How do you decide whether to invest in a new project or not? Finding a crypto project which can outperform bitcoin is no easy task. Studying bitcoin alone feels like a life long journey down an endless rabbit hole. But if you’re up for the task, here’s the checklist I use for evaluating new crypto projects before deciding to invest.
The Checklist
A lot of steps I know… But they can all be completed within a few hours once you know what to look for. Plus we’ll bookmark a few pages, podcasts and videos along the way to watch later. Let’s break down each step in my crypto investment research process.
Thesis
Every investment opportunity should trace back to your fundamental investment thesis. What areas of the ecosystem do you see opportunity? Does this opportunity you’re evaluating fit your thesis? More about formulating your thesis here.
Awareness
This project will probably start popping up on your radar. You’ll scroll past it in your feeds. You’ll see it in headlines. You don’t know what it is yet, but after noticing it a few times, its probably time to see what all the chatter is about.
Validation
Who else that you trust is talking about this project? What big funds or angel investors are involved?
Skeptics
Ugh haters. They’re so annoying! But what points are they latching on to? Are they on to something? Conspiracies start from a basic truth. What can you learn from the skeptics?
Resources
Project website
Dive into the project’s website and read everything page and every blog post to understand the project’s positioning and how they want you to interact with the project.
Roadmap
Every project should have a roadmap. Where have they come from? Where are they going? Have they delivered on their past promises?
Whitepaper
Most projects have a “Whitepaper”, or an academic paper describing the project in detail. Often times it’s a PDF. It may start with a basic summary and explanation of the project’s origin but it can get pretty technical pretty fast. Some projects even have a “Lightpaper” which is a dumbed down version for non-technical people. READ THE WHITE PAPER. It may be out of date, but its packed with important information about the project.
Docs
Many projects have developer docs which oftentimes include guides and tokenomics information for investors and users of their dApp. Browse around and see what you find.
Founders/Team
Who started this thing? Early in my journey researching a new project I’ll queue up every podcast interview I can find with the founder to see where their head is at.
Use it!
At BitLift, we don’t just stack crypto - we use it! Now its time to play around with it and see if it does what it claims to do. If you’re evaluating a Layer 1 blockchain, you’ll likely need a new wallet and a way to bridge funds in. If you’re just evaluating a dApp - your current hot wallet should suffice.
Wallet
You’re going to want a hot wallet for playing around as well as cold storage options when it comes time to invest. Fire up the most popular wallet in the ecosystem and play around with it. If it’s a dApp, see what wallets they support and recommend.
Bridges
On a new chain you’re going to need to fund your wallet, but how? Find the bridge recommended directly by the project itself and bridge a small amount of money from your ETH hot wallet to your new hot wallet on this chain. If the chain is supported by the centralized exchange you use, sometimes you can simply withdraw directly to that chain from the exchange.
dApps
What dApps are popular on this chain? Connect your hot wallet and play around with them. Typically this involves swapping some tokens, trading some memecoins or buying some NFTs.
Community
You’re going to have questions as you navigate this new ecosystem. Hopefully you can find answers in the project’s website and docs, but one great way to understand an ecosystem is to engage with it’s community. Typically most projects will have a Telegram channel or a Discord server (or both). Poke around. See what people are talking about. Ask some questions and engage with the community! If all you see is people pumping price and talking about marketing initiatives, thats a major red flag!
Comps
Comps stands for “comparables”. You want to know how this project compares to other comparable projects - particularly in regard to market cap. Often times we’ll use CoinMarketcap for this research. What other projects are working on something similair? How does their market cap compare to the market cap of the project you’re evaluating? Were comperable projects around in the previous cycle? How large did they get? What price would the project you’re evaluating have to be in order to reach that market cap?
Demand
Many crypto investors incorrectly think of all tokens as equity in a business. That’s not necessarily the case. Where will demand for this token come from. Will users or ecosystem projects need to buy the token in order to use the project? Does the token only give you voting rights? Does it share the profits with you? The more reasons people will need the token the better.
Usage
Some projects are all talk. But this is blockchain where you never trust, always verify! And you can easily verify whether a blockchain/dApp is being used or not by looking at the block explorer’s daily transaction volume. And most dApps have Dune dashboards. You want to see usage and demand growing over time!
TVL?
Lots of analysts talk about Total Value Locked, there’s even entire sites like DefiLlama dedicated to comparing TVL across dApps and chains. Thing is, TVL is fickle. If investors find a better, faster chain or a dApp returning higher yield, they’ll move their funds in a flash. So while TVL is an interesting gauge of usage, I don’t put a lot of weight on it.
Tokenomics
Think of tokenomics like the fundamental analysis of the project’s token. We’ll have to grab this data from multiple sources including places like CoinMarketcap, DeFiLlama, the projects docs and even their whitepaper.
Supply
How many total tokens are there? How many are in circulation? Is there a finite supply like bitcoin?
Issuance
How were the tokens initially issued? Was there a premine? Does it have a deflationary/burn mechanism?
Unlocks/Vesting
Will tokens be unlocked over time? When will founders/investors receive their tokens? Unlocks.app is a good tool for checking this.
% Staked
Not always super important, especially if you can unlock instantly, but if a lot of a token is staked this could be a signal that the community is in it for the long run.
Staking
Can you generate income while you hodl this token? Not just in DeFi, but foundationally similar to how you stake ETH in it’s Proof of Stake network or CRV to harvest fees earned by the platform.
Lockup period
If you can stake, how long will it take to unstake!? Very important. You don’t want your tokens to be locked up and unable to sell when the time comes.
Exchanges/Liquidity
Where will you buy this token? Do popular CeFi exchanges list it? Is it available as a wrapped token on Ethereum and available on popular DEX’s like Uniswap? If it’s hard to find, is that because its so early which presents an opportunity? or because its untrustworthy and difficult to use? You can find a list of exchanges where the token is available on the project’s CoinMarketcap profile.
Technicals/Price ranges
If you’re considering investing, what price should you buy at? We used comps for this earlier, but what do the charts say? Where are the major support and resistance areas? What’s the all time high/low?
Ape in standard allocation
Is it really apeing if you’ve done all this research? YES it’s still early in your journey down this project’s rabbit hole! You’ve done enough research to begin investing, but don’t put on a MASSIVE position just yet. Typically at this stage you’ll invest 1/3 to 1/4 of the full position you for see yourself allocating. You can put in limit orders at lower levels incase there’s a flash crash or the price dumps while you’re sleeping. And you can continue researching and using the project and investing more over time.
Written by: @gerbz Gerbz is the founder of BitLift and has been journeying down the crypto rabbit hole since 2013.