Despite being a fairly new asset class, cryptocurrencies are taking over the investment world by storm. In fact, cryptocurrencies have only been around for a little over a decade, but there are already tens of thousands of them available. So even though many investors are embracing cryptocurrencies, it makes you wonder which one you should invest in. To help you out, here’s a guide to determine which cryptocurrency you should invest in.
Check The Market Cap
For starters, you’ll want to look at the market capitalization of the cryptocurrency you’re considering investing in. It’s an indicator that measures the value of a cryptocurrency and keeps track of how often this value goes up or down.
In most cases, the market cap of a cryptocurrency is used to understand a specific asset’s popularity and dominance in the market. So, the higher the market cap, the more popular it is. Currently, the cryptocurrency with the highest market cap is Bitcoin, which shows that most investors are talking about it right now.
It’s also an appropriate measure that ranks tokens in terms of popularity. In fact, the market cap also shows you how the value of a specific cryptocurrency increased or decreased over time. This allows you to see how specific events in the financial industry affect the values of cryptocurrencies.
Highly volatile cryptocurrencies are more susceptible to movements due to events in the market than others. Therefore, you should consider this fact before deciding on a cryptocurrency.
View The Coin Supply
Before committing to investing a cryptocurrency, you should understand whether or not it has a limited supply. That means determining how many coins are currently in circulation and how many more can be mined. When a cryptocurrency only has a specific number of tokens, the value goes up because it’s limited in number.
A good example in this case is Bitcoin. When it was first launched, it was public knowledge that there are only 21 million Bitcoins. So as the demand increases but supply decreases, its value goes up.
Of course, that doesn’t mean that cryptocurrencies with an unlimited supply can’t grow in value. These cryptocurrencies make sure to burn excess tokens to stabilize the value of the cryptocurrency. One example of a deflationary cryptocurrency is Ripple’s XRP.
Read The Whitepapers
Now that you’ve seen its market cap and its total supply, it’s time to see what the cryptocurrency is all about. For this, you need to see the whitepaper, which acts as a user guide to attract investors toward a cryptocurrency.
Whenever a blockchain company launches a new cryptocurrency, they publish essential details about the token in a whitepaper. The whitepaper explains the financial, technical, and commercial aspects of the cryptocurrency.
First thing’s first, you need to assess that the cryptocurrency you’re considering has a whitepaper or not. If it doesn’t have a whitepaper at all, this should come off as highly suspicious.
If it does, make sure that it answers all your questions in a comprehensive way. Also have a look at the team behind the development of the cryptocurrency. Have they worked on any other projects in the past? Was the project successful? What are their credentials? Remember, it’s supposed to reassure you about the coin’s legitimacy.
Assess Its Utility
Finally, you need to assess the utility of a coin. It’s the most important factor that can make a huge difference in a cryptocurrency’s value. The whitepaper should outline the different use cases of a cryptocurrency.
If it has impressive use cases or the potential to offer different applications, then the value is bound to increase. The inverse can be true as well. If there are few use cases and limited potential, then the value can drop as well.
Bottom Line
When you’re looking to purchase a cryptocurrency for investment purposes, you need to look at a few things. Have a look at its market cap, total supply, whitepaper, and use cases. These things can inform you as to whether or not it’s a good investment.