In the first half of 2021, cryptocurrencies were again discussed everywhere: in the media, social networks, forums, and television. Now the cryptocurrency market is undergoing a slight correction when the price of an asset decreases, but this does not mean the beginning of a new “crypto winter”. On the contrary, now is a great time to become a crypto investor.
It will be difficult for a person who first entered the crypto market to understand which cryptocurrency to choose. Every crypto investor wants to find the very coin that will bring serious income to his capital. But how do you select the right one?
Dozens of new projects and startups appear on the crypto market every month. To raise funds for their development, they use an initial coin offering (ICO) or placement of coins through a crypto exchange (IEO). The ICO explosion came in 2017-2018. Then a lot of scam-ICOs arose: the creators of the projects collected money from investors and then refused to fulfill the terms of the contract.
Deep Analysis of the Next Crypto Asset
Before investing money in the purchase of a supposedly very promising coin of a crypto project, you should conduct a deep analysis of it. It is better to divide it into several stages.
It is most convenient to use the classical approach – the analysis of four “T”:
• Theme (concept);
• Tech (technology, code);
• Team (team);
• Token (crypto coin).
Let’s discuss each of them.
Which Cryptocurrency Can Diversify Your Portfolio?
Naturally, a diversified portfolio reduces the investor’s risk. But when trading cryptocurrency, having different coins in the portfolio does not have the same effect as when trading stocks. Recall that not all coins that are now in the top 20 have existed on the market in the last 5 years.
In addition, while Bitcoin, Etherum, and Litecoin have been in the top 5 for a long time, it is important to understand what technologies, from marketing to implementation, other crypto assets have.
If you are having difficulty comparing the value of your chosen crypto coin to another currency, use a reliable, accurate tool, for example, the Exness currency converter. With its help, you can quickly and conveniently calculate the ratio of the current cryptocurrency rates for today, for example, Bitcoin (BTC) to Ethereum (ETH). After seeing the exact result, you will understand whether it makes sense to replenish your portfolio with a new coin.
Studying the Whitepaper and the project roadmap will help to understand its general concept, as well as uniqueness, usefulness, and viability. The Whitepaper is a fundamental document for any project. It should outline the background, goals, strategy, challenges, and implementation timeline.
The whitepaper usually includes a financial model, legal issues, a SWOT analysis, and a roadmap for project implementation. Companies that do not publish official documents should be avoided.
If the Whitepaper says in the abstract that a company is ready to change the world for the better without concrete plans, figures, and analytics, this is a bad signal.
The roadmap of the project should include a phased plan – which will be three months after the launch, six, a year later.
The investor can focus on him and check intentions against actual results. Too loud promises and unrealistic terms of the project should be alarming.
Another positive indicator is smart contracts, which, under certain conditions, guarantee a return of money to investors. For example, if during the ICO the project does not collect the indicated amount. But having a compelling whitepaper does not guarantee that a project will be successful.
It’s good if the company does not hide technical documentation and puts open source code on platforms like GitHub (a service for hosting repositories). Professionals who can be found on specialized forums Bitcointalk, Reddit, Icorating will help in this matter. A technician can look at and tell how working the code is. If the project is not afraid of the fact that its code will be checked, it adds bonuses to it. It is also useful to read the opinions of well-known authoritative IT specialists about the project.
How to understand which token has open-source? Coincheckup, a specialized platform for analyzing and comparing cryptocurrencies, has a GitHub Analysis section, which shows the weekly activity of cryptocurrency developers on this resource for the last year. GitHub records the activity and size of the token community.
The individual members of the project team need to be carefully examined. It’s great if the team already has completed projects on its account, and the founders have industry experience and a good reputation.
The analysis of the coin must be carried out at once according to many parameters. First, you need to find out how many coins are being issued, how many coins remain with the founders of the project, whether there is a buyback of coins, what is the capitalization of the coin, how actively trades are taking place.
The low capitalization means that the price of the coin is easy to manipulate. A group of traders by order can buy the entire volume of the coin and “pump” the price to sky-high values. For example, in November 2019, such a trick was done with the ParallelCoin token, which increased 4000 times in price during the day of trading on the C-Patex exchange.
Having considered the basic requirements for choosing a crypto investment, let’s figure out how to diversify your investment portfolio.
Nowadays experts identify three main trends for the top 20 cryptocurrencies by market capitalization:
- All stable coins like Tether and Ravencoin have a very low correlation with the percentage change in the price of Bitcoin and other altcoins.
- The general trend shows an increase in correlation over time.
- 5 years ago there were only 45% of cryptocurrencies are now in the top 20
Digital assets are sometimes referred to as coins or tokens, which are designed to store value. That is, their volatility is comparable to traditional currencies, the rate fluctuations of which are usually much less than that of bitcoin. For example, the most popular stablecoin, Tether, always trades for about one dollar.
How Do They Keep Volatility Low?
Secured stablecoins are pegged to another asset, such as the US dollar, and their issuers maintain the value of the coin by owning that asset. Other stablecoins are pegged to the price of crypto assets such as Ether, or, in some DeFi applications (decentralized finance), to a basket of coins used as collateral.
There are currently dozens of stablecoins in use, with a market cap of over $ 100 billion in May, and more and more. Most of the coins with multiple backers are pegged to the US dollar.
Stablecoins can become a bridge between two worlds – cryptocurrencies and traditional finance. With their help, you can take profits from crypto trading or use them as a safe-haven asset if investors expect a recession. They also make it easier to transfer funds to crypto exchanges. Many exchanges do not maintain relationships with banks to hold regular foreign currency deposits or withdraw funds, however, they do accept stablecoins such as Tether. Finally, stablecoins can help streamline, speed up and reduce the cost of purchases and money transfers by using a technology called blockchain instead of traditional payment infrastructure.
Most experts advise buying only Bitcoin and Ethereum. And for those who want to experiment and take risks, he advises making a portfolio with 40% Bitcoin, 40% Ethereum, and 20% of the largest altcoins. But this advice is only for those investors who have some experience in this market. It is worth investing in the five most popular cryptocurrencies today – Bitcoin, Ethereum, Cardano, Binance Coin, and Polkadot.