01 Apr, 2023

How to Analyze Crypto: A Beginner’s Guide (Updated 2024)

How to analyze crypto


This guide discusses key elements of how to analyze cryptocurrency. Pay close attention to a project’s team, technology, partnerships, and growth potential.

Watch out for red flags like missing documentation, unrealistic plans, too much competition, or poor growth potential. To choose the right crypto, identify your interests and beliefs first, then find projects that stand out in their respective areas.

Comparing these projects with the market leaders will help you spot innovative ideas and solid investment opportunities. Take your time performing analysis to make confident investment decisions and stay updated with major market trends.

Getting Started with Crypto Analysis

When you begin investing in cryptocurrency, there is an enormous amount of information to take in. Here at Coinweb, we try to gather this information in an easily understandable way, which will better equip you to start your investment journey. One of the most important things you should do before putting your money into crypto is to analyze the projects you are interested in.

Of course, you can have great luck and hit the jackpot by pure guessing. But suppose you believe in cryptocurrencies and the blockchain technology that supports them. In that case, you should spend some time on your investment.

In this guide, we show you how to analyze cryptocurrency well. Read on, and you can make safer and more well-informed investment and trading decisions.

Note! You should never invest more in cryptocurrency than you can afford to lose.

Where do you start when you want to invest in cryptocurrency?

The amount of information available about investing in and analyzing cryptocurrency can be overwhelming. Here are the three most important things you should start familiarizing yourself with.

First and foremost: Do you know what cryptocurrency is? Or are you primarily interested in investing because you’ve heard about Bitcoin millionaires who became extremely wealthy in just a few years? Of course, all investing is about a return. Nevertheless, you must know what you are considering putting your money into.

Cryptocurrency is a decentralized currency whose transactions (in most cases) are conducted on top of a blockchain. A blockchain is a decentralized network of transactions that are run by users all over the world. Cryptocurrency is secured using cryptographic principles and is a highly digital currency.

Even though cryptocurrency is growing, few countries and companies on a global scale still accept the units as payment for services. Cryptocurrency has a long way to go to interact with existing financial systems and structures.

Because cryptocurrency is decentralized, the price movement of currency units is also unregulated. This means that future price movements can vary greatly from past prices. It is common to see price movements with variations of several tens of percent within a trading period of just a few days. However, the trend of price increases has been upward since Satoshi Nakamoto launched the cryptocurrency “Bitcoin” in 2009.

Take a look at this guide if you want to learn more in detail about cryptocurrency and this guide if you want to learn more about blockchain technology.

The cryptocurrency market is booming

Crypto Prices Heatmap
The crypto market is on the rise.

We hear the most about Bitcoin and Ethereum in the media. But did you know that there are over 20,000+ different cryptocurrencies on the market? And it doesn’t stop there; new cryptocurrencies are being launched rapidly.

As an investor, you must keep things organized – at least if you’re interested in investing in more than just the crypto giants. You will have many options before investing, so you are better prepared. Several different projects look similar to each other. In addition, there is enormous variation among project types.

Think of cryptocurrency as a new global economy where all voids must be filled. Suppose you imagine the number of service offerings that exist around the world today. In that case, it’s not hard to understand why cryptocurrency projects are snowballing. Entrepreneurs are rushing to be first and best in the field, and there is no doubt that the number of cryptocurrencies will continue to increase.

Invest in projects you believe in

BlockChain EcoSystem
BlockChain EcoSystem.

It is also essential to diversify your investments and not put all your eggs in one basket. Research and carefully consider the risks and potential rewards before making investment decisions. Remember, investing in cryptocurrency is speculative and highly volatile; investing in what you can afford to lose is crucial.

Also, be prepared for many price variations and decreases from past cryptocurrency prices, even when choosing the highest price in your investment area. This is similar to selecting the lowest price from a service provider, such as a mobile phone plan or electricity supplier. Cryptocurrency is no longer new; therefore, there is a lot of competition, even within different sectors.

