The cryptocurrency space has become the go-to spot for the average Joe to wait around with hopes of cashing in on a low-volume, low market cap coin that can fetch 30, 40, or even 50% returns overnight.

It’s easy to see a coin up 45% on the day and instantly start calculating in your head how rich you’d be if only you invested in that coin a day earlier. Many people see the large gain and think,

“Holy Sh*t! This coin is going to the moon… I gotta buy this ASAP!”

Beware of The Pump

It’s no secret that cryptocurrency markets are unregulated and extremely volatile. Anyone who has the power to influence a large number of people can shill a cheap, low market cap coin and instantly cause the coin to skyrocket in value.

Recently, John McAfee (yes, the guy behind McAfee Anti-Virus Software) has taken a huge interest in cryptocurrency. Each week, he selects a “Coin of the Week” that he advertises to his 630k Twitter followers. His selection usually sparks a huge swing in price as people flock to purchase his “Coin of the Week” with anticipation of getting rich quick.

Week after week, McAfee helps pump the value of coins across the market only to leave investors in shambles once they begin researching the project on their own and discover the project is non-functioning or impractical, thus crashing the price once everyone panic sells.

DYOR (Do Your Own Research)

I get it, you can make a real fortune on obscure altcoins that have low volume and low market cap. Before you spend any money on a coin, you should convince yourself that the coin is worthy of your hard earned cash. It’s easy to allow strangers on the internet to tell you about exciting investment opportunities, but I usually stick to three personal research areas: the whitepaper, the code repository, and the team.

1. Read the Whitepaper

A whitepaper is a document that explains the purpose of a particular coin and usually goes into great detail to describe a problem and how the coin aims to solve it.

Reading a whitepaper may seem boring and tedious, but it’s a great way to read into a project and determine for yourself if the project A) sounds too good to be true, or B) is something that provides value to the world.

For example, here is the whitepaper for Bitcoin (well worth a read!)

2. Skim through the Github Repository

Most coins publicly host their code online so people can view progress updates to the project. I like to visit the project’s Github so I can get an idea how active developers are working on the project, and how bugs are being tracked.

You can learn a lot about a project by looking at their commit history!

3. Get to know the Team

This is the most fun thing to research. Developers should be proud of their project and their coin! I like to follow the developers of a project on Twitter to see how they interact with the community. Many projects also allow you to join their developer Slack or Discord channel so you can ask questions and learn more about the project. I highly recommend doing that so you can get information straight from the people who know it best!