project should include detailed information about token/coin distribution setup in its manifesto.
Community
The competition in the field of building an engaged and loyal community is very high these days. However, a project of high quality should not have major problems with this. Building a community can be done for example on Twitter or Medium. It is worth assessing how active people are. A project may have great potential but not invest in development. It will still have followers, but it will not have a very bright future.
A good place to start your research is Twitter. Find out what people think about the project. A quality project that delivers on its promises to users will have a very supportive comments section. If there are a lot of negative comments about the project, that's obviously not going to be a good sign. However, there is an important distinction between requests and negative comments. A comment asking for new features shows that people believe in the project enough to speak up.
You can also see how active the community is by finding the project's subreddit, discord or telegram. The same thing that applied to Twitter comments also applies to these community communication channels. Also look for developers interacting with people and answering questions. It's always good to see how and what the people developing the project answer questions.
Development
The final element of project evaluation is development activity. Many projects are abandoned by developers early in development.
Development features
The first place to look at development is to check the project's Twitter and Medium to see what new features they are working on. Do they have a clear roadmap and are they actually implementing it?
Development activity
The second site to check out is Github. Since crypto is open source, the project's code and development will likely be public. If a project is hiding code from the community, that's a bad sign. It shows that the development is not really open to anyone who can contribute to the project.
It's a good idea to look at the project's Github repository and see what activity there is. The gist is that developers will work on side versions of the project and then "merge" their changes into the main code. Projects may not merge new code into its master branch very often. However, progress should be noticeable.
Audits
A cryptocurrency project often requires a third-party "audit" of the code to check for security issues or critical bugs. If you see the project being audited by reputable companies, that's a good sign. It shows that the project is taking security seriously.
Final thoughts
When looking for your dream altcoin be as objective as possible. If you want a project to take over the world, you will only find positives. Your brain will naturally want to take away any negative signs from before your eyes because they will not be in line with what you expect.
No design is perfect. If you find a perfect project, it either has really good marketing or you are lying to yourself. Only invest as much money as you can afford to lose. Altcoins are not bonds. They are one of the riskiest and most volatile investments.
