Now that the cryptocurrency market is in decline, many wonder if this is an excellent time to make their first digital asset purchase. There are more than 19,000 cryptocurrencies today, and let’s be honest, not all of them will experience the same explosive success that bitcoin or ether did. How do you choose a cryptocurrency rationally, and what is the right investment strategy?
In this review, MINE.exchange has prepared a list of essential criteria you should pay attention to before buying a cryptocurrency.
Cryptocurrency “White Paper”
The so-called “White Paper” of cryptocurrency is a simplified business plan or roadmap of the project and answers basic questions about the goals, benefits, and strategy. In addition, the “White Paper” gives you an overview of the tokenomics of the coin. Tokenomics includes details about how the token will be distributed to investors, as well as its offering limits. It also provides information about creating new tickets if that is part of the ecosystem. Be prepared for the fact that “White Papers” are replete with technical specifications of blockchain processes. Comparing the “White Papers” of several crypto projects, there is another essential criterion — whether a particular cryptocurrency creates added value for the entire ecosystem of the crypto market. For example, Bitcoin is a decentralized digital currency used for payments and as a store of value. Many intelligent contracts, NFTs, and other cryptocurrencies depend on Ether technology. Stablecoins, in turn, is tied to the value of physical objects. The lack of a publicly available “White Paper” is a worrying sign.
Presentation materials and social media
Every crypto project shows its competitive advantages through different communication channels. These can be social networks, a website, PR materials in the media, digital advertising, or testimonials. Clear and accessible messages, visual design, and user communication — all indicate a serious and professional approach to business. Pay special attention to the study of social networks. It is practically standard for each project to have Twitter, Reddit, or Discord accounts. It is worth paying attention to how “alive” such statements are. Are there discussions, relevant news, and answers to specific questions without “water?” Stay away from groups that have too much spam. Don’t be lazy to read the reviews. A preponderance of negative feedback is a red flag, as is an overabundance of overly optimistic comments. Perhaps this is a dishonest marketing ploy and self-promotion under the guise of “satisfied” users. It’s also important to understand that the site can be informative and made in the trend of design solutions, and advertising is exciting and original. Still, if the public comments on social networks, managers ignore users, or the communication culture is far from the business style, then this is a reason to think twice.
Who is behind the project?
The success or failure of this or that startup depends on its team members. You should pay attention to the success (or failure) stories of individual top managers or the entire working team for launching similar projects. Either they have already gone their certain way and are experts in this field, or they are beginners who are ambitious enough to make others believe in their unique product. Information about cryptocurrency creators should be accessible and transparent and exclude a fraudulent past. The saying “Tell me who your friend is, and I’ll tell you who you are” is also appropriate here. With toxic partners in a portfolio or vice versa, large reputable companies can fluctuate the level of loyalty in one direction or another. Please do not be lazy to do your monitoring in search engines and find information about the project itself and its owners, what media outlets tell about the brand in what context and tone.
Cryptocurrency volatility
To check the market performance of your chosen cryptocurrency, use cryptocurrency aggregators like CoinMarketCap. Pay attention to 3 leading indicators: market capitalization, trading volume, and supply figures.
Capitalization
The market capitalization of a cryptocurrency is calculated by multiplying the cryptocurrency’s price by the total number of coins or tokens in circulation. It is usually safer to invest in cryptocurrencies with a high market capitalization (more than $1 billion), but that is no guarantee of safety. These tokens are also subject to risk. A very recent example is the collapse of the Terra stable coin, whose capitalization was about $18.5 billion; after it fell, it was less than $1 billion. In general, coins in the top 100 are safer investments than those lower on the list.
Deficit
Most cryptocurrencies tend to have a limit, even in the billions. The exception is ETH, which has an unlimited supply. The circulating pool shows how many coins are currently traded or stored in the wallet. This metric can be used to understand the potential scarcity of a currency, which can affect its price in either direction.
Trading volume
This metric shows how many cryptocurrencies have been traded in a given period. High volume means that many investors buy and sell, resulting in more liquidity and price stability. An example of high importance is ETH. In contrast, low transaction volume can lead to significant price fluctuations and inferior liquidity.
Price History
The cryptocurrency market is unstable, so price fluctuations are normal, but generally, there should be dynamic growth over time. Choose to look at several different periods, including history from its inception. This will allow you to view long-term and short-term price trends broadly. Suppose the line resembles a heartbeat with spikes in the form of ups and downs. In that case, it could be indicative of fraudulent manipulation where the price of a currency is artificially inflated. A token that rises to a peak due to trends, viral and hype promotions, then sells off sharply afterward, forming a roller coaster sequence.
The material was prepared by the team of MINE.exchange, the best electronic currency exchange service. Everything changes for the better!
