If you’re wondering which cryptocurrency to invest in, you have to realise that this is all about the fundamentals.
Picking a cryptocurrency investment can be easy, you just have to do a little bit of research first.
So in this guide, we’ll cover 10 easy ways to decide which cryptocurrency to invest in...
Why You Need Solid Principles.
Because there's so many beginners in the crypto world, most people don't really understand the foundations of investing.
They just hear a coin is good, buy it and cross their fingers hoping it'll 'moon' sometime soon.
But make no mistake, that's a BAD way to do it!
You don't want to be be this guy...
If you're investing money into a cryptocurrency, make sure know the reasons why - otherwise you're taking a huge risk!
So here's 10 ways to decide which cryptocurrency investment...
1. The Community.
A bit part of a cryptocurrency’s success is it’s following - so look out for cryptocurrencies with strong communities and loyal followers because that shows people have a genuine interest and belief in the cryptocurrency.
Run through some subreddits, YouTube channels and some of the feedback from their communities - and see what they’re saying about your potential investment.
If you’re confused about the coins, going to forums and checking out the community on Reddit is a great way to start understanding the hype behind an altcoin and whether you should make an investment.
You’ll also find on Reddit that some of the more difficult and technical concepts are often broken down and explained simply in these forums.
Larger cryptocurrency communities usually have very active Reddit communities, but even the smaller communities are very helpful and usually happy to answer any questions.
So if you need some help understanding how the process works, the technology etc. then their community is a great place to start.
2. Fundamental Analysis.
‘Fundamental analysis’ simply means the foundations of an investment - their team, their ambitions, their strengths etc.
If you’re new to cryptocurrency, don’t sweat the technical stuff!
In the long run, fundamental analysis is going to help you just as much as technical analysis.
So understanding how to do fundamental analysis will help you make better investment decisions. And in a market where most people are chasing after low quality altcoins, fundamental analysis allows you to separate the wheat from the chaff.
Here’s a few ways to do that...
3. The Team.
One of the top things you can research is the cryptocurrency’s team. In fact, researching and vetting the team behind a cryptocurrency is one of the most important factors you can look into.
Here’s a few things to analyse:
- Who is behind the cryptocurrency?
- Do you trust in their expertise?
- Are they ambitious?
- Do they have a proven track record of success?
These are all important questions when you’re deciding which cryptocurrency to invest in - because a team has the power to steer them to success - or failure.
OmiseGo are a great example of a company with a strong team - they're part of the Omise group which has a proven track record of developing successful technology.
Plus they've even got Vitalik Butterin on their team, the founder of Ethereum.
You can read my full analysis of OmiseGo here.
4. The Technology.
A big part of a cryptocurrency’s success is the underlying technology:
You have to understand how it’s going to perform against their competitors - and what makes the technology stand out from the crowd. Look out for the big innovators - the cryptocurrencies that will completely disrupt their industry.
For example, let’s take Ethereum.
Now Ethereum is one of the best cryptocurrencies (technology wise) because of:
- Smart contracts: this is a form of technology that facilitates the exchange of anything of value. It's a little technical - but you can read more about it here.
- Ethereum's technology is designed to make it easy for developers to integrate the blockchain with their own applications.
- Ethereum Virtual Machine technology (EVM): this tech makes it easier for developers to create applications a bigger scale.
Because Ethereum has such an innovative technology, it's quickly become of the biggest cryptocurrencies in the world.
5. The White Paper.
Everytime a new cryptocurrency is released, they usually bring out a white paper too. This will outlines the purpose of the coin, it’s technology, how it works and it’s overall vision (I’ll come onto that next).
A white paper is one the best places to evaluate the fundamentals of a coin - and you should never invest anything into it until you’ve read their white paper.
You might have to wade through a little technical jargon in the white paper, but don’t let that put you off. It’s 100% worth reading because it’s such a rich source of insight.
Plus the more white papers you read, the better you’ll become at identifying the long term winners.