  • Are there examples of successful cryptocurrencies in this area already?
  • Is there a lot or little cryptocurrency competition within my chosen sector?
  • What does the market history look like for cryptocurrencies within the industry I am considering investing in?
  • What is the goal of the project? What is their long-term vision?
  • Who is behind the project? What is their previous experience and successes?
  • What is unique about this project? What sets it apart from other projects in the same sector?
  • What is the status of the project? Has it already been launched, or is it still in development?
  • What is the market potential for the project? What is their expected return?

Step by step: How to analyze cryptocurrency

Now that you have some simple first steps to start your investment. Let’s go through exactly how you should analyze cryptocurrency.

Cryptocurrency is not the same as the underlying blockchain

It is crucial to understand that cryptocurrency and blockchain are two different things. They are closely related, yes. But one is not the same as the other. When you invest in cryptocurrency, you essentially invest in the underlying blockchain. Therefore, it is vital to analyze cryptocurrencies to explore the blockchain project they are connected to.

Bitcoin was the first cryptocurrency and was launched in 2009. At that time, the currency’s blockchain was solely developed to support financial transactions. So, Satoshi Nakamoto did not envision the Bitcoin blockchain being used for anything other than the trading volume of Bitcoin. The vast majority of cryptocurrencies launched today do not follow this structure.

Cryptocurrency is expected to be just a tiny part of the larger blockchain project being developed. On Ethereum, for example, the main focus is on smart contracts and decentralized applications.

Going deeper than just looking at the economic development and market trends is essential when analyzing cryptocurrency. It would help if you also learned about the blockchain project in which your money is invested.

Use multiple and reliable sources of information

You can begin your technical analysis when you have decided on a cryptocurrency and read up on the underlying blockchain project. Knowledge is power, and this is also the case with cryptocurrency. Therefore, you should find multiple reliable sources of information to learn more about whether or not this is something you should invest in.

The best place to start is on the project’s website. You will usually find documentation outlining goals, vision, and rollout plans here. The best document to read through is the so-called white paper document. This should give you a thorough and understandable overview of how the project looks and how the cryptocurrency will function on the blockchain.

After learning more about your investment option directly from the source, it is wise to start looking elsewhere. Forums like Reddit, Steemit, and Bitcointalk are good places to start. You can also get a lot of information on the blockchain project’s blog if such a thing exists.

As you read, it is essential to gauge whether you are gaining more or less confidence in the project you are considering investing in. Investing is, of course, about acquiring enough information. But it would be best to have a good gut feeling about where you place your money.

What gap does the project fill?

Once you have learned more about the project you are interested in, there is one question you should ask yourself: What makes this cryptocurrency unique? As we have seen in this guide, there is an enormous variety of cryptocurrencies. As an investor, you should make sure that there is something special about the projects you choose.

In essence, this is about identifying the existing gap in the market that the specific cryptocurrency fills. What actual problems in the market, price patterns, and behavior does it have, and does the blockchain project drive it to solve them? Can you get volume data to show market trends and find examples of consumers who may use cryptocurrency?

Think of cryptocurrencies as service offerings in an already saturated market. New companies in all industries are launched all the time. Whether they survive depends on offering something that competitors do not already provide. This is also the case with the price rise of cryptocurrencies; price increases and development will rely entirely on potential demand.

Look at the price development of the cryptocurrency

Lastly, looking at the price data, past performance, and market price development of the cryptocurrency(s) you are considering would be best. When you know more about the project’s background and have identified real market needs, it becomes easier to analyze such development. If the price of crypto assets has already ‘exploded,’ like with the old-timer Bitcoin, it is less likely the current price will increase and explode again.

On the other hand, if cryptocurrency or Bitcoin’s price chart has had an upward trend over a period, indicating stable growth in crypto assets and asset prices, this may be a better investment option.

Ideally, one should look at the cryptocurrencies that grow when the underlying blockchain project releases new updates. This means that the project’s and currency’s values are closely linked. If the project offers something the market wants, the cryptocurrency’s future price changes and price movement will continue to align with the project’s development.

