Cryptocurrency is gathering a lot of limelight nowadays. Over time, it has emerged as a solid investment tool. However, the key to becoming a successful investor in this fast-growing space is to put your money on the right crypto project.
Bitcoin was the first cryptocurrency ever created and continues to have the biggest market capitalization. But Ethereum, dogecoin, and several other cryptocurrencies soon hit the scene and started gaining traction. Currently, the market features thousands of cryptocurrencies, and a fair proportion does not look viable from an investment standpoint.
So the burning question is, how exactly do you choose cryptocurrencies worth your time and money? If you answered intuition, you could be risking too much. As a savvy investor, you should engage in due diligence and take the following measures to determine the right cryptocurrency for investment:
1. Community
A cryptocurrency’s following plays a significant role in its success. A robust community and dedicated following indicate individuals’ level of interest and belief in the coin. To learn more about your potential investment, check out some of the top crypto YouTube Channels based on their feedback.
Besides, checking out the community on Reddit is a great approach to start understanding the enthusiasm surrounding an alternative cryptocurrency. Reddit boards are also a good place to get answers to your questions. For instance, let’s say you wish to put money into Bitcoin (BTC). If so, you can learn where and how to sell btc instantly or use bitcoin to diversify your investment portfolio, among other things.
Typically, the Reddit communities of larger cryptocurrency communities tend to be more active. But this is not always the case. Sometimes even the smallest communities can be extremely helpful and eager to answer questions. Broadly put, if you are having trouble comprehending how the procedure works or anything else associated with it. Then a cryptocurrency community is an excellent place to start looking for concrete answers.
2. Whitepaper
Whitepaper is a trustworthy technique to prove the legitimacy of a new cryptocurrency project. A whitepaper provides an overview of the project’s technologies and goals. It includes various data in the form of statistics, illustrations, and algorithms, helping investors come to terms with the project’s unique standing in the market.
It bears worth mentioning that crypto whitepapers are not easy to read, especially if you do not have any know-how about technology. Yet, you can make sense of them by cracking the following basic cryptocurrency concepts:
- Blockchain: A blockchain works as a distributed ledger or database shared among various computer network nodes. Blockchains are a key component of cryptocurrency systems that keep transaction records secure and decentralized.
- Mempool: Every node maintains a smaller database of unconfirmed or pending transactions. It is called mempool. A transaction is removed from the mempool and added to the blockchain’s transaction history once approved and included in a block.
- Smart contract: The term “smart contract” refers to computer programs or protocols for conducting automated financial transactions.
- PoW: PoW (Proof of Work) is the fundamental algorithm determining miners’ difficulty level and guidelines. PoW enables peer-to-peer transactions of Bitcoin and other cryptocurrencies without requiring a trusted third party, making them more secure than traditional methods.
While you do not have to be an expert, having a basic grasp of these ideas is vital. Once you are familiar with these key principles, it will be easier to decipher the various parts and pieces of information found in a whitepaper.
3. Team
All cryptocurrency initiatives do not begin on an equal footing. If issued on the same day as Google’s cryptocurrency, your local barista’s coin might receive much attention. But it may not be as robust. That is precisely why you should closely examine the team working behind the scenes. Due to the lack of financial data and track record of many projects, evaluating the core team, including developers, partners, and advisers, will give you a better aerial view.
The teams behind the larger, more renowned cryptocurrencies are likely to include some well-known individuals. However, it is significant to highlight that several cryptocurrencies routinely list famous people and other notable figures in the crypto area as their team members without involvement. Be wary of extreme statements and conduct some research.
4. Market Matrices
Diving into market metrics reveals several insights about a cryptocurrency. To begin with, you should assess the market cap. You can determine a market cap by multiplying the current price of the cryptocurrency by the total number of coins in circulation. Let’s say a particular cryptocurrency has a unit price of $10000, and there are 20 million coins in circulation. The market capitalization for that particular cryptocurrency would be $20 billion.
Putting your money into cryptocurrencies with a substantial market cap, preferably over $1 billion, is wiser. However, this is not a foolproof method because some cryptocurrencies with huge market caps have a high level of risk. Therefore, it is not advisable to solely base your investment on market size.
The coin’s trading volume is another important metric to keep an eye on. This metric indicates the volume of the cryptocurrency’s trades within a particular time. A high trading volume indicates that many investors actively buy and sell, resulting in increased liquidity and price stability.
5. Utility
All cryptocurrencies are not created equal. You should consider a cryptocurrency that provides value within the blockchain ecosystem. Ethereum is a notable illustration of this. Numerous smart contracts, NFT initiatives, and organizations rely on this technology. Thus, you can anticipate that it will maintain its worth over time.
On the other hand, some coins are only meant to be experimental. It does not imply that you cannot make money with them; you need to be aware of the risks, as many of them are doomed to failure.
Conclusion
Cryptocurrency is attracting a lot of investors’ attention. It is crucial to ensure you invest in sound initiatives to benefit the project’s success and long-term growth. Sticking to the measures covered in this post will ensure you do not set a foot wrong when looking to invest in a cryptocurrency.
