A complete guide to crypto analysis

The value of any asset is determined by supply and demand. This is also true for cryptocurrencies. The main responsibility of a potential investor is to determine whether the coin will increase in value in the future, and what conditions may trigger its rise.

We have created a step-by-step guide to assist you in developing a strategy for analyzing a token for investment purposes. The majority of asset-related information is available on the websites of Coingecko, Coinmarketcap, and Cryptorank in the relevant columns.

You must first determine whether you are dealing with a standalone blockchain or a token already created on a ready-made network. You can use this when you have further questions about the project.

Cryptocurrency should be evaluated by the functionality of its network: how many projects have been launched, the total TVL (total value locked), the speed and cost of transactions, the operation algorithm, the number of hacks, and other factors.  

The primary function of the token is to serve as a means of payment for an internal product or service provided by a cryptocurrency startup. It will be interesting to see how the coin is integrated into the system and what advantages it offers to users. Evaluating the token's smart contract would be beneficial, but audit firms are better suited for this job.

The asset's inflation rate is determined by the number of coins (supply). Emission data is frequently presented in two columns: "circulating supply" and "maximum supply" in analytical resources. The first indicator shows how many tokens have already been issued, while the second shows how many can be issued in total.

Even though some projects (such as Solana, Ethereum, Dogecoin, and Tezos) have an unlimited supply, this does not necessarily mean that their prices will decrease. The increase in supply can be slowed by the burning process or by including small annual inflation, say 2-3%, in the emission mechanism. When you evaluate the emission, you can determine the asset's long-term growth potential.

A token's audience engagement increases in direct proportion to the number of cryptocurrency platforms it supports.  This has an impact on the number of purchases and the trading volume. Additionally, the type of exchange is crucial. In this case, centralized platforms are more preferred because they conduct a preliminary analysis of the asset before listing. Exchanges from the Top 50 rankings of reputable analytical websites are considered reliable; the rest of the list is highly dubious.

DEX is not always bad for the project. Some tokens bring the asset to a decentralized platform rather than overpaying for listing on the CEX. Checking the overall liquidity is crucial in this situation. The more money is locked into a trading pair, the more stable it is. 

The volume of trades determines how interested users are in interacting with the project. In this case, the situation is exactly the opposite of what was stated previously: having large volumes on several exchanges is preferable to having equally meager results on a large number of websites.

Volatility and general price behavior allow to determine the stability of an asset. Pumps and dumps on the chart frequently point to low liquidity and frequent manipulations. Price statistics can also be used to identify whether an asset has strong support and resistance levels. This will provide insight into the market maker's strength and quality.

If the asset rate falls throughout the whole time (a sample of a year or two is sufficient), it indicates that supply exceeds demand all the time and that the asset has no chance of increasing in value.

Any cryptocurrency or token needs to have a purpose. It is ideal if users get some kind of service or product in exchange for the asset. This generates value and potential interest for both investors and regular traders who purchase the coin for their own needs. 

Blockchain coins are used to pay fees on the network. Tokens are used as a form of payment, as an asset for voting in the DAO, and to access advanced startup functions. The more possibilities there are for coin usage, the more often it will be bought.

The development of the product frequently comes after the token has been issued. This has a negative impact on the price because, aside from farming or staking, such an asset typically has no other use.

A large number of partners is a good indicator. The more a startup communicates with other projects through partnerships, integrations, and collaborations, the larger the audience and potential client base will be.

Investors are a segment of the market that helps the project develop in the early stages. The more reputable and well-known a retail investor, business angel, or fund is, the more reliable the project is considered because its analysis before investing takes a lot of time. Furthermore, the largest investment funds are more likely to purchase coins as a long-term investment rather than "dump" them immediately after unlocking. In the long run, this reduces supply and eases price pressure.

Tokenomics is the percentage distribution of tokens among various groups of people. Tokens are distributed among investors (private, public, strategic, and seed rounds), social network users, and the project team, with a portion of the supply always going to future activities, including farming, staking, project support, and exchange listing.  

Tokenomics provides insight into who received how many coins and how quickly they will be sold. A rapid unlock schedule may cause the price to crash. Tokenomics is publicly available; you can find it on the project's website or in its Whitepaper.

Even if you have evaluated an asset using all of the above criteria, this does not guarantee that it will not be a scam in the future.

The real number of active users and the overall community are revealed by social networks. If the project's Discord, Twitter, or Telegram channels are having too many inactive followers, this is a red flag. To keep the audience interested, projects should release announcements and updates regularly, as well as hold AMA sessions and other activities.

You need to determine whether the liquidity is locked if the token is only traded on the DEX exchange. In other words, the funds that make up a trading pair must be pegged to a unique smart contract that forbids a "rug pull" and withdrawing liquidity all at once. Several services, including Poocoin and DexTools, allow you to check this data through the contract address. 

Reviews have not been a reliable indicator for a very long time because they are frequently manipulated, both favorably and unfavorably. However, you can monitor the team's response to issues that have come up while using the product in chats. If you are immediately blocked for constructive criticism or feedback, you should stay away from such a project. Especially if there are no discussions on social media, and groups are kept closed, with no way to leave a comment.