HOW TO IDENTIFY A WINNING CRYPTOCURRENCY

In its earliest days, the investors who had the foresight to buy into bitcoin and hold onto the cryptocurrency when it took off are now significantly wealthy. Bitcoin, the largest digital currency in the world by market capitalization, has performed excessively well in the past few years, resulting in making millionaires out of the timely investors who bought and held onto their bitcoin. 

Although cryptocurrency once struggled in the backwaters of finance, they have now become part of the mainstream discourse. Their prices and valuations have exploded in the last decade as investors poured money into the asset class.  The inflow of money has expanded the boundaries of crypto’s investing terrain and made it more complex.

As published on CoinMarketCap website in November 2021, there were 14,106 identified cryptocurrencies with a total market capitalization of $2.7 trillion trading at 430 exchanges worldwide. The exact number at the moment cannot be ascertained, however, some reports state that there are more than 18,000 cryptocurrencies available for trading in crypto markets. As more digital currencies flood the market, it is very easy to get swayed, overwhelmed, and confused about which cryptocurrencies to select for investment. Each coin, in the bid to sell its value proposition, boasts an array of technical terms many of which are difficult to explain. 

There are therefore many things to consider before choosing a virtual coin to invest in. Not only might you place your money in the wrong project, but also, it might prevent you from investing in other spots where you could be seeing considerable gains. 

What To Do Before Choosing a Cryptocurrency 

Research 

Crypto is a very volatile asset so you need to do your research before investing. Different cryptocurrencies were created from different perspectives and for different purposes. Understanding these distinct perspectives is crucial to the success of your investment. Asides from the crypto websites that provide information regarding the current state of the crypto market, how popular cryptocurrencies are performing, and which are the biggest gainers and loss-bearers of the market, there are cryptocurrency research websites that provide accurate information behind the formation of specific crypto assets so that investors can make informed decisions and invest according to their desired results. 

There are many research websites; you should be careful as some give wrong information to users and consequently make them lose money. However, some have over time been regarded as authentic— this is not an advert. CoinMarketCap, Crypto Daily, CoinGecko, Glassnode, TradingView, Cryptocompare.com, Messari, and Lunar Crush are few of such websites. 

The Technology 

One of the first things to consider is the purpose behind the blockchain and the cryptocurrency that'll be viable on it. Ask questions to evaluate the coin. How beneficial the operations of a blockchain will be is dictated by the purpose of that specific blockchain and the corresponding coin.

 

The Team

Asides from the technological ability of the developer, you need to analyse the business prowess of the leaders responsible for the finances of the organization. It is essential to check out the team behind the cryptocurrency. There should be a highly skilled and respected team with strong, relevant experience, solid credibility, and positive social media status. 

For instance, If your research shows that the crypto developer is well respected and renowned within the engineering space, and is positively popular within the blockchain community, or if you find that the company has been able to attract interest from leading venture capital firms— the company has the ability to add value for its investors— that is a good indicator.

The White paper

It is necessary that before you invest in a cryptocurrency, you study the white paper. It is a document containing the details of the coin, such as the technology it uses, the purpose for which it has been created, the problems it will solve and other information.  In it is also the vision and the mission of the coin's creators. An initial amount may be invested if after going through the white paper,  you are convinced to do so. 

There are many more things to look out for in a cryptocurrency before investing: social engagement, market capitalization, algorithm, history, use cases, and others.

Perhaps the most important step to take before choosing a crypto to invest in is research. It is indispensable to gather information about a coin before putting money into it; you should know that trading or investing in cryptocurrency is a two-sided coin— it can make you poor as much as it can make you rich. 

Knowing when to sell or top-up is a very essential ability in making crypto investments. It is however difficult to accurately do this without adequate research. Many investors have dedicated much time to research, and they have good results to show for it. 

Even with much research, the volatility of crypto has rendered it incompletely predictable.  For instance, amid the recent crypto crash, Terra LUNA and UST, both of which exist on the Terra blockchain, became unpegged after witnessing a disastrous crash. The Terra (LUNA) first crashed from around $120 to $0.02 within 48 hours, and then continued the downward trend till $0.00000112. 

Conclusion 

Cryptocurrency is a highly volatile unregulated digital asset; investing in it is speculative and needs a lot of research to select a promising cryptocurrency. When it comes to cryptocurrency, no one is a perfect predictor, so, you should do your own research (DYOR).