What are the things that you should research about before you invest in a cryptocurrency? First and foremost, if you are considering to research about cryptocurrencies, you are already on the right track. In this article, we hope to provide clear guidelines on how you can research about cryptocurrencies better. Also, this article will also outline some fundamental analysis that will help you select the best cryptocurrencies with long-term potential.
How can you start researching the cryptocurrency space?
When it comes to investments, there are always two sides to the story. Hence, the investor has to engage in independent research to learn more about the good and bad sides of the investment. The same also applies to cryptocurrencies. You need to identify several features you want the most from a cryptocurrency. If you find any deal breakers in the investment, then you shouldn’t even waste time researching about the cryptocurrency. Once you have eliminated your investment choice based on your top criteria, then you can begin your research.
There are a lot of information In the cryptocurrency investment space. This applies to both traditional assets in cryptocurrencies, but it is even more challenging with cryptocurrencies. As it is a very new space, finding concrete information with verifiable sources is difficult to find. To find a detailed review about a cryptocurrency is very difficult especially because these past two years were the growth stage for these cryptocurrencies.
What should you do about fake news?
Fake news is another issue. There is a lot of news circulating online that are not verifiable. Finding trustable sources for cryptocurrencies can be difficult especially because people have every reason to spread fake news. As the environment is based on speculation, fake news can influence the decisions of cryptocurrency traders in the market.
If you do decide to take a look at an ICO’s white paper, this is another challenge especially if you are not a seasoned cryptocurrency trader. Most of the white papers you see will have a disclaimer that states not every claim they state is accurate.
One of the reasons that Bitcoin was viral in the first place was because it aims to fulfill the needs of its users that want a new financial system. When you are searching for an alternative coin, you should search for one which offers to solve the problem which has never been solved before.
The fundamental reason that cryptocurrencies, such as Bitcoin or any other alternative coins exist is to serve its users. In your research, you should keep an eye out for cryptocurrencies which propose a unique solution to solve the problem. As an investor, it is your task to predict whether or not they can achieve it using the technology they are proposing. Of course, there is a huge information gap that you will have to bridge by educating yourself as much as possible about the cryptocurrency.
For instance, Zcash aims to create truly anonymous transactions. It aims to do this by utilizing the zero proof technology. Using this technology, it completely removes the user transaction details, and these transactions are completely untraceable. Therefore, this cryptocurrency promotes a truly decentralized and private cryptocurrency.
How is the cryptocurrency marketing their brand?
Marketing is everything when it comes to cryptocurrency. Without marketing, it’s difficult for a project to get off the ground. Some people may view marketing hype is something negative because it may promote something that is untrue and want to build the initial hype around an ICO. However, marketing plays the role of informing the general public about a proposed solution. Without marketing, how can your target market know what you are proposing?
Branding is also important as it reflects the trust that potential investors have in a brand. There are instances where cryptocurrencies need to rebrand themselves. If you come across this, don’t panic. In fact, it is possible for this to happen because the company may have a shift in direction that they want to move into. However, doing re-branding too frequently can signal that there is a deeper problem within the firm. It signals that they are unsure about their future strategy positions. Think of it this way. At the start of a firm, they should have an idea of what they want to solve. Hence, they will put in capital to solve the problem. When they change their brand too often, it could mean that there is market manipulation. It that also does not make a comical sense for brands to rebrand themselves too often.
Before you invest in a cryptocurrency, check if there have been any mentions of the alternative currency in any crypto media outlets. If there are any positive reviews for the coin, this will add to the credibility of the cryptocurrency.
One important tip is that the cryptocurrency can gain credibility when there are media mentions outside of the crypto space. Among the other editorials that you should keep an eye out for are Forbes, Bloomberg, and Nasdaq. The interest of the society is typically reflected through media coverage.
Is there are any evidence of progress?
You must track the level of progress within the project. Social media is the best way for you to keep track of this. After all, everyone is well versed in what is good and bad in the social media world. A cryptocurrency project which gains attention will typically have a good amount of following on their social media profile. Also, there needs to be some discussion or recent announcements from the platform.
You also need to keep track of the total market capitalization of the cryptocurrency. This is the total valuation of the market that is contributed by cash that other investors have put in.
Who leads the conversation about the cryptocurrency?
For every alternative coin, you’ll probably find a prominent figure which speaks for the cryptocurrency. This is also a great strategy for these firms because they provide legitimacy especially if the person is well known within a cryptocurrency community. Therefore, this person will become the face of the project, and they function as the ambassador as they spread the proposed idea and solution to the public.
In any instance where the spokesperson turns their back on the project, this usually indicates something serious. Celebrities can also be endorsed service of certain cryptocurrency. We have seen how some celebrities offer cryptocurrencies with the purchase of their album. In addition, be cautious when you see the spokesperson that jump from one project to another. They may only be financially motivated and not trust in the cryptocurrencies that they are promoting.
