Welcome to another section on crypto in which we will try to pass you some of the tools and basic methodologies that will help a crypto investor question and research into which crypto’s it should invest. Or more precisely how should a trader choose the altcoins they want to invest in? What are some of the underlying assumptions an investor should test before owning some of the altcoins out there?
There are projects that are well established and recognized such as Ethereum or Cardano which are already more mainstream, hence one may assume that the potential investment returns are lower versus newer projects that could also revolutionize different aspects of digital technology such as Orachain or Coti. But how does someone find the suitable coin to invest in early in the project when there are close to 10,000 of them listed? Not all 10,000 will survive and surely the returns will vary widely between them depending on multiple factors that is important to understand and have the knowledge to perform the necessary due diligence.
One factor to look at and question is what is the mission statement of the project? What is it trying to solve? Is the solution realistic and what is the time frame?
What it is not recommended to do is invest in coins that you have never heard before. And invest just because someone else said that x coin is the future, and the price is expected to explode. Word of mouth may be a dangerous path to follow, especially for unknown altcoins, which may lead to its collapse or speculation, hence capital losses.
For example, reading the project’s white paper is the must thing to do and question some of the following aspects:
- is the project innovative and how does it bring added value
- how does it differ to other projects in the sphere
- how is the project marketed
- is it easy to understand it
- is it accessible
- market participation
The questions above not only relate to the uniqueness of the solution, but also how does it position itself on the market. How easy is it to understand it and how can it be efficiently deployed for tangible added value benefits? Moreover, the marketing aspect of the project is essential in order to attract investors that back the project’s solution.
The timing is another aspect worth considering when investing in a ‘niche’ altcoin. By timing I mean – is the particular topic trendy in the crypto world? For instance NFT’s based projects are trendy right now attracting considerable investments into those coins, hence massive returns. Summer of 2020 was all about DeFi with its price explosion. Crypto-gaming seems to be the next wave of backing.. Projects within these areas seem likely to perform better, however they may also plummet if the focus happens to shift somewhere else. On the other hand, if the attention is on them, they can easily outperform the market, even when the market overall turns bearish, as we have seen with NFTs in the summer of 2021.
The tokenomics is another essential basic question you should try have the answers for. This is usually identified on the project website.
An investor should typically enquire about:
- how many tokens are there and how many will be. Is the supply limited or not.
- the periodicity of releasing additional tokens on the market.
- how is the ownership of tokens distributed. How many of them are owned by owners, investors, etc.
- altcoin market cap
These are a few factors crypto investors should be aware of before diving into altcoins, which are typically more risky investments, but also provide much higher expected returns versus more established projects that already became mainstream.
Carefully diversifying capital exposure is highly recommended for minimising risks. It also helps if the project you’re backing aligns with your fundamental beliefs and knowledge because that can simplify your research of the project feasibility and expected returns.
With best regards,
E-Club Trading team