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To make informed investment decisions, first, learn how to analyze cryptocurrencies.
Last updated Jul 11, 2023 at 10:22 PM
Posted Jul 11, 2023 at 02:27 AM
Cryptocurrencies, an alternative to the traditional financial system, are a fascinating phenomenon. Crypto adoption and popularity have been skyrocketing in recent times, as they serve as investment tools for generating money in online crypto trading markets. Choosing the right cryptocurrencies for investment is tough due to their unpredictable nature and rapid market fluctuations, especially when you are not a seasoned investor. While investing in cryptocurrencies without doing your own research is possible and may even gain you profits the first time, learning how to research cryptocurrency is necessary to have a safe crypto journey and ensure you profit from trades.
The term "altcoin" comes from "alternative" and "coin". All cryptocurrencies, coins and tokens other than Bitcoin – Ethereum, Litecoins, Cardano, Dogecoin etc. – are altcoins. However, some people do not agree with this definition. Bitcoin was originally created as an alternative to the existing financial system. However, Ethereum, the second largest cryptocurrency by market capitalization, is more than just a digital currency as it has introduced the concepts of smart contracts and is one of the industry leaders in the development of decentralized finance (DeFi) apps. Some crypto enthusiasts, therefore, believe that Ethereum is not merely an altcoin but an ultimate platform for decentralized apps and smart contracts. According to them, every cryptocurrency other than Bitcoin and Ethereum is an altcoin. There are many sub-categories of altcoins. Some of them include:
A stablecoin, also known as a crypto-stable currency, is a form of cryptocurrency equipped with price stability mechanisms to prevent volatility in terms of the exchange rate. A typical stablecoin will be tied to an asset of fiat currencies, such as the US dollar to help provide users with a more secure and reliable source of financial incentive.
The stability of stable coins is achieved through various types of algorithms and collaterals. Stablecoins have various types like centralized, decentralized, algorithmic, and commodity-backed stablecoins.
As the term suggests, a security token is a digital version of traditional securities such as stocks and bonds. A security token represents ownership or investments in physical or digital assets, and it is traded on blockchain platforms.
A utility token is a type of crypto token that has a specific use and utility within a specific ecosystem. For example, Ethereum's Gas Token is used to pay gas fees on the Ethereum blockchain network. Similarly, Binance Coin is used to pay transaction fees on Binance, the largest crypto exchange in the world.
A meme token is a crypto token that was originally designed for entertainment or humorous purposes. Meme coins such as Dogecoin and Shiba Inu have gained much popularity in recent times.
Fan token is a special kind of cryptocurrency, issued by sports teams or clubs, that allows users to have access to exclusive offers and to participate in decision-making processes related to different activities such as shirt designs or operational changes. By embracing blockchain technology and leveraging the power of cryptocurrency, fan tokens empower fans and revolutionize fan engagement. For example, FC Barcelona, one of the most followed football clubs in the world, has released a fan token – $BAR.
$BAR holders can enjoy exclusive offers, vote on future decisions, and select the jersey design.
Cryptocurrency investors typically expect high returns, diversification benefits, and long-term growth. However, crypto investments contain significant risks and it is better to have a clear understanding of your expectations and risk tolerance capacity before investments.
Shortlist and add to your watchlist the projects that seem most appealing to you.
When investing in crypto, it is essential to have an exit strategy. An exit strategy helps you to manage risks, make rational decisions, and ensure you are meeting your goals.
Reading the project's whitepaper gives you in-depth and accurate insights about the project's goals, technology, roadmap, tokenomics, and team members. These whitepapers are free to download and are usually featured on the project's website. Scrutinizing the project's whitepaper may help you to evaluate the viability and potential of the cryptocurrency project. The whitepaper also provides a better idea of how the altcoin will benefit its users. Here is a Bitcoin whitepaper that outlines the vision of the project, explains the history of the project and provides technical details about its decentralized peer-to-peer network and consensus algorithm.
Researching upcoming crypto events can be a valuable strategy for finding the best altcoin to invest in. These events can have a significant impact on the price of a few altcoins or the whole crypto market. For example, when Tesla announced in February 2021 that it would accept Bitcoin as a form of payment for its electric vehicles, Bitcoin price surged and we saw an increased demand for Bitcoin on the market. However, when Tesla's later decision not to accept Bitcoin as a form of payment led to a significant drop in Bitcoin's price. When the Bitcoin price dropped, the prices of altcoins automatically dropped.
Analysis of token distribution before investing is important as it provides insights into ownership and control of the token. It is not good for the economics of the token if a large portion of the token's total supply is held by a few wallets, as it increases the vulnerability of the token to potential manipulation by influential crypto whales.
The team behind the project says a lot about the project. Strong and reputable team members are indicators of reliable projects. Track the background data of team members. What is their experience in the blockchain technology field, and what familiar projects have they worked on before? For example, in the case of Ethereum, the team behind the project includes co-founder Vitalik Buterin, who is widely recognized as a prominent figure in the cryptocurrency and blockchain industry, and developers, researchers, and industry experts who have a strong social media presence.
If the project's team is unknown, and they don't have any social media presence, it is a red flag and you should not invest in such a project.
Social media is a great source of getting the latest news and ongoing market trends. Subscribe to the relevant social media account and follow crypto influential figures to access real-time information about future market directions.
Binance Research, operated by the popular cryptocurrency exchange Binance, is an excellent resource for in-depth research and analysis of cryptocurrencies. Binance Research provides comprehensive reports, market insights, and detailed information about various projects and altcoins.
Subscribing to Binance Research allows you to access high-quality research materials and stay updated on the latest findings in the cryptocurrency industry.
Investment in assets as volatile as cryptocurrencies is always a risky business. However, these risks can be minimized when you have thoroughly researched the project and the potential risks associated with it. Moreover, it is always advised to do due diligence and conduct your own research about the project before making any investment decision.