5 Tips For Researching And Analyzing A Cryptocurrency

If you’ve ever thought about buying cryptocurrency, it can be difficult to know where to start. There’s no hard and fast rule on whether crypto is a “good” investment for you, but there are a few important things to research that may help you decide.

Here are five tips for researching crypto.

5 tips for researching and analyzing crypto

1. Read the white paper

A crypto white paper is the document created by the developers of the crypto project that outlines the crypto’s history, purpose and projected future, along with its technical foundations. Typically, the paper explains what problem the crypto is trying to solve. Here’s Bitcoin’s white paper as an example.

Reading the white paper can tell you a lot about the background of a cryptocurrency and give you a broader sense of how the blockchain ecosystem works as a whole. The white paper gives you a peek behind the curtain on the crypto developers’ values and helps you determine whether it’s something that you would like to have in your portfolio.

2. Analyze the coin’s profile

While a crypto’s price history can’t tell you a lot about what the future price will be, the current price helps you gauge the coin’s value relative to past performance or market conditions. Knowing what the market cap and trading volume are also helps you see what type of investor sentiment is associated with the coin. High trading volume and liquidity can indicate interest and stability. You can find this information on websites like CoinMarketCap.

3. Explore and review social media 

Checking social media and reading up on what other people are saying about a crypto is important because unlike stocks or bonds, crypto is highly speculative. Prices are driven by investor sentiment and hype rather than hard assets like cash flows or underlying business performance.

For example, back in 2021, Elon Musk Tweeted, “Dogecoin is the people’s crypto.” Afterward, Dogecoin’s price surged 20 percent to 32 cents in 24 hours. Fast-forward to 2024, and Dogecoin’s price is $0.1675 as of Nov. 5.

In short, social media can significantly impact the price of any token, regardless of how it’s performed in the past.

4. Stay up to date on crypto regulations

Depending on how digital assets are structured, both federal and state regulators may have authority over crypto transactions in the U.S. The Securities and Exchange Commission (SEC), Internal Revenue Service (IRS) and the Commodity Futures Trading Commission (CFTC) define crypto as securities, property and commodities, respectively.

Also, regulations may depend on which state you’re in. New York, for example, has BitLicense, a business license for virtual currencies with strict requirements. California has the Digital Financial Assets Law — a licensing framework for people and businesses using digital assets.

Staying up to date on these regulations can give you realistic expectations when it comes to how you’ll be able to use the coin you invest in.

5. Look at who’s actually using the crypto

Because crypto is so speculative and there are literally thousands of coins to choose from, it might be helpful to see which coins real businesses are using for transactions and which coins peer-to-peer payment apps and brokerage platforms — like Cash App, PayPal and Robinhood —  have adopted.

The bigger, more well-known coins like Bitcoin and Ethereum have been adopted by these platforms, making them more solid options compared to smaller, lesser-known coins that lack widespread use and liquidity.

Stablecoins have also been a popular crypto investment recently because they are designed to keep a fixed value over time. Visa, for example, uses USDC (on the Solana blockchain) to make cross-border payments faster and cheaper.

Bottom line

Investing in crypto isn’t for everyone and the prices are extremely volatile. If you’ve decided you want to add crypto to your portfolio as part of a broader strategy, be sure to read up on a coin’s history, purpose and profile. It also helps to explore social media posts about crypto and stay up to date on regulations.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.