The current cryptocurrency market is flooded with thousands of Altcoins to choose from, many are just clones and cash grabs. There is a methodology that you should follow before investing in an altcoin that could potentially save you thousands of dollars. It's a simple process but one that many investors don't take the time to follow through on.
Investing in an Altcoin
After you plunge into the cryptocurrency world you will quickly find yourself exploring the thousands of altcoins out there that could make you thousands or millions of dollars. Chasing that Lambo dream or taking that rocket ship to the moon is a great vision but one that is not as easy as following the media and paid advertisers (shills) that are all over Reddit, Bitcointalk, YouTube and so many other locations. By the time you get into most of these projects you already missed the boat and will most likely end up on the wrong side of the pump. If you follow the below steps before you start investing in an altcoin you can protect yourself and your investment from substantial loss. Always take notes on your thoughts, even if its just a sticky note or word document. This will help you through the process and form a routine each time you go through these steps.
Methodology for Investing in an Altcoin
Let me start off by saying even if you follow these steps there is no guarantee that you will be rich or even make a small profit. The cryptocurrency market is volatile and even the soundest looking investment can end up nowhere. Only invest what you can afford to lose and always ask yourself why you are investing in that particular coins.
Finding an Altcoin and Fact Finding
Maybe this is a coin you found in the announcement section of Bitcointalk or something you read on a blog or forum. The first thing I would do is go visit CoinMarketCap and start by following that link to their respective website before reading any forums or advice people have written so you avoid bias.
Your first impression of the coin is how they present itself to their customer on their website. Take a holistic approach and read over the whole site. Does it appear someone just threw it together? Does it read well and make sense? If the answer to any of these questions is no then you should immediately start taking note something is wrong. They want people to believe in the tech and vision for millions if not billions of dollars but cant take the time to make a proper website. Tread carefully! However, if the website seems legit then just take note of what you liked about it and continue on.
Read the whitepaper! I'll say it again READ THE WHITEPAPER! This should include what the coin is trying to solve and how they are going to get there. Understand the plan the developers are trying to accomplish. Does it make sense? Does it seem attainable or is it full of fluff and buzzwords? There are so many white papers that are just copied versions of other coins with a few tweaks. After you read a few you should be able to identify this and is another sign maybe you should stay away.
If the whitepaper makes sense then you have two great signs! Next, you should look at the roadmap. It should align with what the whitepaper discussed and give milestone that the project is trying to accomplish Have they met these goals? Has the roadmap been updated if they have or haven't met those timelines?
If you have made it this far you might be feeling good. Take a look at the development team and look them up on LinkedIn or google search. Do they exist? Are there any other projects they have been apart of, and if so what was the result? You should feel good about the capability of the team to succeed and accomplish what the whitepaper said and in the timeline laid out in the roadmap.
Start Examining the Altcoin's Market
Now that you have done some research you have the knowledge of what the coin is trying to do and understand the team's ideas and the timelines they are trying to meet. Move on to step two which is seeing what the market is currently doing and what others may be saying. First head back to the website of the coin and follow their link to the blockchain explorer. See if you can identify the founder or developer's account. Are they selling or buying more? Do a small number of accounts hold the vast majority of coins if so what are they doing? Obviously, a large sell-off from large account holders is a sign you should proceed with caution. If they are buying than now may be a good time to get involved. If the coin looks stable and not experiencing a large sell-off you may have found a potential gem for your investment in an altcoin.
Enter the Forums
The reason you want to do the above steps before you reach this part if you will avoid being influenced by what you read on forums and going into the project with a mindset that may be completely wrong. Many of these projects pay the average joe looking to make a quick buck a few dollars or tokens to post in as many forums as possible to talk up the coin. If you start encountering this and seeing hundreds of post across the web you may be entering at a bad time. The best feeling in the world is accomplishing all the above steps of an altcoin in its early stages that you feel good about and not seeing many posts about it. This could potentially mean you could get in as an early adopter and be in a position to make a great investment! However, even if you see a ton of posts about the altcoin that doesn't mean its too late. Read what they have to say and see if it lines up with your opinion. Get involved in their discussion you likely will know more than 90% of them who have not even read the website and are just claiming bounties by posting messages.
Don't Invest What You Can't Afford to Lose
You have done all the research and you feel great about the altcoin you feel has a great future. There is one last step that you should always follow even if you skip everything I have written above. Do not invest what you cant afford to lose when you start investing in an altcoin. You should not be relying on this coin to make you money to pay your rent or your one shot to get out of a bad situation. Many of these investments will go through periods of ups and downs. Save yourself and your family the stress and only invest what you are comfortable with losing if everything came crashing down. If you follow the steps above you will put yourself in a much better position when you start investing in an altcoin. I would guess close to 80% of current cryptocurrency investors do not put in the due diligence to ensure they know what they are investing in and why. As you have read a million times do your own research and you will find yourself not only in a better position to make financial decisions, but also learn more about the technology along the way. Now you are ready to head to the exchange and finalize your purchase. There are some tips to altcoin trading that are just as important to follow as evaluating what you want to invest in, ensure you follow these steps each time. If you want to do some additional reading The Investment Checklist by Micheal Shearn is a great resource that have read and really enjoyed!
A Final Note on ICOs
Be extremely wary of ICOs in 2018. The sheer number of ICOs in 2017 was astronomical and with all the media attention and the relative ease to create a coin, you need to protect yourself from these potential scams. Ensure you read the future of ICOs in 2018 to better understand the current market environment before you take this plunge.