Risk Reduction Strategies in Cryptocurrency Investing: Part 2 – Research

In order to reduce risk when investing, doing your own research is a must. Unfortunately most people don’t know how, especially when it comes to cryptocurrency and ICOs. Judging from what is going on in the market, most people are simply following the path of everyone else, relying on unsubstantiated “hot tips” and hype. Successful investing requires work – there is no lazy route to easy money. Without doing your own research, you may end up following the herd and investing in projects that often end up in the 90% fail bucket.

A 2007 survey conducted by the FINRA Foundation found that 70% of fraud victims invested based on the advice of friends, family, and co-workers.

You may think you have done your own research before investing in a cryptocurrency or ICO, but have you really?

If you have followed the standard advice of how to research a cryptocurrency or ICO to invest in, you may end up looking only at what the team wants you to see. The most common advice includes recommendations to read the whitepaper, check the team, website, Bitcointalk, social media activity, endorsements, etc. The problem is that these are all things that have either been prepared by, arranged by, or often controlled by those in charge of the project, and should represent a starting point only. Everything they have presented may look and sound great, but have they actually done anything?

You need to closely examine the team, because it is their character you are investing in.

Researching the team is probably the best single piece of advice, but unfortunately the young and/or inexperienced investors flocking to cryptocurrency may not  understand what it takes to propel a project from a few computers to the world of global commerce. Previous involvement in cryptocurrency, ICO, and blockchain projects is great, but it is their additional experience and record as a leader in the business world that may be the best indication of future success. I have yet to see any “check out the team” advice that includes “make sure the dude knows how to run a business”.

Where to start?

There are 1600 currencies and tokens listed on CoinMarketcap, and it would be impossible to research them all. Cryptocurrencies and ICOs are different than traditional investments, and without knowing what to look for and what that information may tell you, your chances of choosing a successful long-term investment are greatly diminished. If you really want to find out how to sift through the rubble and narrow down the selection, see the free Cryptocurrency & ICO Screening Guide for Investors at DNotesEDU. It is not intended as financial or investment advice, and does not make any specific recommendations. Its purpose is to give you an idea on what information you need to find, where to find it, what it may mean, and potential questions you need to get answers for. It is not a set of rigid rules, and there are always exceptions, but if a coin you are researching has too many red flags, you may want to look elsewhere.

Top Tip – Avoid Confirmation Bias

Confirmation bias can interfere with your ability to conduct proper research and make wise investment decisions. Our perceptions of the truth become distorted when we unintentionally search only for information that confirms the views we hold. This biased wishful thinking causes the investor to ignore red flags and any information that does not support their opinion. Don’t look for facts that prove your potential investment choice right (confirmation bias) – dig deep and try to prove it wrong.

**Confirmation bias + hot tip = Recipe for investment failure