Many retail and institutional investors are including cryptocurrencies (crypto) in their portfolios. Investors in Bitcoin, Dogecoin, and Shiba Inu have become billionaires overnight. Everyone wants to climb aboard the crypto gravy train.
But, most analysts and governments caution people about the volatility and unpredictability of crypto. It is crucial for investors to not get caught up in the hype but do their homework before putting their hard-earned money in crypto.
There are thousands of cryptocurrencies to choose from, and it is not always easy to separate the gems from the duds. So, on what basis should an investor decide whether a particular cryptocurrency is worth investing in? Let us look at some key indicators.
Check out the website and read the white paper
Visit the crypto’s website. Is it professionally made and functional, and does it offer information transparently? Or is it shoddy, with spelling and grammatical errors, and full of fluff? If the latter is the case, then that is a red flag.
Read the project’s white paper. While it may be technical in parts, it should spell out the coin’s utility, prospects, and underlying tech. Decide whether the project’s stated goals are realistic.
Cardano is a cryptocurrency network with a polished website containing very detailed technical documentation and a well thought out roadmap. It is clear that this team is competent, knows what it is doing, and has a credible plan for realising its goals.
Assess the team behind the project
The calibre and experience of the team behind the crypto are significant factors. Are you investing in a coin backed by experts? A credible team will include well-known and knowledgeable people from the crypto field. But be careful of cryptos that tout celebrity endorsements – they are more likely to be fake.
Before investing, make sure that the team has a good reputation and a track record of past success.
Look at the Polkadot project. The Web3 Foundation is a backer, and one of its founders was earlier the CTO of Ethereum. This kind of intellectual horsepower gives investors a warm, fuzzy feeling.
Does the crypto have good use cases/functions?
A cryptocurrency should provide a clear set of functions to solve a specific problem. As a potential investor, check if the crypto offers some unique value or merely replicates another existing crypto. Are the crypto’s use cases practical and attainable in a reasonable time? A coin that has no clear-cut functionality is unlikely to become valuable.
Monero is an example of a cryptocurrency that has a unique use case. It takes privacy seriously and makes its transactions harder to trace than other cryptos by providing ring signatures and stealth addresses. This provides users with more privacy.
Check to see how easy it is to buy the coin. Is it available on the major crypto exchanges? Can you pay for the crypto purchase with a credit or debit card or a bank transfer? If people can acquire it easily, it is likely to scale quickly.
Also, dig into the crypto’s traded volume. A cryptocurrency bought and sold in good numbers is a good bet. You can also look at the price history and satisfy yourself that the coin is trending in the right direction.
The XRP coin from Ripple is among the most heavily traded crypto. It has some unique use cases, having established itself in banking and global payments. For investors, it is worth a closer look.
An engaged community
Look for the cryptocurrency’s followers on social media. You will know if the coin has a large and committed community. The community members’ comments will tell you what people are thinking, which will help guide your decision. An engaged community indicates a thriving cryptocurrency.
The Binance Twitter account has over 7 million followers. Its Reddit community has over 800k members. It is no surprise that BNB usually ranks only behind Bitcoin and Ethereum by market cap.
Check out the competition. Is there another crypto that is superior or already well-established? Then it will find it hard to succeed because the first crypto has an early mover advantage. There can be more than one successful project in the space, provided the challengers have a motivated and capable team with a good strategy and sound technology.
Solana is a coin that, though not the first to market, has distinguished itself by being the fastest network (in terms of transactions per second) and charging the lowest per transaction. No wonder it consistently ranks among the top 10 cryptocurrencies by market cap.
So, should you invest in this cryptocurrency?
Cryptocurrencies are still in their infancy, and many cryptos have the potential to become huge. So, it is imperative to find a crypto project that will stand the test of time.
If you are deliberating investing in a cryptocurrency, first evaluate it according to the criteria given here. If you find that it checks all the boxes, you may have a winner on your hands.
We hope you found these tips handy for making your investment decision. Happy investing!
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only