Some may assume that cryptocurrency is a kind of gambling where you make money betting on red/black like when playing American roulette. Under certain conditions, they are right. Without a proper understanding of the market and evaluation of cryptocurrency, novice investors probably flush their money down the toilet and wait till something pops up.
While there is still no intelligence artificial software, like “Rehoboam” («Westworld», 2016), to predict the future of an asset with absolute certainties, savvy investors have several ways to measure the potential of a cryptocurrency. In this article, we will cover the most important factors to consider when evaluating the potential of a cryptocurrency to invest or trade.
Disclaimer: cryptocurrencies have potential benefits and come with potential risks. The following information is just a precautionary way to help you analyze cryptocurrency. One must not consider it as financial or investment advice.
How to Evaluate Cryptocurrency's Value?
Some may assume that cryptocurrency is a kind of gambling where you make money betting on red/black like when playing…
All-in on the oldest & robust Bitcoin?
The underlying and dominant nature of Bitcoin makes it the best cryptocurrency investment as it would seem at first glance. Indeed, Bitcoin is on track to remain the market leader for years to come. However, many altcoins are expanding their presence and influence, becoming more and more investment-attractive assets. Thus, many of them have climbed more than 400%, while the Bitcoin returns have reached just 70% over 2021.
At the same time, one may raise concerns about altcoins’ long-term viability. Created during the market boom periods, many of them crashed for one reason or another. Some of them have been detected as outright exit scams, defrauding those who do not exercise due diligence on their investments. That is why it is important to understand how to separate the wheat from the chaff.
Factors to look at when evaluating crypto
Any crypto investment initiatives are approached cautiously and are subject to careful scrutiny. Here are several important factors to tell a lot about the value and trajectory of each particular asset.
- Uniqueness and function
Unfortunately, most of the existing crypto projects are copies of other projects and are not unique in their nature and functions. When Bitcoin was launched in 2009, it was the only digital currency to combine decentralization and anonymity. The pristine nature of bitcoin is unique. This explains why Bitcoin remains the most popular. To properly assess the potential of a digital currency, take a critical look at the uniqueness of its features, the new solutions to existing issues, the uniqueness of its technical work, and how it can stand out in the market. Here, the project’s whitepaper may come in handy to examine this kind of information.
- The team behind the project
It is good when the project team is verified and well-known in the industry. But quite often, team members may be unknown in the industry. As such, it is essential to study the listed team members, their experience, and track record to help you predict how far the project can go. Here one can study not only the web page and whitepaper but also look up all available sources of information.
- Media activity and potential investors
The project’s media appearance and the activity of its community show how well the ideas and features of the cryptocurrency are accepted and how far it can spread. With the sparkling interest in the project on behalf of large investors, the chance of success in its further development increases significantly. Make sure to check out the project’s coverage on popular crypto news media and its social networks like Twitter, Facebook, Reddit, or Telegram. At the same time, be aware that some reviews may be biased and activity is fake.
- TokenomicsWonder how and why does the cryptocurrency is implemented into the ecosystem? Look into tokenomics. It represents the structure within which the introduced asset operates. A well-designed cryptocurrency must have the ability to withstand inflationary pressures, must-have utility in its ecosystem, must be fungible, and store value.
- Cryptocurrency indicators
This is one of the most important factors in evaluating the potential of a cryptocurrency, if not the most important one. Here one must seriously consider Market Capitalization, Circulating Supply, and Trading Volume (24h). These metrics provide excellent information to know how far the price can go.
The circulating supply is an important indicator through its multiplication with the price and its division with the market capitalization. Besides, the smaller the size of the circulating supply of a coin, the faster it is for the price to rise or fall when there is a change in the size of its market cap.
Market capitalization is a price of an asset multiplied by the total amount of assets available in the market. Market Capitalization = Circulating Supply × Price. In other words, the price of the cryptocurrency is equal to Market Cap divided by the Circulating supply.
Where to buy?
After doing your personal thorough research on a particular cryptocurrency, the next step is to choose a reputable exchange. The Finscanner team has prepared a set of excellent major exchanges for you to start with:
- Bitcoin.com — an exchange registered in Saint Kitts and Nevis. Here one can trade more than 200 digital assets. As main advantages, the platform highlights that it is secure, fast and that they have dedicated 24/7 support.
- OKEx — a cryptocurrency exchange created in 2014 by Chinese developer Star Xu. It makes it easy to buy, sell, or trade cryptocurrencies by offering over 400 trading pairs, including pairs with fiat. OKEx offers advanced financial services as well as excellent guides for anyone new to crypto. There are investment programs, a referral program, and additional bonuses.
- Binance — a crypto exchange founded in 2017 by Changpeng Zhao and registered in the Cayman Islands. It is the largest cryptocurrency exchange in the world in terms of trading volume, with more than 1.4 million transactions per second. The exchange strictly adheres to US regulations, is compatible with multiple devices, and provides safe and convenient trading.