The idea of investment differs between a professional view and an enthusiastic effort. In this article, we will be seeing how these differences occur, and how to pinpoint and shape them for your own vision. So let’s see how to determine what good and bad investments entail.
The Risk
First of all, there are more than ten thousand different crypto assets out there right now, and the number of cryptocurrencies known to the average person is no more than a few, in the other hand, an active crypto investor can be familiar with several dozen names of cryptocurrencies. What about the rest of the people?
Let’s start with low-capitalized tokens. These are the coins with markets operated under $1 billion and have one major advantage, as well as an equally major disadvantage. This advantage, of course, is the expectation of growth. To visualize, the largest cryptocurrencies such as BTC or ETH can be expected to grow by 3 or 5, up to 10 times per year, while the mentioned altcoins can be expected to grow by x100 or more per year. The trick here is the ability to choose, and after you manage to invest in the right asset on time, the value you have invested can be multiplied many times over.
The disadvantage is the risks that may occur. For example, cryptocurrencies such as BTC or BNB are relatively reliable (as much as the maximum rate at which a cryptocurrency can provide trust). But with small altcoins, things go quite differently. These altcoins can collapse forever at any time, and investors may lose the investments they have made. This is why they are called frauds.
To avoid them, you should be asking some preliminary questions:
– Are they assets highly vulnerable to pumps and discharges?
Check the 3mo recent history and see if there are sudden rises and falls. If there are lots of movements, it may tell the coin is probably controlled by bots, which are basically automated buy/sell market operations, and it’s very difficult to foresee what will happen with them.
– Can a significant part of an asset be stored in more than one wallet?
So to say, redistribution, the more users the better, which also has implications regarding the coin’s lifetime.
– Does it have low liquidity?
If yes, this means it’s a risk because a non-volatile coin only serves a few investors and can bring you nothing in the future. Liquidity is the rate at which any economic asset can be converted into money at any time without causing any damage or loss.
The Move
Cryptocurrency markets can be considered pretty unstable. Although some people make a lot of money, some also lose a lot. Never invest an amount you can’t afford to lose, and never invest in a sense of revenge, this often causes loss of money.
Well, a safe investment can also be a good investment, but it is not always that a good investment is also a safe investment.
You have to take risks for a good investment, but there are ways where you can pull that risk to a minimum possible.
You have eliminated some candidates with the questions above. Now you will be sort of a spectator. Start following the development news of the particular coin. Find them, and pay attention to the team, their social media (if it exists). If a project does not have a team, or the developers claim at the launch that they want to remain anonymous after the team is presented, discard immediately. Why? If a project wants money invested in its project but hides its team, it may have something else to hide. For example, it could be a scam coin with a stolen white paper, a copied and changed description. Such a coin can only be issued for the sake of a one-time sale of all coins, and after that, such projects are immediately abandoned.
Or the team can be open, but its “no-name” members are ordinary unknown people. The lack of recognizable faces in the team can also have a bad effect on PR, therefore the project is probably doomed.
Find the leaders. Litecoin had a leader, Luxcoin has a leader, the Ethereum has a leader who put his name on everything about the project and promised to be there with continuous developments. These are good signs.
Although, even having an open leader and team, some coins are hideously built for short prices spikes, mostly thanks to the hype, and then develop a steadily falling graph. You should avoid these as well.
The Good
After eliminating the obviously risky choices, you should be seeking that the project is not abandoned, that it’s still in development. In fact, GitHub is the only place where you can check if the project is being worked on, whether it is abandoned or not. The more recent the activities there, the more active and attended the coin is. ETH has an update almost every minute.
At last, after all this research, you should come up with 5 to 10 coins to invest in. Your budget will be 100% and you will distribute this from the safest to the riskiest in percentages. In this way, you will have the minimum risk possible, have made a safe and stable investment, and if you lose on one, which you will certainly will, you can keep maintaining your investment in the others.
If you’re still not sure about the distribution, and you are afraid to invest in little-known projects, then you can just give something like 30% to Bitcoin, but only when the hype is lower. Bitcoin is the monolith of coins and always has reliability. Big banks are on it, but it would make a small, most likely 4x maximum. The main idea is to have a big one as some kind of a backup mechanic, a safety belt, and you will manage others without the fear of broad loss.
Crypto Fundamentals was made to help novice crypto investors start off on the right foot. For more tips on how to begin your exciting journey, keep up with the Crypto Fundamentals series on our blog, as well as with the other insightful articles posted on a daily basis. Last but not least, register on IXFI for the safest and most seamless trading experience. Your Friendly Crypto Exchange has your back.
Disclaimer: The content of this article is not investment advice and does not constitute any 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 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.
