Due Diligence is one of the most critical aspects of Crypto Investing. Several Analysts believe that due diligence takes precedence over Technical analysis when it comes to Crypto. The reason is that there are over a million Crypto tokens right now. This number will only grow, as Crypto is a highly democratic space where anyone with an idea can participate. However, with such a rapid increase, it becomes even more critical that investors evaluate projects with an objective lens. So, let us now explore five key aspects that one should remember when they are evaluating a crypto token.
Thoroughly Understand the White Paper
Reading a crypto token’s white paper is crucial for investors and enthusiasts. It provides a comprehensive understanding of the project’s goals, technology, and roadmap. By evaluating the white paper, you can assess the project’s legitimacy, innovation, and potential for growth. It helps in making informed investment decisions, identifying red flags, and gauging the team’s expertise. Most importantly, the White Paper will detail the problem which the crypto is trying to solve. If you consider the solution provided by the crypto project to be legitimate, you can go deeper into your due diligence process.
Analyze Governance
One of the most critical aspects which blockchain technology and crypto are trying to disrupt is centralised power. Blockchain transfers the power to the end user. For example, Robert Kiyosaki famously called Gold as “ God’s Money” and Bitcoin as “ People’s Money”. For this reason, it is important to understand the governance model of a crypto project. While there are a few centralized projects such as Ripple (XRP) which are making phenomenal changes, the most prominent Crypto tokens- Bitcoin and Ethereum are decentralised.
Read more: Bitcoin vs Ethereum
Understand Tokenomics
Another crucial aspect which will determine the price trajectory of a Crypto project is its supply and demand dynamics. There are some crypto tokens like Bitcoin which have a finite supply and are deflationary by design. On the other hand, Ethereum has an infinite supply but is also known to be deflationary. This makes it harder for miners or stakers to generate Bitcoin and Ethereum as time passes. It is critical to fully understand the distribution of the crypto token amongst the community. Ask important questions like – “ Who holds the majority of the tokens?” “ Is the price of a token exposed to massive drawdowns because of centralization?” and more.
Read more: What is Tokenomics
Seek Expert Opinion
While investing in a token has to be your sole decision, it is helpful to seek advice from well-known experts to get a better understanding of a crypto project. The Crypto community is vibrant with seminars and expert talks happening all over the world. You can consider attending these expert talks where you can network with like-minded individuals. Remember to not send your funds to anyone else asking them to invest for you. Be proactive in seeking knowledge, but be the sole owner of your funds.
Keep yourself updated on Regulatory developments
Governments are actively working towards setting up roadmaps and frameworks for the Crypto industry. The International Monetary Fund and the Financial Stability Board recently published regulatory recommendations for the Crypto industry. With rapid advancements shaping the industry, it is important to stay informed all the time.
Read more: Day 07 of Navratri Crypto
To learn more about Crypto, Web 3 and Blockchain, visit ZebPay blogs. Click on the banner below to join the millions taking part in the Navratri festive celebrations. Stay tuned for our final blog in this series which is about “ The Future of the Crypto Landscape”.