A white paper can also tell you about the cryptocurrency’s professionalism and credibility - here’s some red flags to watch out for:
- Is the cryptocurrency promising something unrealistic?
- Is the white paper ambitious in terms of its overall objectives?
- Are there spelling mistakes? If there are more than a few, this is a big red flag! A company that can't invest the time into getting their white paper right probably isn't serious about their future.
6. Their Vision.
The vision of the cryptocurrency is really important:
You want to make sure this coin will be around for at least the next 5-10 to ten years, and if they’re not thinking long term then you should be seriously worried.
A big vision = a sign of ambition.
And without a clear vision and a mission, the coin is going to struggle to become a real competitor or disruptor in their industry.
Also, whether it’s their white paper, social media or their website, try to identify their intent for the future of the coin, and also look at the community to see what type of a culture is being created.
You should only invest in a cryptocurrency with a strong vision that can go the distance and pay off in the long-run. While short-term gains can be exciting and you might be thinking about swing trading, you should still think about where the cryptocurrency is going to be in the next 5, 10, 20 years, etc.
7. Their Leadership.
The success of a coin is navigated by the leadership team - they’re the ones who make all the big decisions!
The leaders are the ones that carry out the vision, so research their team and look at what they’ve achieved so far.
You want to be assured that if they’re the champions of the vision, then they can lead that coin to success.
- See if they’re personally invested in the project.
- Look at other cryptocurrency related projects they’ve worked - or if they have any relevant experience.
- Do they have a reputation as a CEO?
- Research what their leadership team has said about the coin and what they’re trying to achieve.
8. Pricing History.
Ever heard the saying “The best predictor of future behavior is past behavior?”
Of course, this isn’t always the case - especially with cryptocurrency. However, pricing fluctuations gives you a strong history of the coin and if it will be a solid investment for the future.
- Are they volatile in value?
- When the market takes a big dip - which it regularly does - was the coin resilient?
- Are they priced at an all time-high? If they’ve hit an all time high, I’d recommend waiting it out until the cryptocurrency takes a dip.
Understanding the pricing history of a cryptocurrency could be a new concept to you. Most people have no idea what they’re looking at!
Plus if you're interested in technical analysis, check out Coinigy.
Now looking at the current price is one thing, but some people want to try to forecast price movements.
Attempting to forecast price movements of anything that is traded at an exchange is a game of chance. No one is going to be right all the time.
So if you’re a beginner, I wouldn’t worry about predicting the future price - just stick to the fundamentals.
9. Credibility & Reputation.
Is the cryptocurrency respected online? Do they have a strong reputation?
At the end of the day, if they have a bad reputation then you know you probably shouldn’t invest your money into them - you really need to have strong credibility and trust to be successful in this field.
So run some google searches, look through crypto communities and see what people are saying about the coin.
The other thing here is that you want to invest in a coin that people feel are positive about. You have to avoid the scams!
So if you find a coin that looks like an MLM scheme or a pyramid, get the hell out of there! And if you need a real world example, check out the controversy behind BitConnect.
10. The Road Map.
When you’re deciding which cryptocurrency to invest in, you should look for a coin with a solid road map and strong plans for development.
This is the key if you’re looking for long term success.
Here’s few things to watch out for:
- Clear timelines for the development of the coin. If there’s no clear timeline, this could show a lack of commitment for the development team.
- When are they planning to release major updates?
- If the coin has limited number of coins in circulation, then when is that limit expected to be reached?
Note: Having a limit on the amount of coins in circulation adds more scarcity to the coin, which in theory means it’s more valuable for investors.
How To Use This Guide.
See this guide like a checklist:
Before you decide which cryptocurrency to invest in, simply run through each of these 10 rules and make sure your potential investment ticks the boxes for each.
And whilst there's no definitely no 'safe bets' in the crypto world, this guide will really help you pick a strong investment with solid fundamentals.