The cryptocurrency marketplace not only lures experienced investors, but also captivates individuals without prior exposure to crypto trading. Bitcoin (BTC) is the pioneer cryptocurrency. It’s paved the way for alternative coins (altcoins) like Ethereum, Dogecoin, and many others. There are over 19,000 cryptocurrencies in circulation. A substantial number of these altcoins do not show a promising outlook. Hence, distinguishing a worthy coin from the rest is critical. This guide offers you seven efficient strategies to assess a cryptocurrency, enabling you to invest with increased assurance.
Assess if the Cryptocurrency Possesses a Functional Use
Not every cryptocurrency holds a practical function. Identify coins that contribute value to the blockchain environment. A prime illustration of this is Ethereum. Many smart contracts, NFT projects, and businesses rely heavily on its technology for their existence, indicating that it should maintain its worth over time. Conversely, Bitcoin is a decentralized digital currency used for transactions and to preserve wealth.
Another category of coins that deserve attention are utility tokens. These tokens fulfill a specific purpose. Take Basic Attention Token (BAT) as an example; advertisers utilize this utility token to pay for ads on the Brave browser, which by default, blocks all ads. Users who view ads can participate in a program that compensates them for their attention in BAT.
In contrast, certain coins exist purely for amusement or as meme coins, often heavily promoted by social media influencers. This doesn’t mean you can’t profit from these coins; it’s just essential to comprehend the risks as many are likely to fail at some point. Nevertheless, if you invest in meme coins, ensure you understand how to do so securely.
Spread Your Assets
A well-rounded BTC to USD investment strategy involves diversifying your assets and not putting all your financial resources into one asset, such as a single cryptocurrency. Instead of banking on the significant rise of one coin, consider spreading your investments across three or four promising coins.
In cryptocurrency, an effective approach could be to follow an 80/20 or 70/30 investment ratio. The larger percentage (80% or 70%) of your investment should be allocated to established cryptocurrencies like Bitcoin and Ethereum. This portion should remain in your possession and only be traded if you thoroughly understand the market dynamics.
The rest of your investment can be directed towards a diversified portfolio of higher-risk cryptocurrencies. These coins show potential, but are yet to establish themselves in the market. The allocation of these riskier investments depends on the number of remaining coins and the likelihood of achieving your investment objectives.
Avoid Enormous Profits that Appear Unbelievably High
Authentic cryptocurrencies do not solicit investments by touting potential profits. Rather, they emphasize their unique technology and mission, not the anticipated value of their tokens. This is typically the most glaring sign of a cryptocurrency being a Ponzi scheme. Generally, the higher the promised returns, the greater the risk. If a coin’s promotional strategy is solely about inflating its worth, it’s best to avoid it.
Be it through cloud mining platforms, investment schemes, or cryptocurrencies lacking a substantial base, no investment can consistently yield high returns without inherent risk or provide guaranteed profits.
Examine Social Media Platforms
Most crypto projects will operate Twitter, Reddit, and Discord channels. Pay attention to the size of their following and the level of engagement in the comments section. Evaluate if the community moderators proactively address queries, promote updates, and engage in dialogues. For instance, if legitimate concerns are being raised in their Discord channel and are either ignored or dismissed with responses such as “you just don’t understand,” it can be seen as a red flag.
It’s crucial to identify and avoid crypto scams prevalent on social media. Steer clear from groups that overly resort to spammy sales techniques. A robust project wouldn’t need to rely on such methods.
Next, conduct a comprehensive search on social media to discover mentions and discussions pertaining to the cryptocurrency. If there’s a significant number of positive conversations about cryptocurrency on social media, it could suggest potential buying pressure and investor interest. Conversely, a majority of negative mentions could serve as a cautionary signal.
Cryptocurrency investing is full of risk and reward if done correctly. It requires a sharp analytical eye and research skills to realize maximum benefit from the volatile markets. With an understanding of the underlying technology driving these opportunities and an idea of what fundamentals to look for, almost anyone can succeed in cryptocurrency investing.