How to Evaluate a Cryptocurrency for Investment

Do you know that there are more
than 18,000 cryptocurrencies listed on CoinMarketCap, one of the
largest crypto tracking platforms? Also, Binance, one of the most
reputable crypto exchanges, has listed more than 400 crypto tokens.

The world’s rapid shift towards
decentralization and the introduction of Web 3.0 have put the crypto coins in
the driving seat. Now, multi-national corporations like Microsoft, Twitch,
Tesla, and others accept crypto as a payment method.

However, it’s a fact that not all
cryptocurrencies have the same value or usefulness.

A few tokens prove their
stability with time, while others become alt or meme coins. Also, with
thousands of coins available today, it becomes increasingly complex for
beginners to evaluate whether a token is worth investing in.

Having said that, I’ll teach you
a few ways to choose the right cryptocurrencies. Also, as my target audience is
crypto beginners, I’ll stick to spot trading.

Before you invest in any
cryptocurrency, it’s incredibly important to understand its nature. Generally,
there are three major types of cryptocurrencies. These include Stablecoins,
Altcoins, and Memecoins.

As the name indicates, these are
the least volatile and most stable cryptocurrencies. Even though there’s no
harm in investing in stablecoins, keep in mind that profitable returns can take
significant time.

Additionally, stablecoins are
pegged to financial assets and commodities like fiat currencies or gold. This
way, their price stays relatively stable as compared to other cryptocurrencies,
and hence, can be used to trade other coins.

Alternative or altcoins are
simply all those coins that are not Bitcoin. Sometimes, Ethereum is also not
included in this list, as it can also serve as a separate blockchain for other
cryptocurrencies.

Altcoins are designed to address
various financial and real-world issues digitally. Additionally, these coins
also extend the blockchain’s applications by offering unique solutions. Having
said that, as more people invest in altcoins, these are generally more volatile
and have greater market volume than stablecoins.

These are a type of altcoin, but
they rarely have a real-life use case or utility. Besides being tradable and
convertible into other tokens, memecoins don’t have many useful applications.

Memecoins are usually created on
trends, memes, or in the name of famous personalities, and their price usually surges
when they’re newly registered on an exchange.

I’ve shared some famous stable,
alt, and memecoins in the table below:

Stable
Coins

Alt
Coins

Meme
Coins

Tether (USDT)

Solana (SOL)

Dogecoin (DOGE)

Binance USD (BUSD)

Ripple (XRP)

Shiba Inu (SHIB)

USD Coin (USDC)

Cardano (ADA)

PEPE

TrueUSD (TUSD)

Polkadot (DOT)

Fartcoin

TRON (TRX)

Litecoin (LTC)

Hamster Kombat (HMSTR)

Besides market cap and volume, I
always analyze a coin’s liquidity before investing in it. Frankly speaking, I
rarely invest in a less liquid coin, simply because it’s extremely difficult to
convert it into another digital asset or cash at a fair price.

Additionally, liquid coins are
difficult to manipulate, and their prices don’t move sharply either. And, as
there is always liquidity (buyers and sellers actively trading in a coin), such
digital assets are less volatile and are ideal for beginners.

Having said that, you can use TradingView
or CoinMarketCap to analyze a coin’s liquidity.

But ensure that you have a
reliable connection, because these platforms update data in real-time. As for
me, I use a 5G Home
Internet connection, which is fast and reliable enough to update data and
analyze different market metrics on TradingView. This way, I can easily
assess if a coin is worth investing in or not.

Nonetheless, always ensure that
whichever coin you’re investing in, it’s highly liquid so that you don’t face
any problems while selling it.

Every cryptocurrency publishes a
white paper when it is introduced. It is a complete and thorough report that provides
answers to questions like:

What real-life problems does it solve?

Additionally, you can also find
relevant blockchain information, scalability plans, products, economic
partnerships, and parameters. Speaking from experience, reading a white paper
can be a bit complex. With technical jargon and confusing terms, it can also be
boring for beginners to read an extensive white paper.

However, you need to read and
understand it. This way, you’d be sure about what the crypto coins stand for,
and if they’d be useful in the long term. Also, as there are a lot of scams and
frauds in crypto, thoroughly reading a coin’s white paper can explain if it’s
worth investing in or not.

So, these are a few ways to
determine if a cryptocurrency is worth investing in or not. But before winding
up, here’s a little advice. Once you enter the market, you’ll find plenty of
people spreading rumors and creating a sense of urgency about a coin’s price.

It’s called FOMO (Fear Of Missing
Out) in investor terms, and I’d suggest not to pay any attention to it. Trust
your fundamental and technical analysis of a coin, carefully analyze these
factors, and then make investments.

Also, don’t forget to diversify
your portfolio and stay away from futures until you become an adept crypto
trader. Good Luck!