When you think of buying a smartphone, you probably picture Apple. When it comes to cryptocurrency, you probably think of Bitcoin. It’s almost like your version of the official cryptocurrency in terms of market capitalisation. However, you’ll be glad to know that Bitcoin isn’t the only currency in the market. Cryptocurrencies such as Bitcoin Cash, Cardano, Dash Ripple, Ethereum, and Polkadot to name a few have been making quite the wave in the market.
Of course, there are some cryptocurrencies that promise you an avalanche of wealth. But how do you realize which one’s for real and which one’s a bluff? There are way and means that you should follow before you go ahead and create your personal crypto-index for diversification purposes. Here are a few parameters that you have to apply before investing in cryptocurrency.
Overall supply as well as circulation
The total circulation and market capitalisation of a certain cryptocurrency is of utmost significance. Supply indicates the maximum number of coins that usually enters the market. On the other hand, circulation indicates how many coins are generally available.
Suppose a coin is finite, that is, the supply isn’t limited. Based on the theory of demand and supply, when something isn’t scarce, it doesn’t command a good process as long as the demand isn’t equally good. For example, Bitcoin has an overall supply limited to 21 million coins. That is the number of coins you’re able to mine in a lifetime.
Look at how the prices are moving
Another factor you must take into account before investing in cryptocurrency is its price movement for day one. That’ll let you know a lot about the coin. For example, think about Dogecoin. What started out as a joke or a meme is now experiencing a vertical climb in its price, courtesy of the IRL Tony Stark, Mr. Elon Musk.
Only time will tell if Dogecoin ends up as one of those pump and dump coins or becomes mainstream like Bitcoin. It is, however, advisable that you don’t invest in a coin that started out as a meme. You can go for it only if your risk profile allows. However, make sure that you’re not falling for such coins because of some influencer you came across on Instagram.
Who is the creator of the cryptocurrency that you’re choosing for investment purposes? This is an important question that you must ask yourself before taking the next step. Any company’s success is dependent on how good its CEO is and how good a leader they are. The same goes for cryptocurrency. You must know the people working behind the curtains as well as their vision. Check out if these people have invested in their own cryptocurrency or not.
What makes a cryptocurrency successful is the number of followers it has garnered since day one. It goes without saying that only those cryptocurrencies that have a pretty huge following should be the one you’re choosing. Check out their following from other sources as well such as YouTube, Telegram, Reddit, and Twitter to name a few. The bigger the community of a cryptocurrency, the larger its value.
The White Paper
All Initial Coin Offerings aka ICOs need a white paper in order to have a successful promotion. It defines the coin’s purpose, its technology and working methodology, and most importantly its overall vision. The white paper details out the fundamentals of the cryptocurrency for evaluation purposes.
In other words, never invest before you have read the paper. Once you’re well-versed with the paper, you’ll have a better understanding of which cryptocurrency to choose. The white paper usually details the plans, vision, circulation, and supply (to name a few) of the cryptocurrency.
To know which cryptocurrency has the edge against its competitors you must have an understanding of its underlying technology. For example, in the case of Ethereum you will find that it has plenty of use cases like the smart contracts. These smart contracts are meant for banking and finance for hastening transactions as well as predicting markets.
In other words, Ethereum is a lot more than just cryptocurrency and conducts other kinds of transactions as well. These disruptive technologies constitute the biggest cryptocurrencies of today. Additionally, it can pose a threat as well since a better solution can be developed anytime which will replace it. What needs to be done, therefore, is a constant monitoring of these technologies.
For choosing a good cryptocurrency, it’s not enough to understand economics. You must also understand Tokenomics or Token Economics which explains the overall functioning of cryptocurrencies. Tokenomics provides an understanding of how to distribute and use tokens along with the quality of tokens and what factors impact its value. Make sure that you have studied them carefully before making a move towards investment.