Have you ever watched any Crypto-related video from any creator? Probably you noticed the creators of the video saying “This is not Financial Advice, always do your own research”. It is like some magical spell that protects them from getting sued. This technically offers the viewers no credible information. What does doing your own research really mean?
What does your own research actually look like, is it difficult? In this article, I am going to be answering all these questions. But first, consider subscribing to our weekly newsletter as it is free & provides you with all information about cryptocurrency.
Now before going more into the important stuff. I want to introduce an analogy that helps you understand the types of research that people do. For example, if you want to reduce sugar consumption in your daily meal, you may follow multiple methods.
Some people may say you need to consume sugar in form of fruits or stop consuming raw sugar entirely. Others may also say you need to stop all sweets & excess carbohydrates entirely. In reality, the ideal way could be a collection of all these steps and some regular exercise.
The point is, if you want low sugar content, there are a lot of factors involved in getting desired results.
Basics of doing our own research
If you want to actually make profitable investments, there are three types of analysis we can do. And many people claim that only 1 matters but I’m more skeptical while investing especially in Cryptocurrencies.
a) Technical Analysis
Technical analysis is the study of the past price of an asset & we will come back to it at the end of this article, but it is mostly looking at charts & making educated guesses. This leads to following some patterns, & again you can’t only make great decisions by looking at charts but they can be helpful.
b) Sentimental Analysis
Sentimental Analysis may sound confusing but it is basically noticing how other people are feeling about a cryptocurrency or the market. We can’t really measure what people are really feeling about the market but what we can do is look at the words that people use on the internet. You can find some of these results by typing, “What is the Market Saying?” or even looking at what crypto influencers are saying about a project.
There are advanced tools out there that can look at conversations & news articles all around the world, compile them together & then generate a sentiment score. That tells you if people are telling good things or bad things about a project. But again, this can easily be manipulated, is not a long-term solution & difficult to analyze.
c) Fundamental Analysis
Fundamental analysis is the study of actual ideas, team & the progress of a project. This is the most important thing & will be the topic we will be focusing mostly on in this article. Since many people think that technical analysis is bogus & many of us don’t have the knowledge to deep dive into sentimental analysis, but anyone can do fundamental analysis fairly easily.
Hopefully, after reading this article, you will realize that the world is not black or white. It is not technical analysis or fundamental analysis but instead, the world is a multivariable environment where patterns may emerge out of all these together, which if you study enough can get you many advantages. Moving forward, all things so far are not investment advice & you may not follow the steps mentioned in this article.
Goal of Doing Research
So the Goal of doing research is to try & make an investment look bad. Now, this may sound counterintuitive but human beings are very biased. Anyone can make an investment look good but it takes a lot more effort to make it look bad. That is exactly what you want to do.
The goal before making an investment should be to make the project look bad. Like I said above, any project can look good especially if it contains a new & unique idea. That’s what marketing does, it sells products to people.
In case, after trying to make the investment look bad, you couldn’t find much evidence, it could actually be a solid project.
Next Question to ask
After convincing yourself about the authenticity of the project, you should actually ask, how many other people will be willing to buy this token. All coins & tokens are essentially securities. Most of the projects do not have a profit-generating mechanism meaning that most will only be profitable if other people buy the coin or token.
Ask yourself, can I see a million other people finding out about this coin? Will they even buy this coin? If the answer to both the questions is yes, you’re probably looking at a very profitable project.
Now we can focus on the specific actions that fall under the research category. If you want to consistently make good investment decisions, you’ll need to put in the time & work of doing research.
Tokenomics is a fancy word for describing the economics of an asset. For new projects, there aren’t much long-term data so the initial tokenomics is a great source for comparison. Many times, you can view the tokenomics of a project on its website or their WhitePaper.
The first thing to find about coins is if the token is Inflationary or Deflationary. Inflationary simply means that the coins will continue to be created. Inflationary assets usually decrease in price as time goes on if nobody else continues buying so unless there is a reason for people to keep buying more, the price will go down.
For example, the US dollar or Indian Rupee is Inflationary. The Central Banks keep printing more money & every year it gets less valuable. Meaning it will take more money to buy the same thing.
The opposite of this is Deflationary. This means the coin will actually start to be destroyed. Deflationary assets usually increase in price assuming no other changes in the market because as time moves on there are fewer tokens to buy & if the demand stays the same, the price will increase.
A mix of Both
Now some tokens are a mix of these. Bitcoin is actually Inflationary right now because miners will keep mining more Bitcoins. One day though in the year 2140, there won’t be any more coins to mint & with that happening it would no longer be inflationary. Now safely we can assume some people will lose their keys, forget their passwords or send their bitcoins to an irrecoverable address which no one can access. Eventually, Bitcoin will become deflationary.
Another important thing to find out is the Presale data. These are the tokens sold to private investors, or given to early users, or mined by a closed group of miners. Basically, you need to find out how the token initially got out into the public. Each of these mechanisms affects tokenomics.
Now some tokens are given out to users as airdrops. Airdrops can be good or bad depending on the long-term vision of a project. But while doing our research, you must look at this data as well.
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