There are a lot of cryptocurrencies available now because of the growing interest in them, and many people promote each one!
Nowadays, “Do Your Own Research” is a common phrase used in the cryptocurrency world.
But, what is the best way to approach that?
Understanding how to assess a cryptocurrency investing potential may prevent you from purchasing a coin or token whose value crashes a week or month later.
In today’s blog, we’ll discuss how to evaluate cryptocurrencies.
So, let’s get started!
Why is it essential to evaluate cryptocurrencies?
According to the research, there will be 22,057 cryptocurrencies in use as of December 2022. Around 300 million people utilize cryptocurrencies worldwide.
When you come across an intriguing cryptocurrency project, you need to decide whether or not to invest your money in it. It takes real expertise to evaluate cryptocurrency initiatives for financial considerations.
Frequently, we come across a brand-new cryptocurrency initiative that aims to catch your eye. However, doesn’t it seem too flashy or attention-grabbing? Don’t invest in cryptocurrency initiatives mindlessly since you could come out empty-handed. The cryptocurrency sector has been around for more than ten years, but scams still occur from time to time, and they keep getting more sophisticated.
Moving ahead, let’s discuss this,
How to evaluate cryptocurrencies?
Currently, there are the following categories of crypto analysis:
- Technical examination – It displays the short-term increase or decrease in an asset’s price.
- The long-term laws and behavior of the entire market can be predicted using the Elliott Wave theory.
- Fundamental analysis – It demonstrates the connections between global events and fluctuations in cryptocurrency prices.
These analysis techniques are all very powerful. You may be a competent trader and earn good money on cryptocurrencies if you master one of them or all of them at once.
The process for evaluating or analyzing the quality of existing cryptocurrencies and initial coin offerings (ICOs) is the same. Here are some of the crucial aspects to consider:
1. Check the trading volume
The simplest way to check it is to go to CoinMarketCap, choose the required cryptocurrency, and view its trade volume over the previous 24 hours. If the coin is too little, investing in it is not advised because it will not have strong demand and liquidity. So, making such an investment may be dangerous.
2. Check the usability
What purpose does the token serve? Do they offer profit-sharing plans or dividends? Owning the token will give you voting rights. Although it is not entirely apparent what the tokens are for, we have seen certain projects issue their tokens. And with these projects, the relationship between the project and the token itself can occasionally be hazy. Why would you have these tokens if it has no effect?
3. Check the community
Examine the experience and reputation of the team behind a cryptocurrency to determine its potential. Researching if the mentioned people are actually a part of the project is crucial because most cryptocurrencies list some well-known figures in the cryptocurrency industry as members of their team.
Before you invest your hope and money in the founder’s vision, it is crucial to understand whether he is more than just a social media bitcoin specialist. When assessing the team members, thoroughly research any prior endeavors they conducted individually or in groups and determine the degree of success of such endeavors. Additionally, find out whether they have a history of fraud or scams.
4. Do a fundamental analysis
Due to its focus on the asset’s historical performance, fundamental analysis of cryptocurrencies is frequently used for long-term investment. Acquiring knowledge is essential if an investor wants to make the greatest financial decisions, particularly for long-term performance. By projecting a cryptocurrency’s future and determining if it will be a profitable investment, daily fundamental analysis can help you create the best investing plans.
5. Check market cap
Market capitalization is calculated by multiplying the asset’s price by the total number of assets on the market. Circulating supply divided by price is market capitalization. In other words, you can calculate the price of a cryptocurrency by dividing its market capitalization by its circulating supply. Market capitalization minus available supply determines the price of an asset.
When all variables are held constant, a cryptocurrency’s potential can be discovered in the quantity of the circulating supply and the market cap. As there are only 17 million bitcoins in circulation, their price is increasing more quickly. In this instance, the price climbs at a maximum pace as the market cap grows.
6. Check the total supply
The quantity of coins in circulation is known as the supply. It’s crucial to remember that supply isn’t a precise number. It can be difficult to distinguish between tokens that have been destroyed, misplaced, or simply forgotten and those that are still in the possession of long-term investors. For instance, of the 18.8 million Bitcoin now in circulation, it is predicted that 3.7 million of them have been irreversibly destroyed.
By looking at the supply, you can ensure that you aren’t being swayed by the “unit price bias,” a condition where buyers prefer tokens with low unit prices.
7. Check the hash rate
A mining machine’s capacity to carry out hashing calculations quickly and accurately is measured by its hash rate. The hash rate directly correlates to a miner’s or mining pool’s profitability.
The chances of mining a block increase with increasing hash rate, and as a result, so does the likelihood of earning the block reward. On the other hand, a decline in hash rate suggests that miners are leaving the network since it is no longer viable for them! A 51% attack takes place on a blockchain network when one person or group controls the majority of the hash rate, which could be harmful to the network.
Cryptocurrencies with a larger network should be your first choice as an investor since they are more secure against attacks and data manipulation.
Conclusion
It’s critical to be able to assess new initiatives because there are so many cryptocurrency ventures being launched. Try to see behind the project’s marketing campaign and hype.
Spend a minimum of an hour investigating a project to gain a good initial sense of its validity. To acquire a different perspective on the project, read publications like its whitepaper, technical explanations, as well as media coverage.
We hope you liked the information provided in this blog on how to evaluate cryptocurrencies. Also, you can use this information to build a preliminary assessment of the crypto investment.