Concerning future price movements, price trends, and the development of crypto markets, it is essential not to forget how volatile the cryptocurrency market is. These are entirely unregulated currencies, which will rise and fall enormously. To sleep at night, you should be well informed about what blockchain project you are investing in.

These are good signs to keep in mind when analyzing crypto

Here are some signs you can look for to distinguish one project from another. In the section below, we will cover three good characters first and then three bad signs.

Vision documentation: White paper, roadmap, and objectives

Crypto Roadmap
Example of a roadmap.

The visual documentation of the different blockchains is an important place to start for information. But they can also give you an insight into whether the project you are considering is favorable. Look for the following things when evaluating the documentation:

  • White paper: This is essentially like a business plan or a corporate vision for the blockchain project. The document should say something about the technology behind the project. Still, it should include sections on why the project and the blockchain stand out. Finding a well-written and solid white paper is a vital sign that you can trust the project.
  • Roadmap: The roadmap for the blockchain project will depend on when in the project you begin investing. Suppose you invest early in the launch phase. In that case, you will have the opportunity to review how management plans to implement the technology they have developed. This can hint at whether the deployment plan is logical and well thought out.
  • Objectives: Does the cryptocurrency you consider investing in have plans to surpass Bitcoin or Ethereum? Will it become the world’s largest cryptocurrency within just a few years? Of course, it’s nice to dream, but the project’s objectives must be realistic. Look for goals that align with the rest of the documentation sensibly.

Who stands behind the project?

Although the cryptocurrency market cap is growing tremendously, it still represents a relatively small market cap capitalization globally. It also means that cryptocurrency is a relatively small network with good and bad rumors.

When analyzing the blockchain project, it is wise to familiarize yourself with who is behind it. Are these competent people? Do they have experience with other cryptocurrency projects? Why did they choose to launch cryptocurrency? You should trust the people you are sending your investment to.

Furthermore, verifying the identity of the management and team behind the cryptocurrency is crucial. There are many fraud attempts in the cryptocurrency world, usually at the investment stage. Scam artists are becoming more sophisticated, and finding false pictures and documentation is common. Do a Google search on key people in the project to confirm that their identity matches.

Does the project have established good partnerships?

It is true that cryptocurrency traditionally positions itself in opposition to the established. But the fact is that if a cryptocurrency is to do well, especially now that the competition is so tough, it needs at least a small foothold among existing institutions. This can be within different industry sectors, or the project has good relationships with, for example, a government.

Therefore, it is always a good sign if the crypto you are considering already has established good partnerships; even better if these partners are larger companies that will give the cryptocurrency project more credibility and greater support level and access to an existing consumer market.

Verifying if other market participants in the crypto industry recognize and respect the project can provide an advantage. Furthermore, some projects excel in building good relationships with their competitors, while others face difficulties. It is wise to go for investment currencies that at least do not have any enemies in the crypto market yet.

Bad signs to keep in mind when analyzing crypto.

Those technical indicators were good signs to look for when analyzing the price chart of a cryptocurrency’s opening and closing prices. Let’s go through the red flags you should be extra cautious of.

Missing documentation and unrealistic plans

It was briefly mentioned earlier. The documentation of a blockchain project says a lot about the project’s potential for success. But there are also a lot of crypto projects that lack documentation altogether. This is generally a very bad sign.

It would help to consider the crypto you analyze as any other business. What would you think of a big investment that didn’t have any documentation of its plans on its website? Or that communicated in a poor and disjointed way? If you are an intelligent investor, it is unlikely that you would have invested your money in this business.

As mentioned, you should also be aware of unrealistic plans and goals. If the project is ultimately out of touch, it may be a scam. However, investing in crypto can be equally harmful if the management does not understand the limitations. Please stick to the projects where you believe the administration can achieve what they say will succeed.

