There are over 12,000 cryptocurrencies in existence today. CoinMarketCap helps us to drastically reduce this count by listing the most popular of all, but these coins still number up to over 1500.
These are way more than the number of fiat currencies we have to deal with in the regular forex market. As an investor interested in the early cryptocurrency market, you are then faced with the dilemma of choosing the best to invest in and diversify your portfolio.
Thankfully, you have come to the right place. In our article, we discuss everything you need to know about investing in the right cryptocurrencies, including information on
- Fundamental analysis and
- Technical analysis. Let’s get right in.
Fundamental analysis in crypto investment
Before we dive into the data-based analytical factors, it is important we discuss the basic information to know before considering a cryptocurrency.
By this, we mean you need to take a bird’s-eye-view of the cryptocurrency to know its chances of success or failure. You look into the project behind it and every other associated factor.
These factors include the team behind the cryptocurrency project, the project whitepaper, the types of investors that have already bought into the project, and the community in support of the project. All these will be explained in detail.
The project team
The crypto space is filled with rug pulls, which is a term used to represent a project owner attracting investors, abandoning the project, and absconding with the money before it is created. You don’t want this to happen to you.
The first thing you want to check out is the identity of the team behind the project. This assures you that, in case any fraudulent activity is carried out, there is an identified legal entity to bear the brunt.
Moving forward, you then look at the history of this team and its reliability to build successful crypto projects. Crypto books would agree that this is what gives your investment the potential for profit. An added advantage is this team has popular or respected executives or partnerships with huge companies.
The project white paper
The whitepaper is a document that contains all the technical information that defines the cryptocurrency project. It includes information on the problem the cryptocurrency seeks to solve, how many tokens are to be in circulation, and how investors may claim crypto tokens, among a lot of others.
Within this whitepaper, there is usually a project road map. The road map is a timeline that dictates all the short and long-term goals the project seeks to meet and how it plans to grow and evolve.
These two give you an idea of how feasible the sustenance of the project is and a cryptocurrency without a detailed whitepaper or road map isn’t one you should deal with.
Investors and community
A cryptocurrency project that has renowned investors and investment firms who have bought into it is a signal of trustworthiness and potential.
The most popular and successful investors know what to look for in a project, and when you see them openly supporting a cryptocurrency, you just know that it is going to be a great short-term or long-term investment. Take a look at Elon Musk with DogeCoin, which made a lot of people crypto millionaires.
The community in support of the project is also an important factor to consider. A community will be able to education you on the best ways how to invest in cryptocurrency. From its launch to its subsequent sustenance, the hype and enthusiasm from the cryptocurrency community determine its success in the short and long term.
All these fundamental factors are only used to determine if cryptocurrency is an investment option that has a potential for profit. From this, we then move to the technical factors, which give you even more in-depth data to make decisions.
Technical analytics in crypto investment
There are a lot of cryptocurrency projects that satisfy the requirements conducted through fundamental analysis. Now, technical analysis helps you filter your options by determining the volume of returns to expect from these cryptocurrencies. This is where crypto market making comes into play.
You have a lot of factors to look into, which include the price history, market cap, trading volume, and token supply.
The confluence of all these factors majorly affects current cryptocurrency prices and the future trajectory of these cryptocurrency prices.
Technical analysis majorly involves monitoring the history of price changes through charts. These changes in cryptocurrency prices present you with the raw data to see how volatile the cryptocurrency has been, as well as its trend over the short and long term.
You monitor price charts over an hourly, daily, weekly, monthly, or even yearly timeframe, and determine the trends to expect before you make investments.
Depending on the type of investor you are, you also choose the best cryptocurrency to buy. You choose between day trading, swing trading, position trading, or scalping.
Market capitalization (Market Cap) is the total value of a cryptocurrency project. It is calculated by multiplying the cryptocurrency price by the number of tokens in circulation.
The general rule is that, the higher the market capitalization, the safer it is to invest in a cryptocurrency project. Bitcoin and Ethereum jointly constitute over 50% of the general cryptocurrency market cap, making them the safest investment options.
Although low market capitalization makes the project a higher risk, it also proffers higher investment rewards. Projects with lower market caps have a greater space or potential for growth.
Cryptocurrency prices also fluctuate a lot, so you consistently check the market cap of a project you have picked out to ensure it still meets your benchmark.
Trading volume and token supply
The trading volume is the number of exchanges between buyers and sellers, with a high trading volume representing a safer investment. Although low trading volume represents low demand or liquidity for the cryptocurrency, which makes it hard for you to exit it, it is a factor that may be ignored by long-term investors.
Finally, the rules governing the token supply of a cryptocurrency also determine its value over time. We have max supply (maximum supply to ever exist), circulating supply (supply exchanged between traders in the current market), and total supply (total supply of tokens that have ever existed before burning)
Binance’s BNB is a perfect example for this. The coin has a maximum supply of 200 million, which also serves as its total supply to have ever existed. The current circulating supply is at 163 million due to the quarterly burning of tokens.
Although some cryptocurrencies have an infinite max supply, projects with scarce or decreasing supply have the potential to be worth more if the market cap increases.
Choosing the best cryptocurrency to invest in is a careful process that considers a barrage of factors. Fundamental factors help you choose profitable investments, while technical factors determine the eventual profitability of these investments.
Diversify your portfolio when making investments to limit your risks in the relatively new and volatile cryptocurrency market.