There is a lot to consider before choosing an individual virtual coin to invest in, primarily due to the opportunity cost involved. Not only might you be wrong about where you are placing your money, but it might also prevent you from investing in other spots where you could be seeing significant gains. It is the problem with coin picking, or being forced to choose specific coins.
In this blog, we will be covering a couple of pointers that will help you choose a winner.
Choosing a Cryptocurrency – Two Major Factors to Consider:
1) The technology:
Perhaps the first thing to consider is the purpose behind the blockchain and, by extension, the cryptocurrency that will be viable on that blockchain. How will companies incorporate or interact with the blockchain? Will retail customers be open to using the coin as a daily currency?
These are just a few of the questions that you need to ask about every coin that you evaluate. Despite the early days of mainstream crypto-investing looking more like a run by speculators, as this sector grows, it is the technology leaders who will drive usage and investment. Right now, that is not always the case, since customers are only beginning to understand the technology, its use within their business systems, and the startup companies providing the blockchain. At some point, that will switch: the crypto market will be much more technology-driven, and the money will flow toward those companies that have proven themselves useful. How beneficial that is for regular customers and investors will be dictated by the purpose of the specific blockchain and the corresponding coin.
If it is simply a decentralized currency where no company operates the blockchain, like bitcoin, then decide whether or not the technology will allow enough users to spend coins on a regular basis to justify the market cap. If it is a smart contract tool, like Ethereum, then evaluate ether on whether or not there is enough demand among corporate entities to justify future gains. Starting with the technology will give you a base to begin evaluating more short-term indicators surrounding the currency.
2) The management team:
Alongside the prowess of the technology, you also need to be aware of the management team behind the coin. Do the founders and leaders make you feel confident? The amount of weight that you put in this factor can be determined by the ultimate objective of the blockchain company.
For example, if the coin emerges from the development of a blockchain startup, in which the ultimate objective would be to generate profits through investors who use the company’s platform, you need to analyze not just the technological ability of the developer, but also the business prowess of the leader responsible for the finances of the organization. If your research reveals that the crypto developer is respected and renowned within the engineering space, or is positively popular within the blockchain community, that is a good indicator. In addition, if you find that the company has been able to attract interest from leading venture capital firms, it further reveals that the company has the ability to add value for its investors.
Having said all that, it is vital that you do not fall in love with the organization’s management team. Sure, it is valuable to know the team and its background, making a decision based solely on the team manager can prove costly. Often, it can take time for capable developers to produce results. Charlie Lee, the Litecoin creator, for instance, as endured multiple failures in the crypto space.
For bitcoin trading, it is essential to choose criteria that is uniform across every currency – and this article covered a couple of such factors. If you want to learn more about evaluating a crypto or start your trading journey.