For newbie investors, the world of cryptocurrencies often comes down to Bitcoin and Ethereum, but this world is vaster than you think. With more than 5,000 cryptocurrencies on the market at the moment (and more to be released), the crypto space extends with each passing day. So, it is understandable if you have no idea which token to invest in.
Careful evaluation and analysis of the crypto market are required to achieve whatever goal you might have established at the beginning of this adventure. Bitcoin and Ethereum may be good starting points, but even these crypto kings need thorough research. With any cryptocurrency, specialists state that key metrics such as price and trading volume are mandatory to make a wise and informed decision. Which cryptocurrency is likely to flop, and which is meant to touch the skies?
You are to learn in the following lines! You will find valuable insights into crypto evaluation and practices at just your fingertips.
Understand crypto fundamentals
Before getting deeper into cryptocurrency and looking into price actions, it is essential to have a fundamental understanding of what you are going to invest in. Factors such as the project website and social media, team, major investors, white paper, trading history, and market capitalization can give a clearer view of the growth potential of a particular cryptocurrency and determine whether it has any merit. It is easy to fall into the current hype trap, and it is only normal – many cryptos come and go, but what manages to pass the test of time is a long-term investment.
Take also into account the community supporting the crypto project because it can make or break a potential token investment. Thus, when assessing a virtual token or coin, ensure you know what is what and who is who, mainly when there is real hype around a given cryptocurrency. This hype can surpass or mask a crypto’s actual value or utility, so we recommend carefully analyzing the asset and its community.
Scrutinize the crypto’s white paper
OK, but first, what is a crypto’s white paper? It is the pillar of the project’s proposal, where you will find critical information, from the token’s use to the team’s aim for the project. A token’s white paper is often one of the first things that individuals interested in that token read before making the big move, which makes it a critical tool for assessing a cryptocurrency. It also serves as a road map for the cryptocurrency, helping you determine whether the digital asset has any merit. A well-defined white paper should provide crucial data about the crypto’s future, such as strategies for its usage, expectations on how it is to evolve, as well as the tokenomics of a cryptocurrency.
Is this the first time you have heard about tokenomics? It is not that complicated. Tokenomics involve details about the supply limits of a token and its distribution among investors. There is also information concerning potential burning or minting (creating new coins), which is vital to determine the future of a particular token.
It might sound a bit scary, but at the end of the day, you will see that it is only a matter of perseverance. Once you learn to read a crypto’s white paper, you have done half the job.
Analyze the team behind the project
People are just as important as the project itself, so ensure you also assess the team behind the project. It is your right to know you are investing in something backed by individuals with a clear vision of what they are doing. You would be surprised how many companies out there are only after gains. If this is serious, you should be able to find any details about the team on the crypto’s white paper, including prior projects. It is vital to ensure the key team members have a reputation and are not doing this for the first time. People with experience are more likely to succeed, as they often have partnerships with reputable and trustworthy brands.
Assess the crypto’s market metrics
The most significant market metrics any novice investor should evaluate before investing in crypto are:
Market capitalization
After learning how to buy cryptocurrency, consider verifying that crypto’s market capitalization. This metric is calculated by multiplying the asset’s price by the total number of virtual coins in circulation. Generally, the higher the market capitalization value, the more likely you are to invest in the right thing and gain rewards from it. Super-new cryptos often have a low market cap, so it would be wiser to avoid them, at least until you are sure they are worth it. But lower market caps are not always a red flag; they can equally indicate potential growth. Widely traded and established cryptocurrencies like Bitcoin and Ethereum have a high market cap, but this does not mean it does not fluctuate. As any cryptocurrency is volatile, its market cap is constantly changing.
Trading history and volume
Assessing a cryptocurrency’s daily, weekly, monthly, and yearly trading history will help you have a clearer idea of its price movements and determine whether it has a growing or falling tendency. Then, you may want to look at its trading volume. A low trading volume indicates a low investor trust in the asset, whereas a high volume like the ETH one signifies an increased interest in the coin, which will result in price stability and more liquidity.
Supply
Did you know that most virtual coins are limited in number? Some cryptos are also burned or held by long-term investors, so it is hard to identify a particular token’s exact supply. Bitcoin, for example, has an 18.8 million supply, of which about 3.7 million are enduringly taken off the supply (Satoshi Nakamoto alone holds 1.1 million bitcoins). Ethereum, instead, has an unlimited supply, meaning hundreds of billions of ethers in circulation.
The supply metric is a crucial indicator of a cryptocurrency’s potential and scarcity, so if you want to take your investing adventure to the next level, it would be best to master it. With lots of patience and thorough research, there is no chance of failing.
