7 main ways to evaluate cryptocurrency before buying it
Buying cryptocurrency for the first time can seem daunting. But there are smart and effective strategies you can implement to make your decision easier.
The cryptocurrency market attracts the attention of not only experienced investors, but also ordinary people who have no previous experience in purchasing cryptocurrencies. Although Bitcoin (BTC) was the first cryptocurrency - and remains the largest by market cap - it was not long before altcoins emerged, including Ethereum (ETH), Dogecoin (DOGE) and many others. .
Today, there are 19,000 cryptocurrencies in existence, and many of these altcoins frankly do not have a promising future. So it's important that you learn how to know which currency is worth your time and money. In this guide, you'll learn seven effective ways to value cryptocurrency so you can invest with more confidence.
1. Visit the project website
Any cryptocurrency worth your time and investment should have a website. These days, creating a website is relatively easy, and any company that is serious about its business will have an updated, attractive, and informative website.
Things to look for on a cryptocurrency website:
* It is up to date and easy to use
* Clean and free of spelling and other errors
* Reveals team members and partnerships
* Clearly defines the purpose of the token
* Provides a white paper
2_. Read the white paper
A cryptocurrency whitepaper is one of the most important tools for evaluating a cryptocurrency because it serves as the backbone of a project proposal. It is an official document that defines the goals and strategies for using cryptocurrency. Furthermore, white papers serve as a roadmap for the token, and are usually one of the first things potential clients read before committing funds to the project.
Additionally, the Cryptocurrency White Paper is where you'll learn about the science of tokenization. Tokens include details on how the token will be distributed among investors as well as supply limits. It also includes information regarding the issuance of new tokens as well as token burning, if that is part of the ecosystem.
Sure, some technical documents get so technical and detailed that you don't necessarily need to understand every aspect of the technical specifications, but it's important to know who the team is behind the project, what its goals are, and how it will achieve them.
**Not having a white paper is a big red flag, and any trustworthy white paper should be free of spelling and grammatical errors.
3. Auditing social media channels
To get an insight into the cryptocurrency community, first visit their social media accounts. Most cryptocurrency projects will have Twitter, Reddit, or Discord channels – and usually all three – that they manage.
Notice how many followers they have and the interaction in the comment sections. Evaluate whether community moderators are answering questions, promoting news events, and actively participating in discussions. For example, if people are asking legitimate questions in their Discord channel and they're being ignored or told they "don't get it," that's a bad sign.
Learn how to spot crypto scams on social media. Stay away from groups that are extremely spammy in their sales approach. A strong project will not need to resort to such tactics.
Second, conduct a general social media search for cryptocurrency-related mentions and discussions. If a lot of people are talking positively about the cryptocurrency on social media, this may indicate that there will be buying pressure and investment interest. On the flip side, if the mentions are mostly negative, that could be a warning sign — although it's important to understand the context of conversations, both positive and negative, on social media.
4_ Analysis of the project team and partnerships
The success of a cryptocurrency depends on its team members. Many reputable coins have project members who have participated in other successful coin launches. This helps create more trust within the community. You should be able to find the founders and key members in the project whitepaper and website. Research the team to determine their reputation and thought leadership in the blockchain ecosystem. A team with a previous history of successful projects is a great sign, while a team that is completely new to the cryptocurrency community may not have the experience needed to achieve their goals.
Aside from the project team, look at the list of partnerships, if any. You can usually find this on the site's landing page. Sometimes you'll find partnerships with well-known brands like Google (GOOG), Amazon (AMZN), JPMorgan (JPM), Visa (V), and IBM (IBM). As with everything crypto-related, do your research and ensure partnerships are legitimate.
5_Evaluating cryptocurrency market metrics
To verify this information, you will need to visit a cryptocurrency aggregator such as CoinMarketCap. What distinguishes the novice investor from the experienced investor is a working knowledge of these three basic market metrics.
* Market value
The market capitalization of a cryptocurrency is calculated by multiplying the cryptocurrency price by the total number of coins or tokens in circulation. In general, investing in cryptocurrencies with a high market cap (more than $1 billion) is safer, but it is not fail-safe because some cryptocurrencies with a high market cap are still high risk, so the potential value should be judged by the market cap. Alone. Not recommended. You can also find many new projects with amazing potential and the partnerships to support them that just need a little more time or exposure to get that far. In general, coins ranked in the top 100 are considered safer investment coins than those on the list.
**Trading volume
Another indicator to monitor is the currency's trading volume. This metric shows how much a cryptocurrency has traded over a specific time frame. High volume means a lot of investors are buying and selling, leading to more liquidity and price stability. One example of high volume is ETH, which, as of this writing, has a daily trading volume of more than $14 billion. In contrast, low volume indicates low investor confidence in price action and can lead to large price fluctuations and poor liquidity.
***Display metrics
Most cryptocurrencies have a maximum supply, which basically means the maximum number of coins that will ever exist. There are cryptocurrencies like ETH that have an unlimited supply, but the majority have certain limits even if it is in the hundreds of billions of coins.
Circulating supply refers to the number of coins currently being traded or held in the wallet. This metric can be used to understand the potential scarcity of a coin, which may affect its price in both directions. Knowing the difference between cap, rolling, and total supply will help you make sound buying decisions.
6_ Study the history of prices
In addition to understanding market metrics, you should always note the price history of cryptocurrency. The cryptocurrency market is volatile, so it's normal to see price fluctuations, but look for a gradual increase in price over time. It is wise to monitor the price over different time periods, including an “all time” history view to get as broad an understanding as possible of long-term and short-term price trends.
Avoid coins that have made exaggerated highs followed by sudden lows as this can indicate a pump-and-dump scenario – a scam in which the price of a coin is inflated due to false hype and then immediately sold for a profit. This is also referred to as “pulling the rug.”
7_Determine whether the cryptocurrency has a benefit or not
Not all cryptocurrencies serve a practical purpose. Look for coins that offer utility in the blockchain ecosystem. Is the currency project seeking to solve a problem within the network or improve its functionality? One notable example is Ethereum. Many smart contracts, NFT projects, and companies rely on their technology to survive, so you know they should retain their value over time. Others, such as Bitcoin, are decentralized digital currencies used for payments and as a store of value.
Other noteworthy types of coins include tokens. These symbols serve a thematic purpose. One example is the Basic Attention Token (BAT); This token is used by advertisers to pay for ads on the Brave browser, which blocks all ads by default. Users who choose to watch ads can join a program that pays them for their interest in BAT.
Conversely, some coins exist only as coins. Or, like meme currencies, they are aggressively pushed by social media influencers. This doesn't mean you can't make money using these currencies; You just have to understand the risks as many of them are prone to failure at some point. However, if you decide to invest in meme coins, learn how to do so safely.
Reference links:
https://www.binance.com/en/markets/spot_margin-USDT