Too much competition

A cryptocurrency must do more than be the “next Bitcoin or Ethereum.” Remember to look for unique projects that stand out from the crowd. Ideas that are identical to existing cryptocurrencies on the market will not suffice.

Too much competition within the intended sector of a blockchain project is a sign that the team behind it has not thought through their plans carefully enough. They are betting on riding on the success of other cryptocurrencies more than creating new value themselves. And let’s be honest; there are no new cryptocurrencies that will suddenly surpass Bitcoin or Ethereum.

Look for cryptocurrencies that aim to stand on their own. It is possible if the project has identified an area with growth potential and is developing innovative solutions. Then, you can also decide how to analyze crypto and invest in the corresponding cryptocurrency.

Poor growth potential

Unless you are an investment expert, we understand that evaluating the growth potential of a cryptocurrency you are considering can be challenging. Nevertheless, there are certain things you can keep an eye on to identify which cryptocurrencies have potential or not.

First and foremost, investing in cryptocurrencies with excessive currency units is often risky. You may have heard that Bitcoin has a maximum number of units of 21 million. When a cryptocurrency is created for the first time, it is typically programmed with an initial maximum limit. However, it is significantly larger than just 21 million in many cases.

This can be problematic when it comes to opening prices due to the demand in the market. For example, suppose there are 100 million a cryptocurrency. In that case, it will take a lot for the opening price of each unit to be worth anything significant.

Another bad sign is if the price increase of a cryptocurrency has grown slowly since its inception. In some cases, this can change. But usually, slow growth means the project is missing something essential to establish itself in the market. Look at the cryptocurrencies you are analyzing against the rest of the market. This will give you an overview of whether they are moving on average or following the trend.

How do you select cryptocurrencies for analysis?

Now that you know much more about analyzing and trading cryptocurrencies than most people. Now, all that remains is to select some research projects so that you can commence investing in this pioneering market.

What do you believe in?

As we briefly touched on earlier, this is the most critical question you should ask yourself as an investor. What do you believe in? You don’t have to be a professional to have thoughts about the projects you hear about. Essentially, we recommend that you go with your gut feeling.

This is the most crucial question you should ask yourself as an investor. What do you believe in? You don’t have to be a professional to have thoughts about the projects you hear about. In principle, we recommend that you go with your gut feeling. Starting with areas you feel comfortable with or are interested in could be wise. What do you think will shape future consumer demand? Is it trade? Easier and more efficient handling of personal information? Communication?

The cryptocurrency market has boomed and continues to boom in many ways. This means you can find cryptocurrencies that belong to many traders in almost any market segment. We recommend this guide to get through the entire crypto charts and analysis. It may be wise to read about something that interests you.

Here are some of the main areas within the wider market for cryptocurrency and blockchain technology today:

  • Decentralized applications
  • Money transfers and access to banking services all around the world
  • Handling of sensitive information (patient information, voting, etc.)
  • Decentralized commerce (sales of property or other digitized values across borders)
  • New economic systems (systems that aim to replace existing and traditional financial systems)

Which cryptocurrencies stand out from the crowd?

You can begin exploring cryptocurrencies if you know which areas you want to focus on. Then, the next step in fundamental analysis is to try to identify which of them stands out from the crowd.

Determining the largest cryptocurrency in your chosen investment area is a simple strategy. For example, if you look at decentralized applications, the natural answer would be Ethereum. Once you know who the king is, it becomes easier to consider which opponents are coming up with innovative ideas.

Compare the slightly smaller crypto you believe in with the ruler.

  • Do they offer something new?
  • Are they introducing new functionality?
  • Is it solid?
  • Do they have a more comprehensive or focused project in mind?

Comparing newcomers with the most established cryptocurrencies within a specific area makes it easier to see market trends and distinguish the excellent investment and trading opportunities from the good ones.

Suppose you follow the steps in this guide. In that case, you are well on your way to making a solid analysis of the crypto you are considering investing in. We recommend that you take your time now so that you can feel confident in your choices. Then, it’s just a matter of waiting and keeping an eye on market developments in the coming time.