Most individuals currently involved in cryptocurrencies are driven not by technical aspects but by the hope of realizing lucrative gains.
With the bull run already at our doorstep, now is the best time to stack the odds in our favor to achieve those sought-after gains.
1/ As an investor 👨💼, when you come across a new crypto with potential, one of the best ways to ensure its credibility is to study 👩💻✍️ its tokenomics.
The term "Tokenomics" originates from the combination of "token" and "economics," and its analysis is simpler than its pronunciation. After reading the following lines, you'll know how to do it like a pro.
Especially important is the last part where I provide an illustration for better understanding. Here's how to proceed.
2/ When you discover a promising crypto, quickly check CoinMarketCap or CoinGecko 🔄🌍 for supply information:
The number of tokens issued by the project,
The quantity of tokens already in circulation,
The maximum number of tokens that will be issued in total.
This information helps you understand, for example, that having 100 Shiba coins doesn't hold the same value as having 100 BTC. One has a limited supply that diminishes with each halving, while the other is abundant.
3/ Next, look at the token's market capitalization💰💰 and diluted market capitalization💰📈. The latter gives you an idea of the total capitalization if all tokens were in circulation simultaneously.
Bitcoin's market cap, for instance, currently hovers around $1 trillion. If you're investing in Bitcoin hoping for a 100x return, be aware it would require an additional $99 trillion to the Bitcoin market cap for that to happen.
In contrast, a low-cap coin with a $1 million market cap only needs an additional $99 million for a 100x return. This can happen swiftly in the cryptocurrency space.
4/ Identify venture capital (VC) and leading investors. 🧔🕵️
For instance, knowing that a crypto project is backed by major investors like Binance not only boosts investor confidence but also enhances the project's potential adoption.
Prominent VCs 🤓😎 often bring a lot to a crypto project, including:
Funding,
Network and advice,
Credibility,
Access to resources and market visibility.
5/ Check vesting mechanisms and their timelines. 📅
In the vesting mechanism, the founding team or private investors acquire tokens in advance during fundraises. However, these tokens are subject to a lock-up period to prevent immediate resale during the global launch, avoiding a sudden price drop.
Having information on the unlocking schedule can give you insights into potential price fluctuations.
6/ Identify token use cases. 👩🔧👩🔧
For example, native blockchain currencies 🛠️🔗 like $ETH on Ethereum are essential for transactions. Without ETH, using the blockchain services would be impossible, leading to a growing need to hold ETH and thereby maintaining a favorable price.
Another example is transaction fee settlements 🔁💱 on platforms like Binance, where the associated token is $BNB. Similar scenarios occur on other exchanges like Kucoin.
One more example involves governance tokens that empower holders to participate in decisions, such as voting in DAOs.
7/ Supply reduction mechanisms.
There are mechanisms aiming to reduce the quantity of tokens in circulation, generally favorable 📈 in the long term. Commonly used ones include burning 🔥 (token destruction) or buy-backs 💱 💵.
8/ Consider the example of $BNB, which, during its 25th burn, burned over 2 million BNB, more than half a billion going up in smoke but for a good cause.
9/ Considering all of this, you'll understand that a versatile token like BNB, offering various benefits such as a 25% trading fee reduction in BNB, NFT purchases, access to Launchpad and Launchpool, as well as farming and staking opportunities, has more advantages to sustain a positive price.
10/ Finally, when you grasp everything mentioned above, it translates into something like this when conducting your analyses 🤓🕵️:
The coin costs $0.00000002; if I buy 5,000,000 coins, it will only cost me $1. If the price multiplies by 100, I'll have $100. It's better to buy for $100 to potentially gain $10,000 in case of a 100x. But let's check on CoinMarketCap, what's the market cap? Oh, it's $3 billion; a 100x would be $300 billion.
Bringing an additional $297 billion to this crypto won't be easy. Moreover, their burn mechanism seems too slow to have a favorable impact on price evolution. I'd better watch for small market caps (1M-100M)🕵️; there's more risk, but the return on investment can be substantial.
Ah, here's a crypto with a $7M market cap🤓; let's see how many tokens are in circulation🤔, and how many they plan to issue in the end... What's the utility of this token, what problem does it solve exactly... Ok, now let's check who the investors and VCs supporting this project are... Does the project have an active community...
Ok, everything seems good😎; the coin costs $0.7, and there are only 10 million in circulation with a market cap of $7 million. The project is also backed by major renowned investors, and their community is very active.
If the token price is this low, it must be due to the bear market📉. With this, during the bull market, I could make a 50x if the market cap goes from $7 million to $350 million or a 100x if it goes to $700 million; it's well below a billion, in the crypto world, it's achievable...📈
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