Smart questions to ask before investing in any crypto project
Welcome to Schooled by Breach! Our latest weekly newsletter where Breach writer, Adetomiwa talks to people with experience about pressing crypto questions, learns a lesson, and shares the findings with you. Crypto can be easy, so let’s figure it out together. Out every Friday!
Cryptocurrency experts recommend doing your own research before investing in any project, but there’s not much advice on how to. This week personal finance content creator Solafunmi Sosanya shares a guide for the research process. Her first tip is to choose simplicity: “If you have questions that you can’t find the answers to, the investment is probably not worth the risk”. She also says to ask the right questions (the article contains a detailed list) and join a community: “A space where you can learn together”.
I am what some might call an “Internet surfer” — It’s a real sport.
I spend a lot of time on Wikipedia, reading far more than I intend to remember about the most random topics (last week I learnt the history of bees, but don’t ask me to reiterate because… please), or on digital magazines (I might not watch a film, but trust me to know all the behind-the-scenes tea: what the director was thinking during the winner shot, which actors are now real-life best friends, etc.)
I have no problem with using the internet for my many interests. But still, when crypto investment experts say “do your own research”, it always feels like they expect more than I’m giving. Like my surfing skills just don’t cut it.
Here’s why: every time I start to research any crypto project, I feel like I’m learning a lot of nothing. I don’t know the head from the tail — and it can also get quite overwhelming. So, I decided to start from the top — What does it mean when experts say do your own research and how exactly do I do it?
For help, I hopped on a call with Solafunmi Sosanya, a media specialist (she is currently the lead of YouTube’s Nigeria chapter), and personal finance content creator.
Equipped with an MBA, Solafunmi is an avid investor. She started a personal finance community, Wealthmothly, in 2020 and began investing in crypto shortly after, when one of her community members sparked her curiosity.
Solafunmi says doing your research goes beyond the surface. “There are a lot of influencers on Telegram, Discord and Twitter, many of whom discuss what crypto they are investing in”, she says, noting that “a lot of people who follow them don’t really go deeper into what the crypto is about or why the influencer has chosen it”.
She notes that some of these influencers are paid and taking what they say at face value is very dangerous for your money management (sometimes they’re being paid by projects that turn out to be scams).
“There is great information on social media, so it can be the first step [how you discover a crypto project] but that shouldn’t be how you make your final decision”. How then should you go deeper into your research?
Firstly, choose simplicity.
“Whatever you’ve decided to invest in, you have to ask yourself if you truly understand it”, she says. “Don’t get swooned by big words or complicated summaries”
This is a strategy she follows herself. “If I can’t find a way that is easy enough for me to explain to a 5-year-old, I won’t do it”, Solafunmi says. She adds that if you have questions that you can’t find the answers to, the investment is probably not worth the risk.
Ask the right questions
The questions you ask will impact the quality of the answers you get through your research. Solafunmi’s suggested questions are in three categories:
- The background questions: These, she says, are questions to help you know a little more about the project and determine whether or not it is legitimate or a scam. Some of her recommended questions are, “Who is the team behind the token?”, “When was the project created?”, “Do they have a community? [usually, Discord, Twitter, Telegram communities], if so, how big is it, and what is the quality of their conversations?” She adds that the volume of the community will tell you if there are enough people who will continue to invest in the project. The quality of their conversations is an indication of their belief in it, which is an indication of its longevity.
- The quantitative questions: such as, “how many coins are in circulation?”, “what is the holder distribution like?” (she points out that it is dangerous to invest in coins that the majority of holders are the creators), “what is the sales volume?”
- Value-driven questions: These, she says, are majorly on their website. Here, look out for the quality (“are they using stock images or actual images of themselves and their team?”), their product roadmap (“do they have a clear goal? Is their roadmap realistic?”), and their core values (“are they trying to solve a problem and what is the use case?”) because the projects that last tend to be the ones that address a need, however niche.
For the first two, Solafunmi says you can find answers with quick Google searches. And only if you’re happy with what you find should you consider them. “Your satisfaction with the answers to these questions should determine whether or not you want to probe deeper”, Solafunmi concludes. For qualitative research, platforms like CoinMarketCap usually have detailed, often simplified, versions of this information.
Join a community
Seyifunmi is a big fan of learning together, and she says it has helped her in her investment journey. A quality group of people who don’t necessarily have the same money goals as you, but have an equal level of interest in research and quality investments as you. These groups will not necessarily help you determine what to invest in, but it is a space where you can learn together, and build a sort of framework for yourselves of what a quality investment looks like.
Breach’s Telegram community is one of such groups — not only do you learn together, but the community managers also run fun giveaways for active participants.
Our conversation taught me that while I was on the right track, I had not taken some specific steps into consideration. Now that I have these questions handy, I know exactly what to look out for next time I need to research a crypto project. In conclusion, Solafunmi cautions that using these questions to guide research before you invest isn’t failsafe (“crypto is volatile by nature”), but it will help me weed out the potentially good, from the definitely bad.
And that in itself is definitely a good place to start from.