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While cryptographic markets have followed a bearish trend in recent months, the interest in cryptocurrency is still high. Every day, new investors are making the jump into cryptic assets. As the market continues to stabilize, cryptocurrency investments will only increase.
When investing in digital assets such as cryptocurrencies, it is important to follow a rigorous strategy and focus on understanding the key factors in the value of a currency.
Crypto vs Stock
While many equate to cryptocurrencies of stocks or bonds, they are actually different types of animals.
More experienced investors know how to evaluate a security based on standard parameters such as price / earnings ratio, net debt or beta. But these types of metrics do not exist in the cryptic world.
So what do cryptographic look at when they choose an investment? The 5 main things are:
- The commercial proposal. What need fills? Is it destroying an industry or solving a problem?
- Total and circulating supply. The maximum amount of coins that can be mined and the total amount that has been extracted so far.
- Price history How long has currency been available on trade and what did the price make?
- Developer activity Does the currency have an active developer community behind it?
- Community activities Does the currency have a passionate and active community of supporters?
Understanding Cryptocurrency
Before considering an investment in cryptography, it is essential to have a good understanding of what they are investing in. This is the error n. 1 that the newcomers have committed to crypto.
Most encrypted investors know very little about the technology behind it. They are simply speculating on price action and clamor, which is a terrible way to invest.
Learn the basics
Check out the blockchain first. This is the technology behind every encryption project.
After understanding how the blockchain works, look for a good guide on cryptocurrency. A search on Google will show several great resources.
Is the coin a security token or utility token? There is a huge difference between the two. Is the coin extracted using Job Proof or Punch Proof? This is another important factor to consider.
After learning all about the internal functioning of the blockchain and the function of the cryptocurrency, it is time to examine the investment criteria.
1. The commercial proposal
Cryptographic projects are like any other company or startup. Good businesses solve big problems and satisfy needs. The same is true for Crypto startups. Are they solving a problem?
When investing in the long term, it is important to evaluate the team behind the project, their mission, the plan to accomplish that mission and their general enthusiasm. Focus on prospects with real value and stay away from questionable projects with shady founders.
This is also a good time to examine the function of the cryptocurrency they are selling. Is it a security token? This means that anyone who owns a coin also owns a piece of the company, just like a warehouse. Or is it a utility token? These types of tokens are redeemed for blockchain services.
Considering the commercial proposal of the project will prevent investors from succumbing to hype or "fomo".
2. Total and circulating supply
The total offer of a currency represents the maximum amount of coins that can be extracted or entered into the market, while the current offering represents the current amount of coins in the market. Since most of the coins are mined, or a percentage of them is held by the founders, there is usually a difference between the two figures.
These figures become important when evaluating the value of a cryptographic project. Because of the basic principle of supply and demand, the supply of coins has a great influence on the price of money. For example, the Ripple current value metrics are:
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- Price: $ 46
- Total supply – 100 billion coins
- Market capitalization: $ 46 billion.
Many argue that such a high amount of coins prevents Ripple from increasing much more. An increase of $ 0.1 would increase the project value by $ 10 billion, which seems unrealistic.
The total Bitcoin offer is only 21 million coins. This is one of the factors that increases its value. Less supply means more demand.
3. Price history
Cryptocurrencies are highly volatile. This is due to speculation, advertising campaigns, pumping and landfill schemes and the lack of regulatory oversight. Looking at the history of the prices of a coin tells a story.
Generally, the cheaper coins with lower market limits are more susceptible to pump and landfill schemes. Investors who recognize it can avoid unnecessary losses.
The price of a currency can also be related to other coin prices, stock market moves or world events. For example, when the price of Bitcoin increases rapidly, most overcoins decrease in price. This is due to the fact that Bitcoin is the primary currency used to trade other altcoins. An increase in the purchase of Bitcoin leads to an increase in the sale of altcoin. This brings the price of Bitcoin up and down.
Another important factor to consider is the number of exchanges in which the currency is currently being traded. Is money available on most major stock exchanges or only on smaller bags? Ads on coins that are added to major trading platforms like Binance can significantly influence the price.
Just like actions, understanding why the price of a currency moves up and down is the key to assessing its long-term value.
4. Developer activity
Strong projects have a high level of development activity. If the activity is low or decreasing, this is a cause for concern. The easiest way to measure this is by viewing the project on GitHub.
All the work done on GitHub is public, as well as the activity metrics of that project. The number of updates it has received, how many observers there are, how many forks have been created and the total stars are great metrics to evaluate the project's activities.
Are the problems identified and bugs fixed? More contributors are entering the project? If developer activity is increasing rapidly, this is a big sign of a strong project.
5. Community activities
A project with a strong community is as important as the activities of the developers. The bigger and more engaging the community, the more precious the currency should be.
One of the easiest ways to measure community size is to check the twitter page of the currency. How many followers does the project have? How much activity is occurring in the account?
Reddit is another good place to check. Reddit has become the zero point for cryptocurrency news, announcements and general conversations about coins. Are there many subreddits related to the project? Are they highly active?
Conclusion
Evaluating cryptocurrencies requires time and effort to do well. It is a brand new industry and its rapid growth has created many opportunities but also many dangers for investors.
Considering the five articles covered in this article when choosing coins, investors can make substantial gains. There are many other metrics that can be evaluated, but the key principle to remember is: Buy in value, not hype.
This article was originally published on Theycallitcrypto and has been republished with permission.
