Cryptocurrency holds the key to an array of innovations, promising to revolutionize a wide range of industries. So far, however, fraudulent and failed projects have flooded the digital asset market.
If you are yet to give up on this nascent asset class, there are important questions to ask, aspects to analyze, and details to scrutinize before you embark on cryptocurrency investing.
Pick coins with a large market capitalization
The easiest way to identify a legitimate digital token is to look at its market capitalization. The more valuable the market value, the more money investors have poured into the token. But in the crypto-verse, a coin’s price can spike overnight due to baseless enthusiasm, so you need to ensure that the market cap has consistently grown over time.
For example, two of the most valuable cryptocurrencies in the market are Bitcoin and Ethereum. Because they have been around the longest, garnering a substantive amount of supporters, Bitcoin’s market cap is now more than $400 billion, and nearly $200 billion for Ethereum.
Understand the Tokenomics
Tokenomics essentially means the economic properties of a token, that is, its distribution, circulation, and total supply. The attractiveness of crypto is the asset can shield your wealth from inflation. The law of supply and demand dictates that with less supply in circulation, the asset will have an easier time preserving its value.
In particular, proponents of Bitcoin argue that because it has a maximum supply of 21 million coins, Bitcoin’s price will not deteriorate due to excessive supply. The easiest comparison is to the dollar. Inflation remains the number one enemy of the greenback since monetary policy, over the years, required more money printing.
Read the white paper
Every crypto project comes with a white paper that explains all the nitty gritty details. Scanning through the paper will help you understand the project’s objectives and the basics of the technology. It should also clearly outline the project’s mission and how the token can solve the problem it’s trying to solve.
If, however, the paper fails to explicitly include all the information above, consider this a red flag. You should also shun projects that only articulate generic statements like “crypto is the future” without having any valid technology to support their venture.
Examine the team
At the core of a token’s success are its founders and developers. In the wake of the crypto market craze, people have started to create their own cryptocurrency in pursuit of a quick profit. While there are legitimate projects out there among the crypto haystack, you need to do research on the development team before investing your money.
One way to gauge the team’s credibility is its professional experience. Do the founders have any previous crypto-related experience? Do the developers have the expertise in the technology? How long have they been involved in the project? You can find the answer to these questions by looking at the team profile on their website or their LinkedIn accounts.
If you can’t find their professional records anywhere, this is another red flag.
The strength of the community’s support
Having a solid team to develop a coin is only half the way; the other half requires a strong supporter base from the community. You must know whether the crypto project has long-term stalwarts or short-term hype. Without being able to attract investors and supporters, the project won’t be able to thrive.
Join the community’s Discord or Telegram channel. From there, you can tell if it’s a vibrant hub of discussion or a wasteland of empty chat rooms sparse of any conversation. You should also find out if the project’s marketing campaign is well-organized and frequently promoted among its community.
Learn the utility
Many opponents of the asset believe cryptocurrencies have no value because they provide no utility. Though the majority of tokens in circulation don’t offer any solution to real-world problems, there are still projects that have the potential to upend many societal aspects.
The most fascinating one is Ethereum’s underlying technologies. With the advent of smart contracts, crypto believer thinks buyers can directly transact with sellers, sidelining the intermediary and middlemen fees. As well, NFTs are stoking the prospect of online digital arts replacing conventional ones.
Overall, investing in cryptocurrency can be a complex process. But by doing your due diligence and carefully evaluating projects, you can make informed decisions that increase your chances of success. If you’re looking for a reliable and secure platform to buy and trade cryptocurrencies, consider using the HiRiBi exchange. With its user-friendly interface, top-notch security features, and extensive range of supported cryptocurrencies, HiRiBi is an excellent choice for crypto enthusiasts of all levels.
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