No one can dispute the importance of cryptocurrencies in today’s financial landscape. What started as a small-scale technology experiment with limited appeal has grown into a sizeable global movement with substantial revenue potential for its investors.
However, investors who are new to the cryptocurrency sector may be intimidated by the market’s sheer scale. Moreover, there are hundreds of cryptocurrencies available, and more are created every month.
What Are Cryptocurrencies?
A cryptocurrency is a form of digital money that uses blockchain technology. Moreover, blockchains are complex networks that are built using math and programming. Unlike fiat money, which is produced by governments and controlled by financial institutions, cryptocurrency is fully decentralized. No nation or authority issues or regulates it.
Cryptocurrencies are classified as coins or tokens. Coins run on their own blockchain. They are also valuable because they are used as money in exchanges. In comparison, tokens are developed on top of an already existing blockchain.
What To Consider When Choosing Coins
Choosing the correct coin for your crypto portfolio can have a major influence on your investments’ profitability. That said, here are some things to keep in mind when choosing a coin for your portfolio. This should guide you in knowing the essential points to consider when finalizing your choices.
- Price History
Cryptocurrencies are extremely suppositional and prone to sudden changes in value. This is the result of speculation and a lack of government monitoring. However, checking the price history of a coin may provide a lot of information about it.
The value of a coin may be related to the value of other coins, stock market movements, or global events. For instance, when the price of Bitcoin rises significantly, most altcoin prices, like the Dogecoin price, fall. This is because Bitcoin is the main currency used to exchange other cryptocurrencies. In short, Bitcoin’s value rises while other cryptocurrencies fall.
Remember, learning why a coin’s price rises and falls, much like stocks, is critical to determining its long-term worth.
- The White Paper
When a new cryptocurrency is introduced, it is frequently supported by a white paper. This paper will explain the coin’s technology, how it operates, and its general objective. The white paper is among the greatest venues to assess a coin’s basics.
A little technical language is to be expected in the white paper. However, don’t let that deter you. It’s a must-read because it’s a gold mine of knowledge about the crypto you’re trying to invest in. The more white papers you review, the more effective you’ll be at spotting long-term investment success.
- Community Activity
The number of people that follow a cryptocurrency is a small element of its profitability. If the community is bigger and more active, the value of the coin rises accordingly. So, keep an eye out for coins with active communities and a devoted following as this indicates that the coin’s backers are sincere in their interests and viewpoints.
If you’re not sure about crypto coins, forums and online communities are also good places to learn about the craze around them so you can choose whether or not you should engage. Then, you’ll discover that many of the more complex and technical topics are often deconstructed and presented simply in these internet forums.
- Developer Activity
Developer activity is critical as it enables you to determine the level of activity among a project’s developer community. Moreover, it allows you to learn the number of bug fixes and enhancements being made to a cryptocurrency system before purchasing it.
Simply expressed, developer activity pertains to the quantifiable coding efforts exerted by individuals working on a project. The majority of aggregators that follow developer activity count the number of commits published to GitHub. This is an open-source site where the majority of developers store the code that forms the architectural underpinnings of their projects.
Furthermore, developer activity is a highly predictive metric. It demonstrates the project’s initiators’ commitment. So, an increase in development activity might indicate an impending release in the future.
- Circulating and Total Supply
Circulating supply is defined as the number of coins publicly accessible and actively traded in the market. Over time, a coin’s circulating supply may rise or fall. A rise is due to the mining process, which creates new coins approximately every 10 minutes. Meanwhile, coin burn events reduce the circulating supply and remove coins from the exchange forever.
The circulating supply shouldn’t be mistaken for the total supply, however. The total supply is intended to determine the total quantity of coins that exist. This also defines the total number of coins that will ever exist, including those produced or made accessible in the future.
These numbers become critical when determining the worth of a cryptocurrency project. Given the fundamental law of supply and demand, these numbers also significantly impact the coin’s price.
Investing in a coin that has recently started with a team that lacks support or is unknown is not recommended. As a rule of thumb, initiatives in existence for at least a year or two are always preferable.
It’s important to note that coins that were active throughout the crypto industry’s downturn in 2018 and 2019 have a higher level of trustworthiness. Those that have weathered the storm and are still running strong are unlikely to be scams.
You also want to ensure that the coins you’ll be investing in will still be around in the next five to ten years. Hence, you should only invest in legitimate cryptocurrencies with a long-term vision that will pay off in the future.
Likewise, look up the coin’s reputation online. Try searching for the currency online or in crypto groups to see what others are saying about it. The bottom line is that if they have a negative reputation, you shouldn’t invest your funds in them.
As with any investment, proper cryptocurrency evaluation requires time and work. Cryptocurrency is still a budding industry, but its quick expansion has provided several possibilities as well as numerous risks for investors.
However, although there are no ‘safe bets’ in the cryptocurrency industry, an investment in coins may provide considerable returns if investors pay attention to the factors outlined here.