Assuming that you have understood the basics of blockchain and sorted your platform choice, we can now look at where to put our money. There are more than 15000 cryptocurrencies in the market but just like stocks, most of them are worthless. There are two methods/techniques to select an asset for investing. Those are:
Fundamental Analysis: The study of fundamental analysis is the attempt to analyze, and determine the “intrinsic value” of an asset. By looking at a number of internal and external factors, the main goal is to determine whether said asset or business is overvalued or
undervalued. Cryptocurrency networks can't really be assessed through the same lens as traditional businesses. It's important to note that there's no single measure that can give us a full picture of the network we're assessing.Technical Analysis: Technical analysis is a method to analyze and predict price movements in financial markets. Analysts read the historical price chart of an asset and try to predict where it's heading. It is based on the idea that if a trader can identify previous market patterns, they can form a fairly accurate prediction of future price trajectories.Technical analysis is something that needs constant practice and determination, so we will stick to only fundamental analysis for this document. Feel free to connect with me if you are interested in learning technical analysis.
Fundamental analysis for cryptocurrencies can be classified into three categories:
Analyzing a project includes understanding the business model and the problem it is trying to solve, and seeing where it stands in the market. Here are some factors you must look at before investing:
Vision- Every cryptocurrency project has or must have a vision. Investors like us must see if we can align ourselves with the vision. Every investor must focus on the value a project is providing and try to ascertain if it solves any issue or reduces any problems.
The Team- No one would want to invest in a company that has shady or inexperienced team members. We all invest to earn money and we can't stay dependent on an inexperienced team to make the project big. As an investor, your role is to research the team and see if you really believe the team and its vision.
Tokenomics- Tokenomics describes the design of a token in its network, which can convince users and investors to adopt it. Every investor must examine:
Purpose of the token: A token must have a utility and not just be used for generating hype and making money. Ether token has a utility (To pay the GAS fee on Ethereum network) whereas DOGE doesn't. This must make things clear, the token needs to be useful!
Token distribution: The first and probably most important property of a token or a coin is the ability to be distributed to potential users. This can be achieved through:
This is done to diversify the supply between various investors so that no sole owner has complete dominance in the market and can manipulate it easily.
Read More About Project Metric Analysis Here:
Market Capitalization - Market cap is calculated by multiplying the circulating supply with the current price. However, it's impossible to truly determine how many units are in circulation. Coins can be burned, keys can be lost, and funds can simply be forgotten about. Market Cap can be classified into 3 categories:
Small-Cap Cryptocurrencies: Currencies with a market capitalization of less than $1B. These are the currencies that are relatively new and can be a risky investment. These assets can be placed in the high-risk high-reward category as the price of coins can go up even by 100x.Mid-Cap Cryptocurrencies: Currencies with a market capitalization between $1B and $10B. These assets are considered to have undiscovered potential and can be a great long-term investment.Large-Cap Cryptocurrencies: Currencies with a market capitalization of more than $10B. These are the currencies that have proven themselves and are trusted by people. Returns might be lower but they are safer.
Liquidity and Volume- Liquidity is a measure of how easily an asset can be bought or sold. A liquid asset is one that we'd have no problem selling at its trading price. A low liquid asset means there are few people who are actively buying/selling the currency which might result in a failure of your order whereas a highly liquid asset makes you execute your trade instantly due to the presence of a huge number of traders. Basically, the higher the liquidity, the better it is. You don't want to keep waiting for someone to buy your asset when you plan to sell it.
The volume of a particular currency is the total value of the currency which has been traded in a particular period of time. The 24h Vol that we see on the websites is the total amount of tokens traded in the last 24 hours. Volumes can help us determine liquidity.
