How can you do your due diligence before you invest in cryptocurrencies? One of the most important lessons in investing is to do your thinking. Hence, this article will help you to understand cryptocurrencies better. Furthermore, if you are an alternative coin investor, this article will help you to do some fundamental analysis that will help you pick the best ones with long-term potential.
How can you invest in research in the cryptocurrency space?
If you think about it, every investment will have its pros and cons. Therefore, it is up to the cryptocurrency investor to search for the negative side, first because some of them may be thedefinite deal breaker. If these exist, then it is not worth investing more time in researching the cryptocurrency. This is the easiest way that you can start your research.
For many investors, finding the right information about cryptocurrencies can prove to be a challenge because concrete information is hard to find or it does not exist. This is more so with the new cryptocurrencies that are yet to establish itself within the market. Furthermore, there are a lot of fake news circulating the Internet. Therefore, verifying the source of information can be a challenging task.
If you are new to the cryptocurrency space, you may find some charging that is beyond your technical understanding. In fact, the information itself can be beyond your technical understanding. In fact, some of the layers available in new alternative coins are still at the White Paper state and not yet proven. It takes some time for you to understand, question and assimilate the information that you receive.
Here are the fundamental questions that you need to ask yourself when you are investing in cryptocurrency.
- What is the main reason that you are investing in an alternative coin?
- What if the problem is solved through the alternative coin?
- What is the use case?
- What is the scale of the problem being solved?
- Has anyone else attempted to solve the same problem?
- Did they succeed?
- If not, why did they fail?
- Is the problem currently solved in another way?
- Are there any other alternative is to address this problem more efficiently?
- In an ICO, what is the White Paper specify?
- Is the alternative coin centralized or decentralized?
- If the purpose of the coin’s existence clear?
- If the price of the cryptocurrency based on the value delivered today or on the future promises of development?
The fundamental reason that cryptocurrencies, such as Bitcoin or any other alternative coin to exist are to serve its users. This is the only reason why users will engage in an alternative coin, which is if they can solve a problem that they currently have. In fact, some alternative coins promised to solve some problems that we did not know we have. In your research, you will find that these alternative cryptocurrencies are trying to solve the same problem in different ways. Therefore, as an investor, you need to predict which cryptocurrency is going to excel at it.
Other cryptocurrencies, such asEDC and iEx.ec are currently bringing blockchain or decentralization to problems which have been previously addressed by centralized solutions. For any alternative coin founders that one of the cryptocurrency to take off, it needs to get the very basic core mission right functionally, and Neil the contacts as well as the timing.
Marketing and branding
here are some important questions that you need to ask in this area.
- What is the marketing strategy of the coin?
- How good is the aim?
- Does it utilize proper branding to the problem that it is solving?
- Has the coin been rebranded?
- If so, why did they do it?
- Does the coin utilize MLM tactics?
- Is it only known among cryptocurrency community?
When it comes to marketing, this plays an important role to help the cryptocurrency to take off in the market. Marketing is everything. Without knowing a solution, how can that solution be applied to a problem? Therefore, marketing is to inform the market of the solution.< /p>
Meanwhile, branding is known as the trust between the cryptocurrency and its potential investors. Actual users will usually come in later. In this regard, we will analyze a term called hyperinflation. This usually occurs when the user of the currency lose thetrust towards the coin. However, the inverse is also true. Hyper revaluation occurs when many investors want to buy into the belief that actual users will come in later.
Have you ever came across an alternative coin that rebranded itself? If you have, don’t worry too much. In fact, rebranding is very common in the cryptocurrency space. Alternative coins go through periods of maturation. Therefore, its brand image typically changes as well. Frequent rebranding is at signs of frequent changes of strategy,or it could be they are trying to hide something. Keep in mind that frequent rebranding is not a good indication of future strategic decisions.
Before you invest in a cryptocurrency, check if there have been any mentions of the alternative currency in any crypto media outlets. Some of the websites that you can check areCointelegraph.com, CryptoCoinsNews.com and Altcoin Reviews. 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 increased 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 coverage on newspapers and news media are indicators of mainstream interest.
- How many are other investorsare there for the project?
- What are the intentions of the alternative coin founder?
- How many followers does the coin have on social media platforms?
- Have you checked the hashtag for the coin?
- How many visits thus the coin website get?
