With the growing cryptocurrency market, more people are making a lot of money and seeing astronomical valuations on their investments.
But there are thousands of different virtual currencies, how do you know which one to buy? This is the question we will try to answer in this article. Of course, there is no magic formula, but there are sensible procedures that, when properly followed, can result in great results
Here are some things you should look for in a cryptocurrency to measure its potential:
Understand the project proposal
Cryptocurrencies represent new technology so that each currency can be seen as a project. In other words, what problem does this project propose to solve? We already know that Bitcoin proposes to solve the problem of financial transactions, allowing each user to be their own bank, without relying on intermediaries, which is a great innovation.The world doesn’t need another Bitcoin, after all, it already has one. Many cryptocurrencies are nothing more than a copy of Bitcoin under another name. Does it add any value? Is there any possibility that Bitcoin will be replaced by this new currency? Probably not, after all, it makes no sense to trade a well-known and successful project, with thousands of complete nodes around the world generating robustness for the network, for another identical currency that does not have all this infrastructure. Therefore, it is crucial to understand exactly what cryptocurrency differential you are seeing, whether there are advantages, innovative concepts and not only that but whether these concepts make sense and have potential for mass use in the future.To learn about the project proposal, visit the coin website, watch the instructional videos, and even (superficially) review the coin white paper. If you do not know English, use Google Translate. If you are having difficulty understanding the currency proposal, it is probably because the currency is not good, because you could not clearly show your potential investors what your proposal is and it’s differential.Also, try to find out if there are competitors or other cryptocurrencies that propose to do something similar. A good way to do this is to put in Google or Youtube: “Litecoin vs”, so that the videos are likely to appear comparing Litecoin’s currency (in this example) with a similar currency. Detail: The fact that videos exist in this sense does not necessarily mean that the currency has competitors, it will only help you research and analyze whether the currency is innovative, unique or not.
Find out who is developing the cryptocurrency
Search the site for the development team, who are the people behind the project. Typically, cryptocurrencies show not only people’s names, but also their profiles, academic titles, experiences, and so on. This is very important! A good project needs a good team. It makes no sense for a project to appear to have an innovative and ultra-complex idea if the development team does not seem capable of such development. By the way, there are a lot of scams in this market, so beware of very utopian promises, see if the team seems able to deliver on what it promises.Similarly, even if a coin doesn’t seem to offer revolutionary characteristics, if you have a strong team, consider it, because there may be something very important that great minds are working on that deserve to be followed. Like Picasso said an idea is a point of departure and no more. As soon as you elaborate on it, it becomes transformed by thought.
See if cryptocurrency has partnerships with companies or universities
This is not an essential prerequisite for stating that the project is good, but if the project has partnerships with universities or large companies, that’s a great sign! Cryptocurrencies need strong research and development teams (university partnerships collaborate a lot in this regard) and the public to use the technology (which can be facilitated by partnering with companies). Therefore, any partnership in this regard is a very positive point to consider.
Find out details about the community
Every currency has a community. See how many people are involved in the project on GitHub, if there are channels for interaction with the public, etc. This is often not as important as team quality but can be decisive depending on the project. For example, if you are not sure about the quality of the team, but there is a large community involved in the project, that is a good sign. Bitcoin, for example, is a project created by a large community.
Consider the currency market cap
Market cap is the financial volume associated with the currency. At Coinmarketcap.com you can easily find this out, including by comparing it to other cryptocurrencies.Large market caps mean the currency is quite popular with many investors. This is a positive sign on the one hand, as it shows that more people are believing in the project. On the other hand, it is a negative sign because it may represent that the currency has little room to grow and appreciate more. As we are in an early stage of the cryptocurrency market, a high market cap today does not mean that the currency is already at its peak, after all the entire virtual currency market can still grow a lot, in which case the best projects will value even more. So having a high market cap doesn’t mean there’s no potential. Bitcoin, for example, is the largest market cap cryptocurrency, yet still has very high growth at times. Take this into consideration.However, it is evident that low market cap currencies have more potential for return, after all, reaching a market cap of $ 1 billion in market cap is not that difficult. So if a currency is promising and has a market cap of $ 100 million, if it reaches $ 1 billion it will represent a 10x appreciation in your investment.Therefore, the dream investment is one where you find good signals on all 4 points shown above, but the currency still has a low market cap. Obviously, these cases are rare and represent the greatest potentials. Make no mistake about investing in currencies just because they are “cheap”. Always remember that the market is not silly, if a currency is cheap it must be because it is not very valuable and you could lose all your capital. Invest first in fundamentals, then consider the potential. Because potential is somewhat relative, it is possible that a currency that is in third place overall in market cap (ie, it is apparently already highly valued) will grow even further and outperform Bitcoin itself.
Note: This site is not intended as a financial advisor, we only express and share our personal opinions. Always study and invest only in what you understand. Invest first in knowledge. And be very careful, reject plans and promises of high financial returns, because the market is unfortunately unstable and full of bad-natured people trying to take advantage of the less educated.