Note: This is the process I use for every Crypto token except Bitcoin (which I consider as a “Storage of Value” Asset). Also, I would like to see myself as an investor in a crypto project and not as someone trading in & out of a project-based solely on the technical analysis. I value peace of mind and my sleep more than the quick gains that can be made sometimes in trading.
Inspiration
I usually get my tips from friends and social media channels mainly twitter but even substack and medium. I also look at the coinmarketcap & crypto exchanges for top-five cryptos being traded by volume and others signs of narratives building up.
I quickly check if it is possible to buy the tokens on Kraken or Binance or any other DEX, Uniswap on ETH or ETH L2, Pancake Swap on BSC or Jupiter on Solana etc.
Small Buy-Ins
I then go on to buy a very small dollar amount of the token so it is on my watchlist. My watchlist at this stage has almost 20-30 different projects (I intend to not add & keep more than ten projects to my core portfolio at the end of the process).
Note to myself: Diversification doesn’t helps with shit-coins ! 😛
Fundamental Analysis
- Read the whitepaper for the project
- Check the people behind the project, Quality of the team, Is the team public or anonymous?
- Check other sources about the project
- Value Proposition of the Project. What problem is the project solving?
- Use Cases & Why is the project important for the cryptocurrency ecosystem?
- If it is a Native Blockchain Protocol:
- Speed: Transaction Per Second (TPS)
- Scalability: Average Cost per Transaction; Time to Transaction Finality
- Security: How is the network being secured? Is it audited?
- Understand the Tokenomics
- What is the utility of the tokens on the protocol ?
- Why should the token accrue value?
- Market Cap/Dominance of the token in Crypto Market.
- Is there a moat ? Are there any potential or existing competitors ?
Technical Analysis
- Check the Token/USD and Token/BTC Candle-stick chart.
- Use Week as the higher time frame and 1D as the lower time frame.
- Check the historical volumes and trend.
Use Technical Analysis for guidance. On a Token/BTC Chart, If the token’s candlesticks are not able to keep above the MA 10 (1 week timeframe), it is better to invest in BTC
Note to myself: Create an one-page investment thesis at the end of this step.
Take “skin-in-the-game” position in the project
At this stage, I usually buy the “skin-in-the-game” position in projects which are green on most of the aspects of the investment thesis.
Periodic Review of the Investment Thesis
- Are the fundamentals still sound?
- Is the project keeping its Roadmap?
- Is the number of users on the protocol increasing?
- Are developers still positive about the project?
Dollar-cost averaging & Pyramiding
For those which pass most of the checks in the “Periodic Review”, I would use either Dollar-cost averaging or Pyramiding to build my position in the holding.
NOT FINANCIAL ADVICE: This article does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment. The article should be treated as supplementary information to add to your existing knowledge. Please read the disclaimer before acting on the information provided on the website. Some of the links in the post may be affiliate links.