Long gone are the days when there used to only be one cryptocurrency, the Bitcoin. These days, there’s a variety of altcoins in the cryptocurrency market bringing the total number of coins circulating to around over 5,000 cryptocurrencies. Whether you are a seasoned investor or a first time investor, you need to research the cryptocurrency you are planning to buy carefully before putting in your hard-earned money.
1. Scrutinize the Token’s Whitepaper
A token’s whitepaper is the foundational document that outlines the overview and goals of the cryptocurrency you are looking into buying. White Papers contain information about the tokenomics of the coin, supply limits, how the token is distributed among investors and information regarding minting new coins and token burning. Understanding the whitepaper of your desired crypto will help you know the specifics of the project so that you can make an informed investment.
You can find the whitepaper of the crypto you are looking into in their official website or on cryptocurrency research and analysis platforms like CoinMarketCap, CoinGecko and GitHub. A whitepaper without spelling and grammatical errors is key, and the lack of a whitepaper could signal a red flag for your cryptocurrency project. Studying your intended crypto’s whitepaper and reviewing any updates to it after buying it can help you invest knowing the road map of the token.
2. Perform Test Transactions
Testing transactions with the cryptocurrency you are considering buying allows you to assess the sending and receiving process, and confirm that your wallet is working correctly. It allows you to confirm that transacting with your cryptocurrency will be successful before investing with a significant amount of money. Before you buy bitcoin online use a currency converter for BTC to USD to help you prepare the amount of money you need for your transaction.
You can perform a test transaction for the cryptocurrency you are interested in purchasing on its official testnet. Most trusted cryptocurrencies will have a testing environment where you can practice real transactions without using actual funds. You may opt to install a test wallet that supports your chosen coin for the test transaction to keep your real wallet safe from a mistaken transaction.
3. Verify That the Token’s Project Is Solving a Major Problem
Cryptocurrency projects that uniquely solve a major problem usually have a higher demand and tradable value. Before investing in a cryptocurrency, look for the unique problem the project is solving or the utility it offers in the diverse blockchain ecosystem. Examples of coin utilities can include being a store of value that can be used for your payments or being a secure database for certain information like used vehicle information that is transparent and accessible by all.
You may come across cryptocurrency coins like meme coins that lack a specific utility that they offer but are heavily pushed by social media. Some meme coins like Dogecoin can gain a large following and reward you with lucrative profits if you are a seasoned investor. It’s best that you stick to cryptocurrencies that have a valid utility to lower your risk because many coins that lack a utility are prone to fail at some point.
4. Assess the Team Behind the Project
Researching the team backing up your prospect cryptocurrency can help you determine its reputation and thought leadership in the blockchain ecosystem.The success of a cryptocurrency hinges on the abilities and contributions of its team members. You should try to invest in tokens that have reputable project members that know what they’re doing and were involved in other successful coin launches.
You can find information about the cryptocurrency project’s members in the whitepaper where you also find their goals and how they will achieve them. As opposed to a team with a history of successful projects, a team entirely new to the crypto community may not have the experience to achieve its goals. Apart from the project team, you can also look up the partnerships of your prospect cryptocurrency on its website’s landing page and make sure they are well-known brands and are legitimate.
5. Scrutinize the Cryptocurrency’s Social Media
Most cryptocurrency projects have a social media account on Discord or Twitter that they manage which can give you insight about their community. Strong cryptocurrency projects have active social media where moderators are participating in discussions and promoting news events. You can be able to assess whether your prospect cryptocurrency is valuable by checking if a large community is supporting it.
Additionally, you may do a general search across social media to check for mentions and discussions about your desired cryptocurrency token. You can tell that there will be an investment interest your preferred cryptocurrency is being talked about positively. Based on the context of the conversation, negative comments and remarks from users on your chosen token can be a warning sign.
6. Study the Price History
Studying the price history of your cryptocurrency before buying it can help you make an informed investment when purchasing its coins. Cryptocurrency prices are volatile and can fluctuate quickly in seconds based on a rumor or activities influencing its market. Understanding the price shifts of a cryptocurrency helps you have a solid grasp on its market’s fundamentals enabling you to excite trades rapidly like a sophisticated investor.
You should be on the lookout for cryptocurrencies with exaggerated highs followed by sudden drops because it could be a scam where a coin’s price is inflated for false hype to trick inexperienced investors. Consider observing the price of your cryptocurrency over different time spans to get a broad understanding of its long and short term price trends.
7. Evaluate the Cryptocurrency’s Market Metrics
Analyzing your chosen cryptocurrency’s market metrics like its market capitalization, trading volume and supply metrics can influence you into making a sound buying decision. Investing in a cryptocurrency with a higher market cap can prove to be safer than projects that are new and still have a low market cap.
Cryptocurrencies with high trade volumes signify that a lot of investors are buying and selling that cryptocurrency boosting its liquidity and price stability. The current supply of your selected cryptocurrency indicates the maximum number of its coins that exist. Knowing the potential scarcity of a coin that can affect its price will assist you to make an investment in a cryptocurrency that aligns with your investment goals.
8. Ascertain Legality Issues of the Cryptocurrency
It’s important to review the legal aspects of your intended cryptocurrency and make sure that they do not negatively affect your investment plan. Some cryptocurrencies may be limited to certain regions while others may be banned in some countries which can hinder your investment strategy. Buying initial coin offerings can expose you to coins that are still unregulated in most regions with friendlier rules.
It may be wise to hire a legal advisor to go over the legal aspects of your desired token to save you from analyzing a project’s fine legal details for hours. Following trusted people in the cryptocurrency space will also expose you to the good knowledge and sound advice of experienced individuals that know more about the cryptocurrency ecosystem.
Endnote
Analyzing crypto isn’t a walk in the park, however, timing the markets with the proper knowledge and understanding can help you choose the best time to invest for a better return on investment. Familiarizing yourself with cryptocurrencies and blockchain technology will enable you to be properly equipped to know whether your selected cryptocurrency is worth the investment. Always do your research and refrain from investing in a hyped cryptocurrency without sufficient understanding.
