Investing and trading in crypto can be a very risky and dangerous prospect.
I mean, the primary reason I started this business was because I thought the space was too risky for many and we needed to hear user opinions on the tools and services they use in the space.
With crypto, there's an added risk of you losing your finances if you make a bad decision.
So, to help out we put this guide together on key considerations to identify potential goo dpicks when investing.
Bear in mind this is not financial advice and we would never advice you hold or buy any specific cryptocurrency.
This is merely a due-dilligence checklist for you to run through to make sure you make a wise decision if you want to invest in crypto.
With such a volatile asset class it is important to understand exactly what you are investing in.
There are literally thousands of cryptocurrencies to choose from and new ones are being created every day.
As a start, you need to know how cryptocurrencies actually work and what they could be used for (else this will all basically be gambling). Ehen you know the fundamentals, you have to look at each in more details.
You need to understand the investment case for each trade, including what assets or cash flow back up the currency.
For example, Bitcoin does not have any hard assets or cash flow backing it up; investors rely solely on someone paying more for the asset than they paid for it.
Therefore, understanding what you’re investing in is key when considering a cryptocurrency investment.
Researching the company behind the currency, its history and performance can help you make an informed decision about whether or not this particular investment is right for you.
Here's a few key key elements on what you should be looking into.
First up, we're gonna take a look through the basic analysis steps of the project itself.
These are the key considerations, especially for those looking to invest and hold for long term.
What we're hoping to find are key indicators of long term value.
The white paper and road map are essential components of any crypto project.
A white paper is a document that provides technical information about the concept of the project, helping investors determine whether it has any merit.
It should include details such as...
On the other hand, a road map helps set expectations on how a crypto project plans to grow and evolve with its hopeful success and adoption.
It should provide a general timeline of the development process, including milestones and deadlines for each stage.
Investors should always read through both documents carefully before investing in any crypto project. If there is no clear vision with a white paper and roadmap, then it may be wise to question the future success and value of the project.
Reading through these documents will give investors an understanding of where the value is coming from and what they can expect from the project in terms of growth and development over time.
This will help them make an informed decision when deciding whether or not to invest in a particular coin or token.
The team behind a project is one of the most important factors in determining its success or failure.
If the team is not openly disclosed, that's a red flag and should be taken as a warning sign.
It's important to look at the team's prior experience in the crypto market and other projects they've worked on.
This will give you an idea of their level of expertise and whether they have a solid history developing successful crypto projects.
For example, if the team is made up of people who are all first time founders and who have zero relevant experience (either in Web3 or in digital business growth) the likelihood the project will be successful is slim.
Additionally, it's important to look at the executives of the project team.
Projects with reputable executives or partnerships with established firms are usually more reliable than those without such connections.
These connections can provide valuable insight into how the project is managed and what kind of resources are available to ensure its success.
The community behind a crypto project can be one of the most important factors in determining its success.
A large, enthusiastic community can help to drive up the value of a coin or token and create more interest in the project.
They can also let you know of any issues within he business that could be a red flag.
For example, if the community is complaining about a lack of response from the team, that is not a great sign.
However, it is important to remember that hype and enthusiasm can sometimes mask a project's actual utility or value, so it is important to do your research before investing in any coin or token.
It can be difficult to assess the true value of a crypto project based on its community alone, as there are often conflicting opinions and perspectives.
I recommend just using the community as a general barometer for excitement and the projects attitude to their users.
Coupled with the other steps listed here, you should be able to make a more informed decision.
Tokenomics is the study of how a token or coin works within its ecosystem.
It looks at the economics of the project, such as how it is funded, how it will be used, and what incentives are in place to ensure its success.
By understanding the tokenomics of a project, investors can get an idea of how much value they can expect from their investment over time.
For example, if a project has a low circulating supply and high demand for its tokens, then it may be worth investing in as there is potential for growth.
On the other hand, if a project has an extremely high circulating supply and no real use case for its tokens, then it may not be worth investing in as there is little chance.
read through the tokenomics breakdown and, if it all sounds either too good to be true or feels a little fishy, ask yourself if you'd be comfortable investing in this.
In addition to the actual core mechanics of the currency, you're going to want to look at how people are engaging with it.
You can use a good crypto research tool to help you look through these, but here's a basic few options of what to look for.
Market capitalization is an important metric to consider when investing in cryptocurrencies.
It is calculated by multiplying the price of the cryptocurrency with the number of coins in circulation and gives a clearer picture about the growth potential of a crypto asset.
Generally, higher market caps are seen as safer investments, though this isn't always the case with crypto. Lower market cap coins have more tendency to grow than those with larger, more established market caps.
Investors might also want to pay attention to other factors such as liquidity, trading volume, and technology before making any investment decisions.
Trading volume is a measure of how easily a crypto asset can be bought or sold, and usually the higher the trading volume, the more liquid the market for that particular coin or token will be.
Low trading volumes can be a red flag as it may indicate that a project has been abandoned, lacks real-world use-case, or there are other serious concerns with the project.
However, experts say that trading volume should not play as big of a role in decision-making for long-term investors who are betting on value growth over time rather than the ability to trade for a profit in the short-term.
This is because measuring trading volume in crypto is more difficult than it is in traditional markets such as stocks, where every single trade is recorded and regulated by Nasdaq.
By taking a look at the daily, weekly, monthly, and yearly trading history, you can get a high-level overview of the price and performance of the project.
This can help identify any potential trends that may be present in the data.
For example, if there is a steady increase over longer periods of time, this could be seen as a positive sign for the crypto’s long-term potential.
It is also important to note that trading history does not always provide an accurate picture of how well a crypto project is doing.
Factors such as market sentiment and news events can have an impact on prices and should be taken into account when analyzing trading history.
It is important to remember that past performance does not guarantee future results.
Circulating supply refers to the number of coins or tokens that are currently in circulation on the market.
Total supply is the total number of coins or tokens that have been created, but this does not include any coins or tokens that have been burned or destroyed.
Max supply is the maximum amount of coins that will ever exist for a particular cryptocurrency. Depending on the coin, max supply can be fixed or infinite.
Consider all three types of supply when evaluating a crypto project as they can provide insight into how much demand there is for a particular coin and how much potential upside there may be if more people start buying it.
For example, if a coin has a low circulating and total supply but an infinite max supply, then it could indicate that there is still room for growth in terms of demand and price appreciation.
On the other hand, if a coin has a high circulating and total supply but a fixed max supply, then it could indicate that demand may already be saturated and further price appreciation may be limited.
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