The number of cryptocurrencies in circulation is simply staggering, and new coins are being added to their ranks daily. Would-be investors might rightly feel daunted when they start to survey the coin landscape before them.
How do you even begin to evaluate cryptocurrencies?
How do you tell the difference between a legitimate coin and a con?
The good news is that those armed with the right questions and prepared to think critically can walk into the crypto marketplace with confidence.
Here are some pointers to help you on your way.
1. Learn about the coin
It may seem self-evident, but taking the time to learn about a coin is essential to making a sound crypto investment. In a world where almost anyone with a spare 10 minutes and an internet connection can develop and launch a new cryptocurrency, potential investors must quickly learn to distinguish legitimate coins from those destined to fail.
The primary question to ask when considering a cryptocurrency is this:
What is the coin's value proposition?
Cryptocurrencies worthy of your attention are those that have a clear use and purpose; coins that meet a real need in the marketplace.
A coin's white paper is a great place to start learning about a given cryptocurrency. These documents essentially serve as a cryptocurrency prospectus. They outline a coin's reason for being; it's goals and the steps it will take to meet them. Although they may appear an intimidating read, with a bit of time and some help from Google and other online forums, you'll soon be on your way.
2. Do due diligence on the team
Look into the team behind a coin's development, launch and promotion.
Asking these questions will help you gain a better understanding of a cryptocurrency's credibility:
- Who are the coin's founders, technical team, developers and marketers? Are their identities public and are they easily accessible? What are their reputations, track records and experience?
- Who is backing the coin's development, launch and promotion? What partnerships are involved (if any)?
- What is the company's history and vision?
3. Probe into price
Considered with other evaluation angles, looking into a coin's price and market trends can provide insights into how well it is regarded by the wider marketplace.
- What is the coin's market cap? Calculated by multiplying the number of a cryptocurrency's coins by its rate of exchange, this measure can provide useful information about how the market values a given coin.
- What is the coin's price and trading history? How do these compare with those of the broader market?
- Does the coin's price correlate with actual events that increase or decrease its value? Or are price fluctuations and trajectories fuelled by hype?
- Are the people buying or selling the coin natural users, or speculators? Are people trading goods and services on a platform, or are they trading into and out of the cryptocurrency only?
4. Consider the coin's community
Taking the time to consider the make-up and activity of a coin's community and following can help interested investors determine legitimate cryptocurrency options from the rest.
Do people whose opinions matter believe in the coin?
- Who are the coin's strongest advocates and what do they have to say?
- Who are the coin's strongest critics and what do they have to say?
- What do respected forums and cryptocurrency industry leaders have to say about the coin?
- Is there genuine, grounded momentum building around the coin on social media?
Choosing well, choosing wisely
As with any purchase or investment, the decision to enter the cryptocurrency market is not one that should be taken lightly.
However, with the right research -- and a pinch of enthusiasm thrown in for good measure, investors will be well placed to make smart and considered cryptocurrency choices.