Are you looking for a way to diversify your portfolio and maximize your return? Investing in cryptocurrency can be a great way to achieve those goals, but choosing the right coin can be tricky. With so many options, how do you know which one is the best fit for you?
Our guide to selecting the right cryptocurrency coin is here to help you navigate this complicated landscape.
Understanding Market Capitalization and Supply
Market capitalization is the total value of a coin’s circulating supply. This simply means that the higher the market capitalization, the larger the network behind it. Market capitalization (or “market cap”) is an important metric for determining how valuable a crypto asset is and can even be used to compare crypto coins within an industry. Other metrics, like trading volume and price, are also important for understanding market correlations and predicting future prices. For this reason, it is essential for those interested in investing in cryptocurrencies to conduct thorough research, including reading cryptocurrency coin reviews, to gain a better understanding of a coin’s market cap and other important metrics.
Another important factor when assessing cryptocurrency is coin supply. It is typically broken down into two categories: circulating supply and total/maximum/base supply. The circulating supply describes all of the tokens that are actively being traded in markets while total/maximum/base supplies describe all tokens (including ones being held by teams or founders, restricted from trading). Knowing how much of each type of asset is available will help you understand how big the network or project really is, as well as give you insight into potential investment strategies.
Analyzing Volatility and Liquidity
When making an investment in a cryptocurrency, it is important to evaluate the volatility and liquidity, including considerations such as portfolio margin, of the coin before investing. Volatility measures the predictability of a price over a given period of time. The greater the volatility, the more susceptible to price fluctuations the coin will be. Liquidity is how easily you can buy or sell assets without affecting their market price. Coins with less liquidity may trade at higher prices than assets with more liquidity, due to a lack of buyers or sellers on the exchanges.
Researching the Development Team
The team of developers behind a coin is a reflection of its overall momentum. Having an experienced and knowledgeable set of individuals ensuring the future development and longevity of the asset is essential to your choice. Things to consider include evidence of active development, the number of contributors to each project, track record on feature development, and company funding for core projects—all this may provide you with clues as to how much endurance the coin has.
For example, if the development team behind an asset lacks experience in programming on distributed ledger technology (DLT) or its governing algorithms, or if it lacks resources due to inadequate funding elsewhere (think: government contracts), then it’s unlikely that they are able to attend to urgent issues in real-time as required. Furthermore, take a look at what other open-source software contributed by this team has gained traction; Code that fares badly will certainly have implications for their current project too.
Finally, make sure that associated legal entities are actively involved in the coin’s progress—this will demonstrate very good corporate governance practices adopted by those running it. It’s also important to look at what partnerships they form with other companies when operating jointly with them can affect product capabilities and performance factors that might invalidate your investment decision down the line.
Evaluating the Use Cases
When evaluating a cryptocurrency coin for your investment, analyzing its use cases is essential. Different assets are designed for different purposes — some focus on payments, some focus on creating internet-based communities or economies, and others are focused mainly on providing a store of value.
Before investing, you should understand its purpose and how it fits into the broader cryptocurrency market. You should ask yourself questions like: Does the coin align with my investment goals? Is it working to solve an interesting problem? How well has the development team been executing its roadmap? Does the coin have any existing use cases? Does it have the potential to capture significant market share in the future?
Examining the Network Security
When choosing the right cryptocurrency coin for your portfolio, it is important to evaluate network security. Specifically, you should examine its hashing algorithm, blockchain size, and reward structures.
Hashing Algorithm – Cryptocurrencies use a cryptographic hashing algorithm that sets the rules for how coins are added to and then transferred from a digital wallet. You want to make sure that your chosen asset has a secure algorithm that has not been hacked, as this could result in lost or stolen funds.
Block Chain Size – The blockchain size of any given cryptocurrency is a measure of how much mining activity is occurring on the system. A larger blockchain increases the overall security of the system because more miners are actively verifying each transaction which adds another layer of transparency and prevents double-spending. Of course, if there isn’t enough mining activity taking place on the system then it can leave it vulnerable to attack.
Reward Structures – Each time an individual completes a transaction they are rewarded with ‘coins’ associated with whichever cryptocurrency they chose to transact with. To get assets you either have to buy them with fiat currency or mine them using special hardware designed for this purpose (ASICs). Different coins use different reward structures so you should look at these closely before making an investment decision.
Assessing the Network Adoption
When choosing a cryptocurrency coin for investment, it is important to assess the network adoption rate. Network adoption refers to how widely used or accepted the given coin is on exchanges, merchants, and wallets.
While there are some assets like Bitcoin that have large amounts of network adoption due to their long history and popularity, many new coins are gaining in popularity as well. It is important to research the volumes of each asset on different trading platforms and wallets.
Additionally, assessing upcoming projects associated with a given cryptocurrency can be a good indication of how widely accepted it will be in the future. This can involve researching upcoming partnerships and world events that may increase demand for the coin.
Choosing the right cryptocurrency coin for your investment strategy can be a confusing and overwhelming process. However, by following some simple tips such as understanding your goals and researching each coin thoroughly, you will be able to make an informed decision that is in line with your financial objectives. With so many options available, do not forget to diversify among different coins and utilize the best practices when investing in crypto assets.