This is one of the most important elements of a cryptocurrency that you need to monitor. This is because it combines the results of all the other metrics. Coin market Or the total value of the cryptocurrency is also a form of social proof. The total value of a coin is the result of investors voting with their wallets.
Spokesperson or developers
Many popular alternative coins have a face to them. Usually, these will be the cryptocurrency developers or the spokesperson stock typically, they will give a face to the project,and they consolidate information. They can also be champions and evangelists. They have the responsibility to spread the idea and solution to the public.
Any U-turn by these coin champions can have a serious effect on the coins value. Therefore, these people will become key influencers because naive investors typically focus their thinking on them. In cases where the spokesperson jump from one bandwagon to another, many investors also followed suit. The result of this can be humongous.
Development team and technology
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. Here are some questions you can ask in this area.
- What is the new technology that the alternative coin is developing?
- How is the technology being applied to create a more effective solution?
- Can the solution be easily replicated?
- What is unique about the development team?
- What are the weaknesses of the team?
- At the identities of the team public?
- What is the tone of their post on social media platforms?
Over time, Bitcoin has proven itself over and over again. Although so, many have also harshly criticised the cryptocurrency. Keep in mind that most alternative coins either modify Bitcoin’s blockchain or create an entirely new blockchain technology. With new technologies comes new risks. For instance, the famous DAO hack was a result of a vulnerability in the new 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.
Price, Market,and Exchanges
- if the market movement related to actual events?
- Is the market rising as a whole or is the cryptocurrency be only one increasing?
- On what volume was the price increase or decrease?
- What are the exchanges that accept the alternative coin?
- Are there any businesses which accept the alternative coin directly?
Pumping and dumping
Alternative coins will usually have a core following which consists of people who truly believe in the project. These people can consist of the founders, developers or those with an extensive interest in seeing the coin to flourish either ideologically or for monetary reasons. Therefore, this group will fervently try to promote the benefits of using the alternative coin and find solutions to counter the negatives associated with the alternative coin.
However, there are also other groups in the market who will focus more on the this advantageous of a specific coin instead of looking at the advantageous. These are the group of people who believe that another coin is superior to the coin in question. However, it can be bitter people who missed out on the ICO, or it could be those were buying the coin at lower prices.
Some pumps are being focused on thecertain new feature being released, while others can be more structural about regulation changes, breakdown or increase in competition. The pump and dump scheme takes money from both the greedy and fearful investor. It takes place through a hype, promises and the fear of losing out. Hence, you have to be very wary of these situations.
Some pumps can take place to a large extent. Between January and February 2017, Dash doubled in price. In fact, such a rise needs to be sustained to be of any value to buy and hold crypto investor. However, if the prices go up and then come crashing down, the investor confidence will erode each time.
Can the price of a cryptocurrency be manipulated by external agents with the intent of causing harm?
The question is more important in the future than today. Investors in the future will be able to invest in cryptocurrency exchange-traded funds. When the SEC approves it, then these funds will be able to do make that short selling.
- What is the inflation or deflation rate?
- How much alternative coin will be generated over time?
- When will the last cryptocurrency be generated?
- Is the altcoin a PoS (Proof of Stake) or a PoW (Proof of Work)?
- The economy, in alternative coin, will determine the supply side of the coin. Therefore, you need to scrutinize the behavior of these coins as much as any central banker will do.
- Did the coin establish a goal?
- How much has it progressed?
- Was the coin insta-mined or pre-mined?
- What was the money used for?
- Was there an exact time and date for the launch of the coin?
- Was the specification of the coin revealed before or after the launch?
- Who is the largest proponent of the coin?
- What is their history with the alternative coin?
- Who are the largest critics of the coin?
- How has the alternative coin changed over time?
By analyzing the history of an alternative coin, investors can point out the problems or the potential for greatness. Therefore, an investor needs to define what an alternative coin is before they go further into an alternative coins history. Essentially, an alternative coin will in Compas the mindset of the founders, the white paper, the connection and interaction between the market and the alternative coin developers.
However, there are some alternative coins which are a scam coins by design. Some others have good intentions but poorly implemented. Sometimes, the competition can be too overwhelming for them to stand out in the market. Keep in mind that the past is no guarantee for the future, but the future’s foundations are laid down in the past.
