In recent years, the increasing application of bitcoin and blockchain technologies as an alternative payment option has continued to gain a lot of traction. This has led to a growing acceptance of cryptocurrencies as an alternative means of facilitating transactions. For consumers and merchants, cryptocurrencies provide a decentralized platform that offers a cheaper and faster means of achieving P2P transactions, eliminating middlemen and the need to provide personal details.
These underlying values of cryptocurrencies have earned it a place of prominence in many investment portfolios even as analysts continue to caution about its volatility and unpredictability. As the market continues to stabilize and attract lots of attention from investors, organizations, and the general public alike, investments in cryptocurrency will only continue to increase.
Every day, new investors are taking the leap into crypto assets with a lot of people choosing to buy bitcoin and other altcoins. If you are looking to invest in any cryptocurrency, it is important not to get caught up in the hype. Many make the mistake of investing in cryptocurrencies without having sufficient knowledge about the asset. Most times, this has been disastrous as many investors have lost their money by investing in bad cryptocurrency projects.
Thus, it is extremely important to have solid knowledge and understanding of a cryptocurrency before investing in it. This guide aims to provide potential investors with 5 indicators to check before investing in any cryptocurrency. These indicators will help investors in determining if a cryptocurrency is worth investing in. Thus, help in making a sound investment decision.
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The Whitepaper
Cryptocurrency projects, just like any other business project aim to solve relevant problems or fill its need. A whitepaper is an informational report that gives an in-depth and detailed overview of the cryptocurrency project. A good whitepaper will give an insight into the project:
- define goals
- technology behind it
- the use cases
- the roadmap for new features
- the supply and distribution of the cryptocurrency.
When you want to buy bitcoin or any cryptocurrency, it is highly advisable to read the whitepaper of the project before investing. With the whitepaper, you can determine if the project goals are realistic, if there is any potential red flag, if the team behind it is credible, and many more. This, along with other indicators can be used to evaluate a project and filter out unreliable projects.
Development Activity
All good projects will have a high developer activity. Investors should always look out for projects with a high development activity when deciding to buy bitcoin or other cryptocurrencies. Active development is a good sign that the team behind a project is constantly striving to improve the project and make it better.
The easiest way to measure a project development activity is by viewing the project repository on GitHub. There, investors can check the activity metrics of the project, how fast issues and bugs are fixed. How soon updates occur, the total number of stars, and forks of the repo. These metrics can be used to gauge project development activity. A project whose development is active is far more appealing than one whose repo has no activity in the last two years.
The Community
A project is as valuable as its community. The importance of a strong community on a cryptocurrency project cannot be put aside. The larger and more involved the community is, the more reliable and valuable the project will be. Checking the project community will also give insight into what others are saying about the project. Gauging other’s perspectives can illuminate issues or highlight strengths you did not consider.
A cryptocurrency project attracting genuine interest from a large section of the community is more likely to grow in the future. When choosing to buy BTC or any other cryptocurrency, investors should look out for projects with a large and loyal community of followers. Get feedback from people’s opinions about the project on cryptocurrency forums. Check the project’s Twitter page and subreddits to determine the size of the community. Determine how enthusiastic people are about the project before committing your investment to any project.
Total Supply, Circulating Supply, and Market Capitalization
A cryptocurrency’s total supply is the maximum amount of its coin that can be available in the market. The circulating supply is the current amount of coins presently in the market. While the market capitalization is the circulating supply multiplied by the current price. All these can provide valuable insight into the viability of the project and highlight the potential risk that exists.
Factors such as the total supply of the coin can influence the market value of a coin. If a project has a total market capitalization due to a high supply of coins, then you should be concerned. Also, the project whitepaper should highlight how the coin was initially distributed. The amount of coins that were kept or pre-mined by the team. If a large amount of the coin is kept by the team or owned by a few parties, you should consider pulling the plug on the investment as this points to the project being a risky investment.
What Exchanges are Listing the Currency?
It is ideal for potential investors to check some of the biggest exchanges and peer-to-peer platforms in the market. Although these platforms may sometimes host risky coins, they will eventually get delisted later. If the coin is available on major exchanges and peer-to-peer platforms, this is a good sign that the project has considerable support. Then proceed to check its price history and trading volumes before making any decision.
Conclusion
“Never invest in a business you do not fully understand”. These were the words of famous American investor, Warren Buffett when asked to list some of his investment philosophies. This practice applies to all investments — at all times. This advice becomes even more important when it comes to cryptocurrency investments. Investing in any cryptocurrency without fully understanding the project is a recipe for disaster.
Before you decide to buy bitcoin or any altcoin, it is crucial you research and learn everything about the project. Only after you understand the risks and rewards of the project you want to invest in should you consider investing. While there are no safe bets in the cryptocurrency world, this guide will help potential investors choose a good cryptocurrency with solid fundamentals to invest in and avoid most investment pitfalls.
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