It is not easy to choose among some 6,000 cryptocurrencies currently existing in the market. Most of them do not have a high trading volume or following. While some are immensely popular others are perfect unknowns to most industry followers.
So how do choose the right one, where to be guided, and what criteria to follow when evaluating crypto? More so when the investor is a neophyte in the matter. Below we will try to explain each of these questions and how to learn to choose the best cryptocurrency for investing step by step.
1. Exchange Platforms
It is necessary to verify if the crypto you like the most, is exposed in a cryptocurrency exchange that enjoys a good reputation. Exchanges are platforms or websites where you can buy, sell or make exchanges of cryptocurrencies for other cryptos or for traditional currencies (dollars, euros, pounds). It is known that the main exchanges have very strict policies to accept a cryptocurrency. So if the cryptocurrency is not listed on a reputable Exchange, it is best to better analyze why it is not there.
Another important data is the trading volume of the cryptocurrency. This value indicates the activity of a given market and the total value of cryptocurrencies traded during a certain period of time. Usually, it is 24 hours in cryptocurrency exchanges. When the volume is high, it means that there is a high demand for digital coins. It means that the market is liquid and there are enough buyers and sellers willing to fill orders. When there is higher demand and this causes a rise – or conversely a fall – in the price of the cryptoasset (panic selling), the stampede is smoother compared to a low-volume market. A market with low demand and volume is an indication that it has difficulty buying or selling cryptocurrencies at competitive prices.
It is a very important factor to evaluate the purchase of crypto, but it should never be the main element to decide. There are very popular or trending coins whose price is very high. Either because it has a good run or because it is trending. While some currencies with low prices could hold huge growth potential. Because it is a poorly regulated industry so far, it lends itself to price manipulation. One of the most commonly used schemes to artificially inflate the price of crypto is pump and dump. By boosting the price of the crypto asset it creates a buying frenzy, almost always based on false rumors. It then pulls the price down causing a dizzying drop. The advice then is to avoid volatile cryptocurrencies, whose price rises and falls suddenly. In case you suspect that the coin you are looking for lends itself to this manipulation. do some more research. Otherwise, trust your instinct and let it fall to where you think it has an optimal entry or purchase price.
Different cryptocurrency projects set a different maximum supply from each other. There is shown what is the total amount of coins that will be issued. Such information is published on aggregators or crypto data providers (CoinMarketCap, for example) and can be easily verified. Moreover, these platforms provide the user with various exchange data related to trading volume, market capitalization, and historical crypto prices. The supply has an impact on the value of a given coin. Of course, cryptocurrencies that have a limited supply will tend to be scarcer. According to the law of supply and demand, when there is a situation of high demand and low supply, the price of the asset goes up. When the opposite occurs, the value of unlimited assets will probably decrease.
5. Market capitalization
It is a financial variant that helps to establish the strength of a given currency and to rank it. Market capitalization indicates the total value of all mined currencies. This value is calculated by multiplying the total number of coins available by their current price. Using this method, the size, popularity, and performance of a cryptocurrency are
calculated. Although, market capitalization does not equate to the amount of money a cryptocurrency can move at any given time. For example, if a cryptocurrency has 2,000,000 units circulating and each has a price of $10, its market capitalization is $20,000. Digital currencies with a larger market capitalization can be a stable investment, as opposed to those with a smaller market capitalization. In contrast, cryptos with much smaller market capitalizations are subject to greater market risk. So just as it is possible to make large gains, it is also possible to suffer large losses.
6. Learn about crypto technology
In addition to the above fundamental metrics to evaluate the potential of cryptocurrency, it is convenient to learn about the industry. No one wants to invest in a business they don’t know about right? It is important to study everything related to blockchain and cryptocurrencies very well. Know how they work and how valuable they could be. Also, read about particular projects that interest you and those that analysts recommend. The more you learn about the industry, the more likely you are to succeed in making decisions.
7. Project feasibility
The cryptocurrency project is important to read. Only in this way is it possible to become familiar with the purpose of the currency. What is it trying to change or innovate? Does it solve or plan to solve any real problem related to the industry?. All these questions are contained in the coin’s technical document. But, you should also be aware that there are many pirate projects and coins that only seek to scam novice and unwary investors. If you see a project with no practical use or too complicated to explain, it is surely another scam. It is better to avoid it in order not to lose your investment.
8. The team and the roadmap
Another important point is the team of people who endorse the crypto. This is a first-order factor to consider. Because if there are industry and finance figures with a reputation to look after involved the project is sure to be solid. The experience and knowledge of these personalities put at the service of the project, guarantee its seriousness and viability. Projects led by inexperienced people are more likely to fail to mature. In spite of their good intentions. On the other hand, there is the roadmap of the cryptocurrency. The degree of development of the project and its future plans must be evaluated. The objectives in the short and long term and the goals to be achieved. This indicator will reveal how realistic the business strategy is and whether it is able to deliver on its promises.
9. The competence and uniqueness of the project
Understanding the general market where the currency project operates is basic as well. Your competitors and what are their comparative and competitive advantages with respect to other currencies. Apart from the external factors that may impact the development and success of the crypto, there is the uniqueness of the coin. Standing out among thousands of cryptocurrencies that have already been launched is not easy. Keep in mind also that more are appearing every day with greater possibilities than the current ones. Those niche projects that are the pioneers in a certain cryptocurrency category harbor great potential. Therefore, if you bet earlier on their development, the rewards could be greater. It is always a good idea to diversify your crypto investment portfolio.
10. Community of followers
Last but not least, there is the community that contributes to supporting the cryptocurrency you are looking for. Check out their activity on platforms and social media. How many are there, what do they think? The community and its fan base are vital to the success of any cryptocurrency project. They are in charge of defending the project, showing its face, generating trust in difficult moments, and helping it to improve. Always remember when making an investment in cryptoassets or stocks that you should only invest what you are willing to lose. Nobody invests thinking about losing, but you must be clear about the risk. Even more so in a market as volatile as cryptocurrencies. With these 10 keys to choose the best cryptocurrency in which to invest, you will be safer. Do not rely on the luck factor. Better study your investment very well first so that you make rational and not adventurous decisions. Then follow up on your investment without checking every 40 minutes the price of the cryptocurrency. Congratulations!