The presence of thousands of cryptocurrencies on the market today has left many crypto investors struggling to decide which token to invest in. The root problem is that many crypto investors may not know what to look out for during the decision-making process. Hence, to make better investment decisions as a crypto investor, you must be familiar with some factors that help to predict the stability of a token. To simplify this process, we’ve created a guide to teach you how to choose the right coin as a crypto investor.
Factors to consider when deciding the cryptocurrency to invest in
Before you begin your journey as a cryptocurrency investor, ensure that you consider these few factors:
1. Market capitalization
One major factor to consider before you decide to invest in a crypto token is market capitalization. Always check the current market capitalization of the different cryptocurrencies available. The market cap will not just show which tokens are rated the highest currently but also show you the curve of their value.
Coins are generally put into different categories depending on their total market cap. This makes the comparison of digital tokens even easier. Here are four categories that are generally used:
- Large cap: > 5bn
- Mid cap: 1-5bn
- Small cap: 500mn-1bn
- Micro cap: < 500mn
Generally, the higher the total market cap, the lower the volatility of the coin over time. Also, the higher the total market cap, the higher the liquidity of the coin, which makes it possible to easily enter and exit trading positions anytime you want. The lower the total market cap, the higher the overall risk-reward ratio.
Although crypto investments are generally not safe, it will be wise to choose a coin amongst the top 10 coins listed in the market cap. This means you are investing in a well-vetted crypto project with a respected team and supported by prestigious venture capital companies.
2. White papers
One key step in your journey to understand how to choose the right coin is to go through its white papers. For starters, it is important to ensure that whatever cryptocurrency you want to invest in has a white paper. Essentially, a white paper is a document that provides in-depth details about a token, its utilities, and its intents, as well as the technology supporting it. This document will guarantee the legitimacy of the token and provide you with important information about the coin. Generally, it’s critical to be aware of the legality of the coins in the crypto market.
3. Supply of coins
Always check whether or not there is a little supply of any coin you choose to invest in. You have to find out how many tokens are already in public circulation and how many more it’s possible for users to mine. Generally, the supply is likely to affect the price of the token in the long run.
Bitcoin is an excellent example as it just has a limited number of coins. However, as more people invest in Bitcoin, the higher the demand becomes, as the supply is generally limited. Years from now, there will be no more Bitcoin tokens to mine, and if the demand for it is still high, it will reflect in the value.
4. Price performance
Whether you are looking to invest over the short term or long term, you should analyze the coin’s past price actions and profits. This can be done by checking the tokens that acquired the highest gains over a specific period, maybe from six months to just a few years.
However, this technique can only work if there is a plausible conviction that the upward trend will persist, as past performance generally doesn’t assure future returns.
5. Utility
One of the most important factors that reflects a cryptocurrency’s true value is its utility. Generally, in a coin’s white paper, you will be able to see its use cases, as this is a crucial factor for attracting both investors and users.
Generally, if a coin’s use cases are declining, the value will also decline. Be acquainted with which use cases that have good potential and the ones that are already well-represented in the crypto market. Also, you must be aware of new regulations that may affect the likelihood of the use cases for different cryptocurrencies.
Steps to take to increase your chances of finding the best cryptocurrency to invest in
Here are the steps to take if you want to increase your chances of finding the best cryptocurrency to invest in:
1. Do your own research
When investing in crypto, the basic principle is to always do your own research. Doing your own research improves your chances in your journey to find how to choose the right coin to invest in. Before you start investing, you have to do some basic research on the project, its team and founders, its use case, its token economics, as well as the underlying technology. Doing due diligence will ensure that you don’t fall into the wrong hands.
2. Focus on long-term opportunities
Another strategy to consider when attempting to decide which digital coin to invest in is to concentrate more on long-term investment opportunities. Basically, this approach involves finding and investing in coins with long-term prospects.
The coin you choose should have strong fundamentals, a clear use case, as well as a tangible development team. By investing in projects with these qualities, you may profit from constant and continuous growth over time.
Learn more here – The important differences between trading and investing
3. Combination of methods
A responsible crypto investor knows that every strategy has its advantages and disadvantages and will therefore try to combine all of the best approaches to make the most reasonable and qualified investment decision.
The best investors will do an in-depth analysis of the digital coin and project, making use of the factors we listed in this article. Before investing in a coin, analyze it and its intent from all angles.
Investing in cryptocurrencies can be very overwhelming, especially with the numerous options available. Nonetheless, you should take time to do thorough research and have a basic understanding of the factors that influence a coin’s value.
Your duty is to research and select the right cryptocurrency and even if it means employing the services of an experienced crypto investor, do just that. In fact, we recommend that you don’t make the decision on your own as crypto is a very risky venture. Lastly, cryptocurrencies are very volatile so nothing’s guaranteed. Keep an open mind in case you encounter loss in your journey.
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