The ultimate guide to investing in crypto: How to evaluate cryptocurrencies before buying

6 Mins read

The distributed ledger technology has given rise to a new asset class that has performed significantly well in the past. Currently, the number of crypto projects is at an all-time high, bringing diversification to the industry. A handful of investors have become overnight millionaires thanks to this emerging FinTech revolution.

For instance, Shiba Inu surged 46,000,000 % in less than 12 months. A $10 investment quickly turned into millions of dollars in the timeframe. Unfortunately, most crypto projects are scams, as developers are looking to financially benefit from oblivious enterprising investors. The real question remains, is it possible to safely take part in investing in cryptocurrencies? Keep reading to find out.

Get Educated on the Industry

Information is key to making wise investment decisions, especially when investing in crypto. Starting out, you need to educate yourself on how the industry works, the fundamentals of blockchain technology, and how it is revolutionizing the finance industry. The basics will allow you to identify if the drive is for you. Legendary investor Warren Buffet said, “never invest in a business you cannot understand.” Getting familiar with the vocabulary and their contexts in the space will save the hustle, especially when going through white papers, which is the next step.

Education is accessible all over the internet. The best free content source is YouTube, which provides vital information in audiovisual form. Cryptocurrency sites also offer valuable information and news events that may need to be captured in time on YouTube. 

Carefully Scrutinize Cryptocurrency White Papers

White papers outline the main features and technicalities of a specified crypto project or protocols powered by blockchain technology. Potential investors, who are looking forward to investing in crypto, need to go through these documents and understand the underlying tokenomics of a project on the watchlist. White papers will help investors to filter out fraudulent projects, pyramid schemes, and absurd lies. A great way to find white papers is through the CoinMarketCap website.

Some of the essential sections on the white papers include utility, max token supply (tokenomics), leadership team behind the project, and the long-term road map. Fraudulent projects may have long whitepapers full of fluff and extensive vocabulary to discourage potential investors from reading the entire document and identifying red flags. Cryptocurrency projects running without white papers are also red flags and should heavily be avoided.

Leadership Team

When analyzing projects for investment, when looking at how you could start investing in crypto, the leadership team is one of the most vital pillars of a good project. Developers who have credibility in the industry are more likely to perform than those who are starting. In other words, buying into a project will involve submitting funds to the management team developing the project. Funds that end up in the wrong hands lead to loss of funds. This has happened countless times in the industry as developers scam investors hoping to start investing in crypto and take away billions of dollars.

In June 2021, South African brothers vanished with more than $3.6 billion worth of cryptocurrencies after claiming that hackers had bridged their security protocols and stolen all the funds. A similar occurrence took place in 2022. Do Kwon was allegedly responsible for the Terra Luna collapse that wiped out more than $40 billion. The algorithmic stablecoin UST lost its peg, causing the massive crash. Understanding the character traits of the management team is vital to make investment decisions.

Learn Technical Analysis

Technical analysis is the financial analysis using past price movements and market data to make future predictions of an asset. Most centralized exchanges, such as Binance, offer charting parameters for traders and investors. Learning technical analysis will allow investors to time the market with a decent amount of accuracy. The technical analysis comes with a wide range of usage depending on the timeframe being traded and the trader’s or investor’s personal preference. Projects requiring charting data published on software such as Tradingview have low credibility and can result in rug pulls.

Technical analysis can also show investors early red flags, especially when price manipulations or odd price movements occur. The analysis can also allow an investor to read between the line on the general sentiment of traders towards the project.\

Long-term credibility of a project

Blockchain technology is still a new form of FinTech that is yet to reach mainstream adoption. The technology has more than 2000 projects surfacing at the time of this publication. Most projects are new daily and are hence considered high risk. For beginners, it is wise to kickstart a healthy crypto investment portfolio in projects that have been around for at least five years. Although scams can go further than that, only some survive the second year. Having most of the funds in these pioneer projects gives you a sense of safety as you look for smaller projects to invest a smaller portion of funds. 

In addition, one should join crypto communities of the projects on platforms such as Discord and Telegram. Interactive audiences will keep the project developers in check by criticizing any faults. These platforms will also give an investor first-hand information on these projects when an announcement is made, a milestone is achieved, or an update is imminent.

Utility and real-world applications

Very few projects offer great utility in space. Finding utility in a project is simple. Just ask yourself which problem the coin is solving. For instance, bitcoin became popular as it majored in solving finance centralization. Digital currency is solving significant challenges facing traditional finance models run by banks and other financial institutions. Local currencies offered by Central Banks are printed out of thin air. This increases the supply leading to the degradation of value. Unlike fiat currencies, bitcoin has a max supply of 21 million digital currencies making it highly valuable over time.

Such utilities attract venture capital firms, sophisticated investors, and hedge funds to invest and substantially increase the price. Before buying into a project, an investor should ensure the project’s utility is well understood.

Tokenomics: Token distribution is essential in investing in crypto

Understanding tokenomics is also an essential element to consider looking at before investing in any crypto project. Tokenomics is an acronym adopted by the crypto community from the words “token” and “economics.” The term captures the token fundamentals of a project, including aspects such as the token supply, majority holders, and the utility of the project’s crypto. The monetary policy of every cryptocurrency project differs significantly from another. The tokenomics therefore vary. The main variables of tokenomics in a project include; Mining and staking, yields, limited and unlimited supplies, token allocation, and vesting periods.

During an ICO, projects launching on presale usually allocate a certain percentage of the total supply of tokens to be distributed to investors at a discounted price from the launch price. At these stages, an investor should pay keen attention to the project’s credibility and make a sound decision about whether to invest in the project. Projects with an inflationary mechanism on their tokens should ring a bell in an investor, as the developers can use the advantage to mint these tokens and dump them on the public. 

Token-vesting platforms with maximum token supply have the best edge in the industry. An added advantage may be the inception of a deflationary mechanism that allows the developers to burn the tokens over a given period. Binance, for example, uses part of its profits to purchase and burn BNB tokens, permanently discarding them from circulation. The result is that holders of the token benefit significantly due to the increased demand as supply goes down. It is vital to watch out for such utilities when analyzing these tokens.

Not your keys, not your coins

The crypto market has portrayed much drama in the past two years, especially for investors holding funds on centralized entities such as CEXs. While it is easier to store assets on exchanges, it is not recommended at any point. For a start, investors can purchase and temporarily store small assets on exchanges for economic reasons. However, cold storage is the most advisable way to keep digital assets when the portfolio grows.

The collapse of the now-defunct FTX exchange has rendered exchanges untrustworthy. SBF, the former CEO of the firm, allegedly used customer deposits to fund a luxurious lifestyle and his political agendas. He reportedly siphoned more than $1 billion to his trading firm Alameda Research headed by Caroline Ellison. Caroline has pleaded guilty to fraud charges and agreed to cooperate with law enforcement in the ongoing fraud investigations against SBF.


More than ever, it is now easier when it comes to investing in cryptocurrencies. However, the asset class has increased risks compared to other financial markets, such as the stock market, although very promising in terms of returns. The first step to successfully investing in crypto is to get educated on the basics. You cannot invest in a field you rarely understand. Investors also need to scrutinize the leaders of the projects. If they have a dirty track record, it’s wise to lower risks or avoid the project at all costs. It is also essential to understand what problem the project is solving. A successful portfolio has projects that meet such criteria as the ones discussed above.

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