On Wednesday, a trader casually made over $2.5 million on a $450 investment from flipping a hen-themed memecoin. This is kind of life-changing money that comes from investing in hidden gems that most people overlook. There have also been several cases of individuals engaging in small-cap or degen plays that turned out to be an absolute bargain in the crypto market.
Now, finding undervalued gems does carry high risk and requires a bit of luck. But with adequate research and study, you can find undervalued gems on your own flip them for a profit. This article aims to help you spot these gems by identifying five ways in the crypto market.
Let’s get to it!
Identify it’s Market Capitalization
Market capitalization is a metric that represents the total value of a cryptocurrency. Analyzing market cap is important for determining the potential for an asset to grow. Projects with low market caps have a greater chance of increasing in value to meet their expected valuation, making them undervalued. When these undervalued assets are recognized early, they can present lucrative opportunities for investors looking to flip them upon public interest.
The market cap of cryptocurrency projects can be found in their whitepapers or on external sites like CoinMarketCap or CoinGecko. Most investors consider anything below $500 million to be a small-cap project, which has the potential to move quickly to higher levels.
Follow Liquidity and Market Trends
When it comes to finding hidden gems, one effective method is to follow the money. By identifying which blockchains or protocols are attracting investment, you can discover potential goldmines. One way to track where liquidity is flowing is to monitor the market capitalization of an ecosystem. If you see that the market cap is steadily increasing, you know that money is flowing into that area. For example, at the time of writing, Solana has just surpassed XRP in the rankings on CoinMarketCap. This is an indicator that money is flowing into Solana and that there may be undervalued projects there. It is important to get in early on these trends so that you do not become exit liquidity for those who are looking to sell their coins.
Another important factor to consider is market trends. Trends in the cryptocurrency space change constantly, from gaming coins to oracles to smart contract coins to meme coins. It is important to stay up-to-date on these trends and to move with them. Liquidity also applies here, as trends often attract more investment.
Analyze it’s Tokenomics
Tokenomics play a vital role to the success of a project. A well-designed tokenomics structure can significantly contribute to a project’s success. When looking for a potential gem, be sure to examine the following factors. A good project should meet at least 80% of these criteria.
Token Distribution: Examining how tokens are distributed among various stakeholders, including founders, investors, the community, and reserves, is crucial. Fair and transparent distribution often fosters trust and sustainability.
Utility and Use Case: The token’s utility within the ecosystem is essential. Tokens with clear and practical use cases within the project’s platform tend to have higher demand, which can positively impact their value.
Inflation/Deflation Mechanisms: Understanding how the token supply is managed is vital. Some projects implement mechanisms like burning tokens to reduce supply or staking to control inflation, influencing the token’s scarcity and value.
Governance and Decentralization: Projects that offer governance rights to token holders empower the community and promote decentralization. Decentralized governance models often contribute to the project’s sustainability and long-term success.
Economic Incentives: Analyzing whether the tokenomics model provides incentives for various stakeholders, such as staking rewards, liquidity mining, or participation in governance, can indicate the project’s ability to retain and engage users.
Token Lockups and Vesting: Evaluating if there are lockup periods or vesting schedules for tokens held by team members and early investors is important. This ensures alignment of incentives and prevents rapid sell-offs that might negatively impact the token’s price.
Research on Social Media & Launchpads
Engaging with crypto communities on social media platforms like X (formerly Twitter) and Reddit is great for discovering key insights and spotting gems. Following respected voices in the crypto space provides access to a wealth of knowledge, trends, and perspectives. Their posts frequently provide timely updates, analyses, and, in some cases, early signals about emerging opportunities.
To get a better understanding of different projects and why they would be a good investment, participate actively in Twitter Spaces and ask questions. This can help you find coins that have yet to launch and research them before most people. However, it is important to note that if everyone is already talking about a project, it is not the best time to invest in it.
Launchpads are also good places to find projects that are about to be launched. Many of these projects have tokens that may perform well if other metrics checks out. Examples include ChainGPT, KuCoin Spotlight, Binance Launchpad and so on.
Evaluate Team and Backers
Low-cap projects are more vulnerable to rug pulls by their teams and founders. As such, it is important to learn who is behind any project you are considering investing in, including the project’s backers. In addition to security concerns, an experienced team can significantly boost your chances of success. Keep an eye on the team to see if they are active and communicating regular, valuable updates on the project to the community.
You can also look at the backers and their track record. JumpCapital and AscendEX are two examples of backers with good track records. Note that backers from CEXs, such as AscendEX, may indicate an upcoming CEX listing.
The hunt for undervalued or overlooked assets within the crypto space requires extensive research, analysis, and sometimes a stroke of luck. Many times these prospects will fail or lead to unexpected outcomes, which is why it is important to invest only what you afford to lose. Now is a good time to identify and invest in gems as the market is recovering and low caps most often recover faster than the large ones. Remember, if everyone is talking about it, it’s probably too late.