Asa beginner in the world of crypto, you might sometimes wonder what makes a coin a good possible investment or a bad one. If you relate to this, you’re in the right place, because the Crypto Fundamentals series is made specifically to answer questions like these.
Generally, investment and trading allow the trader or investor to exchange a certain amount of risk for a higher financial reward. The right knowledge informs an investor’s decision on what to incorporate in their portfolio. With over 12,000 cryptocurrencies, and the market still growing at an astonishing rate, investors need to be selective. Not all coins are worth your time and your money. Therefore, the decision to trade in any coin may require you to understand how you can go picking and analyzing altcoins.
What Are Altcoins?
The concept “altcoins” sounds like new jargon, right? An altcoin is simply a portmanteau of “alternative” and “coin” to form “altcoin”. Altcoins, thus, refer to alternatives to bitcoins, or in other words, a cryptocurrency that is not bitcoin.
Why an alternative to bitcoin?
Well, Bitcoin was the first coin established in cryptocurrency and to be minted on the blockchain. For that reason, other coins established after bitcoins were known as altcoins. It is necessary to mention that since the establishment of bitcoins thousands of altcoins have also been created and entered the crypto ecosystem. In 2021, there were almost 1000 new coins getting into the market every month.
All coins are not equal. Some cost thousands of dollars per coin while others cost pennies. Still, some are long-term investments while others are simply a flash in the pan. Because of these and many other characteristics of altcoins, an investor must shoulder the responsibility of understanding how they can choose the best altcoins from tens of thousands of the available ones.
Conduct an Evaluation
Before picking any altcoin, it is crucial to evaluate all the available information on the particular coin. First, you need to understand the use cases of cryptocurrency, its network, and the team behind the project.
When analyzing altcoins, you must set it as your goal to understand the valuation of a given altcoin. Here, you must ask yourself whether an altcoin is overvalued or undervalued. Elite investors guide that overvalued assets should be avoided while the undervalued are more ideal. The rationale behind this perception is that in most cases overvalued assets are likely to underperform and go back to their actual value. Conversely, undervalued assets have higher potential for growth and consistent profit.
Tips for a Successful Evaluation
You can conduct a successful evaluation through:
- Analyzing the whitepaper
A white paper is a marketing tool used to persuade or influence decision-making in the business arena. Scrutiny of token’s whitepaper provides a lot of relevant information including the team’s vision for the project, use cases, and goals. In other words, the whitepaper paints a clear picture of how a given altcoin will provide value for its users or the value proposition.
- Analysis of demand and supply
Now that you already know how a chosen altcoin adds value to its users, the next aspect you need to navigate is demand and supply.
Typically, the altcoin should have incentives that enhance the increase of demand in a manager that supply is continually decreasing or stable. Remember that when demand exceeds supply, the prices go up and even fuel more demand.
- Assessment of the team and stakeholders involved in the project.
Information about the team and stakeholders behind the project can be found on the project’s whitepaper. Other than the whitepaper, it is vital that you also conduct independent research on them. For instance, you can check out their official project site’s team page. Other avenues include checking their Linkedin profiles that may be available to the public, checking out their social media profiles or conversations they engage in, and reliance on on-chain analytics platforms as well as blockchain.
When conducting your personal research you need to ask yourself questions such as; what are their credentials? What are their reputation in the crypto community and blockchain ecosystem? What projects have they engaged in in the past? Were the projects successful?
The bottom line:
If you are investing in cryptocurrencies and have taken your time to understand them, you have done the right thing in mitigating the risks. However, if you are just casting money into cryptocurrencies without researching and understanding how different altcoins operate, then you are simply gambling.
The universal law of crypto is that those who understand cryptocurrencies are financially rewarded while those who lack understanding of their investment are financially punished.
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Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial and fiscal circumstances.
Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