Who are in the developing team?
The core value of any project relies on the functionalities of the coin. It also depends on how many people know about it and choose to trust the project.
Over time, Bitcoin has proven its capability as a cryptocurrency. Although so, many have also harshly criticised the cryptocurrency. Keep in mind that most alternative coins typically modify Bitcoin’s blockchain or use the same infrastructure. With new technologies comes new risks. The famous DAO hacking was also a result of a vulnerability in the smart contracts technology.
There are different impacts of technologies being implemented in alternative coin. In general, when a cryptocurrency ecosystem breaks down, it does not help the cryptocurrency investor as mainstream adoption is postponed at the end of these negative events.
Do you know about pumping and dumping?
Alternative coins typically have a community which consists of the founders, developers or people who are interested in seeing the point succeed. As a result, this group will constantly try to promote the benefits of the alternative coin. However, there are also people in the market who are looking at the disadvantages of a particular coin instead of looking at the potential. This can with a group of people who are bitter because they lost out on an ICO.
Due to the fear of missing out, people jump onto every opportunity that they see. These pump and dump schemes can take place on a large scale. In fact, it can double the price of the cryptocurrency. Once the group of people who run these schemes to leave the scene, it did have a huge impact on the price of the cryptocurrency.
How was the coin created?
Learn more about the history of an alternative coin. From here, investors can learn something which may point out potential problems or strengths that can make the cryptocurrency succeed. Therefore, investors must study the philosophy of the founders, the white paper and the interaction between the market and the alternative coin developers. Unless you are a seasoned trader, it will be difficult to judge based on the white paper alone.
Meanwhile, there are some coins which have good intentions, but they are poorly implemented. Competition can be very intense in the alternative coin market that is difficult to distinguish themselves without proper funds and a solid proposition.
Does your legal jurisdiction allow trading of the coin?
One of the factors that can destroy the cryptocurrency space overnight is regulation. Admittedly, cryptocurrencies should be resilient towards those attacks as there is no way to wipe out the infrastructure completely. However, if the government chooses to block trading of cryptocurrencies and shuts down exchanges within the nation, there is not much that an investor can do. In addition, the blockchain infrastructure also relies on humans to maintain it. Without the support of the community that minds cryptocurrencies, it would be difficult for the platform to stay up and to run.
Contrary to what most believe, regulations can serve to make an alternative coin much stronger. In fact, regulations that ensure consumer safety can encourage more blockchain start-ups to enter the country. In addition, the regulation also keeps track of suspicious transactions that may be used to fund illegal activities. Today, there are already private forms of public blockchain oversight that helps to monitor transactions within the blockchain. People who have access to this technology work together with regulators to discourage the illegal use of cryptocurrencies.
Also, there is a good reason why people shouldn’t be too concerned about regulation around the bannings because regulations will help make cryptocurrencies smarter as they can adapt and outsmart these regulators. Therefore, regulation should be considered as a force which takes out the weak and the ones that remain are truly deserving of their position.
Many governments around the world have issued notices which concern particular cryptocurrencies. Hence, you need to be on the lookout for these notices because it indicates that you may have to take precautionary measures if you intend to trade the coin. Keep in mind that these announcements are to keep you safe from spending your money where you shouldn’t. If the alternative coin that you are interested in has been warned against, you need to do more research about the coin.
Is it a truly decentralized cryptocurrency?
The concept of decentralization is the core of cryptocurrencies. People want to avoid having to answer to a central institution such as a bank or the government. For instnace, the money that is circulated in the system exists for them and is not just what the government says there is. Between centralized and decentralized, multiple opinions clash with each other. Given the spirit of autonomy in the cryptocurrency space, a common misconception is to believe that centralization means it’s something bad and decentralization is good. In fact, there are always two sides to the story.
With centralization, it may expose a system to a centralized point of attack. However, it is often governed by an entity which has the incentive to protect the infrastructure. In the case of any losses, you can hold this entity liable for the losses. There are also clear benefits from better coordination and deployment of resources. Meanwhile, decentralization opens up to many opportunities for abuse of funds to occur. On the one hand, it enables people to create a whole new world of decentralized applications. On the other, this is the dark side of cryptocurrencies feature used in the dark web and criminal activities.
In China, you will find one of the world’s most powerful mining system. Miners typically flock to prove it is in China because they have abundant and cheap energy resources. There is also renewable energy such as hydroelectric being used to power mining rigs. These mining clusters can create a vulnerability within the system because it exposes the hashing power to attacks. There are also other points of failure which can be caused by mining.
Wrapping it up
When you invest in cryptocurrency, ensure that you keep track of the momentum any technical analysis of the chart. This never necessarily guarantees the success of your investment but it is good to have a rough idea of where your cryptocurrency is at now. In fact, you have to test out different strategies because depending on your priorities, these strategies will work differently for you.