If there is one thing that can destroy the viability of a cryptocurrency overnight, it would be the regulators within the country. Admittedly, cryptocurrencies are highly resilient to such attacks because of their decentralized design. However, keep in mind that the owners are people who keep cryptocurrencies alive. Hence, these owners are not resilient to such attacks from regulators. Probably 99% of cryptocurrency holders are good and law-abiding citizens.
There are several variables which increase the likelihood of being targeted by regulators.
- Does the coin focus on a particular market?
- Focus on one region?
- Allow anonymous transactions?
- Popular on the dark web?
- Classified as a scam coin?
- However, regulation can make an alternative coin much stronger.
Regulators of particular jurisdictions which maintain the status quo or openly accept blockchain technology were cryptocurrencies more into the mainstream. However, there are alreadyprivate forms of the public blockchain oversight, such as companies which monitor blockchains for illegal activities. They cooperate with regulators to discourage the illegal use of cryptocurrencies. Meanwhile, other firms help to rank ICO. This also helps private investors to make informed decisions.
Another thought that you have to consider is that all forms of impediments which are traumatic cryptocurrency will only serve to make it much stronger. Cryptocurrencies will eventually evolve and change shape to either outsmart, evade or adapt to regulators. Hence, you can consider regulation as a natural force which will take the week out and make the better cryptocurrencies to be more resilient towards outside influences.
One of the main concerns of regulators towards cryptocurrencies is the issue ofanonymity. By default, blockchain’s provide privacy to its users. This is where regulators are most likely to clash with alternative coins. Hence, governments are willing to do everything in their power to stop it as a vessel for a legal tax avoidance vehicles.
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 these coins require closer scrutiny. 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 take a deeper look at the coin. Two possibilities may happen, which is it is a regulatory track itself,or there is a possibility that the alternative coin is an outright scam. Many of the scam coins circulated have multilevel marketing elements or scam -like tactics.
Centralisation versus decentralization
The concept of decentralisation is the core of cryptocurrencies. People want to avoid having to answer to a central institution such as a bank or the government. For once, the money that is circulated in the system exists for them and is not just what the government says there is.
Centralised or decentralize our attributes. The cannot be confused with adjectives. Some attribute centralized too bad and decentralized to good. Given the spirit of liberty and autonomy in the crypto space, this is a common misconception. Both of these attributes have its pros and cons.
For centralization, it brings forth cult figures and centralized point of attack. However, they also provide benefits in the form of better coordination, deployment of resources and central points of contact for support and media. Furthermore, centralization of development can be a threat to a currency.
For instance,Monero which is an anonymous cryptocurrency, which has a public spokesperson. In a recent broadcast, he stated his concern about being too much in the limelight. If somebody wants to lash out to words a certain cryptocurrency, the people who make up the face of the cryptocurrency will certainly be the prime target.
For instance, deCRED has a decentralized development structure, which gives its strength towards expanding its functionality. However, it is a lot more challenging to integrate: it coming from different developers. Some cryptocurrencies also have anonymous developers.
Therefore, potential entities who want to cause trouble will not have a face that they can lash out too. However, this can raise a lot of questions in regards to the reputation and expertise of these developers. Having said that, most of these developers are accessible through their slack channel.
Centralised / Decentralised Infrastructure.
Most of Bitcoin’s mining power is located in China. Miners typically swarm around cheap sources of electricity because it requires a large amount of leg electricity to mind Bitcoin stop this mining clusters can create weak links in the blockchain because it opens up to vulnerability such as exposing the hashing power to attacks. This is especially more so in jurisdictions which are vulnerable to state interference and failures of certain infrastructure points.
Other points of failure can include service nodes, master nodes,exchanges and other critical infrastructure points which maintain the coin’s value and the ability of users to exchange the coin.
The future of cryptocurrency
- >Are there any resources available to maintain development and marketing of the coin?
- If so, how long can be last?
- Is the development and marketing team experience in the cryptocurrency space?
- Are there any competing technologies on the horizon that can threaten blockchain?
When investing in cryptocurrency, you need to follow the momentum and technical analysis of the chart. Does this work? There isn’t any definite answer to this is because different people have had different levels of success using different strategies.
However, the fundamental approach to this investing has worked for Warren Buffett. Therefore, there is no reason that it should not work for cryptocurrency investors. Furthermore, you must also consider fundamental analysis dollar cost averaging in your investing strategy, don’t always remember to buy low and sell high.