Identifying the best altcoins can be a trivial thing for any beginner and understanding that you need to research every project at some level before choosing to invest is always the best place to start. Whether you heard about it from a friend, on Twitter, Youtube, or some other place, chances are that it’s no coincidence you happened to run into that project.

As discussed in this article, there are marketing dollars in play just like any other business, so proceeding with caution and an open mind, free from hype will help to ensure your research is done with a level head instead of emotions. This thought process should also include asking yourself one of, if not the most important question: Is this worth giving up Bitcoin for? Diversifying a portfolio with new projects is only recommended for those already comfortable with their Bitcoin holdings.

Keep a Level Head

Convincing yourself this is the next moonshot, doggie, ape punk 2.0, once-in-a-lifetime opportunity before reading a whitepaper almost always ensures failure. Take the time to read the available whitepaper and any available content created about the project. Get the best understanding of the protocols’ use case and utility. If it’s another copy of something that has already failed a dozen times, chances are the use case is undesirable.

Something to focus on when researching new projects is the Total Supply of tokens. These are part of protocol’s tokenomics to illustrate where the tokens are going and for what purpose. Find out what markets the token is being traded on and identify the total Liquidity available for the project. It doesn’t matter if a token has a Total Market Cap of $100 Million Dollars if there’s only $1 Million in Daily Trade Volume. You’ll want to stay away from anything that doesn’t have the liquidity to support a return on your investment.

Join the Community

Join the social channels and immerse yourself in the community to ask questions you may have about the project. Don’t be afraid to ask critical questions because this will help you know if a project is censoring valid concerns. Take note when joining a community of how active it is, the general attitude of the moderators, and their participation in fostering an open and inviting environment. If all you see are user-created coin memes with the vibe of “you’re with us or against us”, it might be a good idea to move on to researching something else.

Researching the founders and executives of a project can prove to be valuable in accessing their level of competence, experience, and previous accomplishments or failures. Most respectable projects will have acquired investments through seed and other early funding rounds. You can find this registration and investment information combined in most national business registries based on the project’s locale. This will help you find out the lowest price paid for a token in presales to help calculate the rate of diminishing returns. You’ll also be able to see who the largest holders in the ecosystem are and gauge how centralized the project is or isn’t.

Use the Protocol

An important thing many forget is using the actual protocol. Whether that’s a game, exchange, or dApp. Explore it and learn what you like and don’t like about the product. If you can’t use it, it’s essentially worthless to you. Many protocols offer bonus rewards to users who stake or lock up their assets, so if you don’t take the time and learn how to do that, you miss the opportunity.

Buying anything you can’t use is a tremendous risk you’ll need to weigh. Are you willing to buy an IOU placeholder token and hold it for years before a product as promised is released? In this landscape, a year of financial opportunity in blockchain technologies is equal to years in traditional markets. Don’t forget that time is your most valuable asset. 

Research the Team

Teams, in so many ways, are what will make or break an altcoin. Are these people competent? Do they have a history of success? Do they have the skills needed to pull this off? Is the team public? A public team is not a necessity, but far too often anonymous teams are hiding some shady past and the risk of them scamming their way out is high. Good teams have a good chance of delivering, bad teams have a bad chance. Also understand that the best team, with the best backers, with the best idea, can still fail spectacularly. 

Is there VC Money?

Venture Capital Backing is a pretty big indicator of at least the seriousness of a project. But not all VC money is created equally. Far from it.

A short list of serious VCs includes Coinbase Ventures, Galaxy Digital, Arrington, Binance Labs, A16Z, Three Arrows Capital, Animoca, Hashed, Jump, Alameda, Pantera, Digital Currency Group, and Sequoia and these are just a few of the top tier ones. When you see one of these VCs on board you can usually, at the very least, assume the coin is not a scam. The more of these names you see, the more serious the project likely is. Remember these guys basically have infinite money, so ask yourself when you see a coin with none of these names, why?  Why didn’t these guys throw money in, why was this coin not able to get interest from at least one top-tier VC?

Now all of that being said. Just because a big VC is investing is not solely a reason for you to invest. Remember, they got to buy the tokens at heavy discounts for taking the early risks. Plus, here is a little secret not talked about often in the industry, not all of the VCs take tokens, they take equity in the company because they know the token is bullshit.

Is there a Use Case?

Idea and Addressable Market is another major factor to consider. And please, do try to be realistic here. Really truly ask yourself if the idea is something that you think both makes sense and can find a market fit.

There are many multi-million dollar raises happening on hopes and dreams, and little else. The latest buzzword salad coin can make money short-term, but when the time to actually deliver on their outlandish vision comes around suddenly things fall apart. Ask yourself if you would use the tech? If not, then why not, and who do you actually see using it? Also, be careful about outlandish promises like “we’ll take 10% of the real estate market globally in 5 years”. This is BS. Realistic companies will have realistic goals.

What about the Tech?

And finally has there been any tech actually delivered? Most legit projects these days will at least have a minimum viable product to show you around the time of their token sale or just after. Many will even have an alpha version in production for months before attempting to raise money. If the coin you are investing in does not then ask why not? Have they been achieving their tech goals from the road map? If not, then why not, and has that been clearly conveyed to the community. 

Be Careful!

At the end of the day, altcoin investing is risky. Like really risky. Developers get millions upfront and frequently disappear having delivered nothing. You as a token holder have ZERO rights. The vast majority of altcoins will go to 0. 10% or less will see massive returns. You are fighting against the odds here, but if you take the time to try and find the diamonds in the rough then maybe, just maybe you will make it big in crypto! 

Make sure you check out Part 2 of our “How to Find the Best Altcoins” series – How To Find the Best Altcoins – Part 2 | Tokenomics