The cryptocurrency world is fast-paced. Every other day new cryptocurrency projects are launched. Some of them reach the height of popularity while others go to zero. As a new trader, it is often difficult to figure out which cryptocurrency to invest in. Research is the best way forward here. In this article, we will describe the brief process of researching a new cryptocurrency.
There are multiple methods of launching a new cryptocurrency. These include ICO, IDO, and IEO. You may hear about these events now and then in the crypto world. However, it is important to research the coin before investing in it. Here are some key factors to look for in a new coin.
Table of Contents
Research on Developers:
Cryptocurrency space has its own Mark Zuckerberg and Bill Gates. There are well-known currency developers who become the face of the currency. For instance, Vitalik Buterin is the face of Ethereum Blockchain. He is popular in crypto circles and people respect his opinion. When a developer like Vitalik is behind a project then you know that it has some potential in the long run.
If a coin has a lesser-known team behind its creation then it is important to get to know them first. Research the profiles of developers. See if they have any previous experience in blockchain creation. Moreover, check their activities on social media and other platforms. If anything doesn’t add up or seems fishy then it is better to stay away from their project altogether.
Look through Whitepaper:
Whitepaper provides the road map for a coin’s progress. It contains all the necessary information regarding the concerned coin project. The key here is to read the whitepaper and understand its nitty-gritty. See what problems the project intends to resolve. Moreover, what are the long-term and short terms goals?
Invest in a coin only if its whitepaper is convincing with identifiable milestones and results. It should all your questions. A misleading whitepaper is a sign of a scammy project.
The fundamentals of a coin are very important. They describe the nature of the coin and its future.
Most of the new coins are launched on the pattern of existing coins. These coins promise to solve the problems which existing coins are already solving. Such coins are not much of a competitor. On the other hand, the coins with the ability to solve unique real-world problems are more likely to aging value in the long run.
For instance, the Polkadot blockchain is created to solve the scaling issue of Ethereum Blockchain. Therefore, the DOT coin is considered a good investment.
Watch Out the Token Sale:
The token sale of the coin usually starts with the ICO or Initial Coin Offerings. Often time the price starts surging soon after the sale of the coin. However, you need to research the high and low points of the coin’s price to quantify the worth of your investment.
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Some coins are just created by influencers to make money. They create a false hype for coins so that the number of investors increases. Once the price of the coin reaches their desired value they sell their positions. As a result, the price of the coin never recovers and investors lose their money.
Another thing to watch out for while choosing a coin is its transaction volume. You can check the transaction volume of coins on exchanges like Binance and Kraken.
The transaction volume tells how any coins are being traded on the exchanges on daily basis. High transaction volume means high liquidity i.e you can easily buy/sell coins.
Characteristics of Good Cryptocurrency:
The cryptocurrencies are decentralized and secured on a blockchain. Most of them have a limited supply. In addition, they come with a variety of use cases.
Multiple coins are launched each month. Sometimes, their qualities overlap. Resultantly, it becomes hard for investors to decide which coin is good. Here are some characteristics of a good coin.
The demand for the coin creates its value. Increasing demand brings a surge in value. So a good cryptocurrency has demand in the market. People are willing to buy it. High demand means that the value of the currency will go up in the future.
Bitcoin is a good currency for investment as it has high demand among crypto enthusiasts.
The real-world use case is very important for a currency to be considered valuable. Good crypto coins will uniquely solve real problems. This will attract people from multiple walks of life.
For instance, Ethereum exchange provides the unique opportunity of creating DApps (decentralized apps). This use case makes Ether the second favorite currency for investment after bitcoin.
Conversion and Transfer:
The best crypto coins for investment can be easily converted to other currencies and have ease of transferability. The slow process of transfer is a drawback.
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Investors tend to pick the currency which can be sold quickly. Thus a good crypto coin is one with high liquidity and simple protocols of transfer across territories.
To become a coin’s investor, you need to purchase it. A good crypto coin is easy to acquire. There are three main methods of acquiring a coin.
There are two common ways of bringing coin into your possession:
- Purchasing on Exchange
Mining is a reward structure in which developers get paid for verifying transactions. The mining process gets difficult with time. so if you are entering at a later period after the coin’s launch then there is higher difficulty in acquiring it.
People with no development experience acquire coins from crypto exchanges. The availability on exchanges depends on listing on the coin and people who are willing to sell it.
Community support can take cryptocurrencies a long way. We have seen the coins like Doge surge in value solely based on community support. Moreover, a strong community can also stop a coin from devaluing.
Therefore, having a followers base is a sign of good cryptocurrency.
The trading experts suggest the diversification of portfolios as the single most effective risk management strategy. However, do the necessary research before investing in a new cryptocurrency project. The above-mentioned qualities of good crypto coins make a project successful. Therefore, you can trust a coin with or all of these qualities.