10 BEST tips to know for investing in cryptocurrencies - For Dummies

fapfap (55)in #cryptocurrency • 7 years ago (edited)

While cryptocurrencies are commonly referred to as 'virtual' currencies, their share in the economy is very real and growing rapidly: the total market capitalization of altcoins (alternative crypto-currencies to the bitcoin) rose from $ 50 million 2013 to more than 170 billion in 2017. (It moved a lot these last days, let's admit it). Knowing that there are more than 800 cryptocurrencies in 2017, how to avoid scams and find the crypto currencies the most promising - those that will have a chance of survival, that will be adopted by the general public and that will offer a significant return on investment in 10-20 years?

Investing in cryptos is far from being an exact science. Cryptocurrencies are not publicly traded companies, they do not publish financial statements and it is therefore unthinkable to calculate their book value. Whether the price of a cryptomoney is under-valued or not is almost impossible mission because it would have to know its intrinsic value. Investing in this area is therefore very adventurous and the risk of capital loss is high. That being said, for a person who takes the time to study and who is patient, there are indicators that limit risks, avoid pitfalls, and gauge whether a cryptocurrency is likely to be profitable over the long term. Here is a non-exhaustive list of leads that can be studied before investing in a cryptocurrency.

Technology

Investing in a programmable currency requires a minimum understanding of its technology. Many currencies use the same code as bitcoin and are only pale copies. Little interest for the investor unless the bitcoin fails, as a clone could then play the role of substitute. The system of validation of the chain of blocks is to be taken into account, does the cryptocurrency use the proof-of-work or proof-of-stake

Both at the same time or neither (proof-of-importance, proof-of-service, proof-of-research, etc.)? What is the algorithm chosen? What governance for what kind of consensus? Scalability: Which methods are considered? Solutions on the chain of blocks, solutions off the chain of off-chain or both at the same time? Is there a blockchain or not (→ cryptos using the DAG). Cryptocurrencies which possess different characteristics of the bitcoin or do not use the same programming language are to be studied closely by the crypto-investor because they could break into niche markets.

The amount of tokens created

Since the investor buys tokens, he must also check whether the crypto-currency has a limited amount of tokens or if the system is deflationary. If there are not these criteria, the price of the token may stagnate or decrease over the years. the Bitcoin and Bitcoin Cash, for example, both have a tokens quantity limited to 21 million, there will not be one more and this is what makes it the scarcity.

The price of the token

Finding a virtual currency that is thought promising is not enough, you must know when to buy it. It is not because a currency is exchanged against only 30K satoshis that it is cheap, it can easily lose more than 50% of its value. A crypto may be purchased prior to its official launch at ICO (Initial Coin Offering), but it should be kept in mind that its value may drop considerably after the euphoric period of launch, sometimes below the initial value of ICO. If the ICO has been missed, it is better to wait until the attention fades. During the existence of a cryptocurrency, its price may rise when a new exchange adds its token to its trading platform, when a stage of the track record is reached (passing from a testnet to a mainnet for example), when a popular wallet adds it, ... etc. It seems wise to buy the token before these catalytic events, when the price is still low and offers a margin of safety. The Bittrex and Livecoin exchanges have charts that allow you to study the price curves, the volumes exchanged and the depth of the order book for each cryptocurrency.

Website

Does the cryptocurrency have an official website? Is there information about the owner of the site or the company that is in charge? Are the developers of the project presented on the site with their titles and biographies, is there a white paper describing the project? If these elements are all absent, this does not bode well and the cryptocurrency could well be a pyramid of ponzi, a scam in which it is not necessary to invest.

Accusations of Scam

If the crypto-currency website looks dodgy, you can do a search in google.com with the keyword matching your cryptocurrency followed by the word SCAM. If you find scam accusations in the search results, read them to see if these accusations are well-founded or not (sometimes charges may be false and put on-line by unconditional supporters of a crypto in the purpose of denigrating a concurrent project). By doing this research, you will avoid investing in a Ponzi system like the Onecoin cryptocurrency.

Metrics Reddit

Reddit is a well-known and well-developed global community website. Cryptocurrencies communities often create their own subredits to enable developers, enthusiasts and users to share news, opinions and issues, and discuss them. The investor can view the statistics of a virtual currency subbreed on redditmetrics.com. The graph of the evolution of the number of subscribers on the subbreed is a good indicator of the health of cryptocurrency. A community that has grown too fast, or a community that is dying, may be a warning to the investor.

Let's take for example two cryptos:

Crypto X: the growth of the number of subscribers of the subreddit of crypto X is organic, the graphic curve rises regularly, this means a natural interest for cryptocurrency. The investor should see a strong crypto-currency that attracts new members attracted by the technological qualities and probably also the quality of the discussions. The community is built on solid foundations.

Crypto Y: enrollment growth was very rapid, in just a few months this community reached its maximum members, and then the curve decreases regularly over the years. We can deduce that this community was built too quickly, the sudden interest in cryptocurrency is surely the result of intense marketing or what is often called a hype. The runaway past, people gradually leave the ship (the curve of a subreddit's registers never falls sharply because many people forget to unsubscribe even if they deserted forever the subbreed). The investor should be on his guard because it is surely the sign of a cryptocurrency whose technology has not really convinced.

Slack

Slack is a collaborative communication platform widely used by cryptocurrency developers. Many cryptomonies have a dedicated slack. The investor can register (after request) on the Slack of the virtual currency and thus keep abreast of the exchanges between the developers and the progress of the project. Valuable information can be obtained on the progress of development.

Bitcointalk

Bitcointalk is a forum that was created at the very beginning of the bitcoin and that has a section dedicated to the announcements of new altcoins. Each cryptocurrency has a dedicated topic that contains more and more pages as discussions proceed. You can see if the topic is deserted or if there is always discussion. The investor can find interesting information and ask about his cryptocurrency of choice. Attention all information should not be taken seriously; there are many trolls and speculators who spread false information and rumors in order to manipulate the course or denigrate the project in question. So there is a big job of filtering information to be done on bitcointalk.

The developer team

A cryptocurrency may be better than others technologically, it may fail to become popular and may never be used by masses if its developers are not up to par. The investor must therefore pay close attention to the developer team. Do they have experience? Have they carried out projects in the past before working on the cryptocurrency in question? What training do they have? Are there any conflicts within the team that hinder or threaten development? How do developers react to difficulties, to external competition? Are their exchanges on the community reddit or slack cordial, constructive? All of these are important because they directly affect the ability of developers to deliver the technological advances in the roadmap in a timely manner.

Developer financing

It is very important to know who pays the developers, is it a company or a private equity fund outside the cryptocurrency? Has there been an ICO? Are developers volunteers who work part-time on cryptocurrency? These questions are crucial for the crypto-investor. It must in fact detect the motivation of the developers to the success of the project, to increase the price of the token, and also to flush out any conflicts of interests that could hinder future development.

The ideal would be a team of developers paid in tokens by the community or blockchain (with a budget allocated to salaries if possible transparent and known to all) and programming for the benefit of users, ecosystem start-ups , and with the ultimate goal of bringing the project to mass adoption.

The worst would be developers paid in fiat currency through a private box. In this case, regardless of whether the token price drops sharply, the project deviates from the track record or is likely to lead to failure, the devs will receive whatever their DOLLAR salary .

Thanks for reading, and good luck in your investments!

Disclaimer by @fapfap

The informations contained in this article are given for educational purposes only. They do not constitute investment recommendations. There are many other factors to consider before investing in cryptocurrencies. The reader should study the risks before making any purchase. It is solely responsible for its investment decisions.

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