You’re thinking of giving crypto a shot, but how do you know what cryptocurrency to buy? That’s a fair question. After all, the world of cryptocurrencies is massive, and there are thousands of digital assets and tokens popping up left and right. Some have potential, others should be left alone – but how do you choose the right one?
You’ve probably already heard of Bitcoin and Ethereum, and if you have, you know they’re giants. But there are other cryptocurrencies out there, too, so what about them? How do you know which ones are worth your money? Even the Commodity Futures Trading Commission and other regulators are trying to keep up with all this.
Why? To put it simply, the crypto market can be a money tree, or it can be a complete and utter disaster. It depends on how you approach it.
If you’re interested in crypto, you’ll want to keep reading because in this article, you’ll learn how to recognize a good investment.
If you’re looking to gain full control of your finances and you want crypto to help you get there, first, you need to understand the basics – blockchain technology. Think of this as a super secure digital ledger (think ‘public record’ or ‘digital logbook’) that records all crypto transactions in a way that’s transparent and almost impossible to alter.
When you send or receive crypto, that transaction is recorded on this public ledger, where participants can verify transactions that everyone can see but nobody can tamper with. This is a big part of what makes the cryptocurrency market so appealing; it’s transparent, decentralized, and it’s not controlled by a single authority.
Because everything is set up this way, cryptocurrencies can act as a payment system without needing banks or financial institutions, which makes transferring funds simpler; it’s a peer-to-peer network where you can send transfers directly to someone else without a middleman.
The way crypto works is totally different from traditional finance, which is why so many people are drawn to it, especially if they’re looking for alternatives to mainstream banking through digital assets.
Market cap is the total worth of a cryptocurrency, and it’s calculated by multiplying the current price by the total number of coins in circulation. When you’re interested in trading/investing in crypto, that’s very important to help determine which one to go for.
A high market cap usually means the cryptocurrency is more established and stable, which means it’s less likely to crash overnight. Bitcoin and Ethereum are perfect examples of popular cryptocurrencies with massive market values/caps that dominate the marketplace. They are also the most commonly traded cryptocurrencies, which gives them more credibility and liquidity.
Investors usually go for coins with higher market total valuations because they’re safer compared to newer coins, which are seen as riskier and (often) come with higher exchange commission fees. Total circulating value also helps determine a coin’s value when you pair it with other factors like trading volume, which shows how actively a cryptocurrency is being bought and sold.
So, if you want to play it smart, pay attention to market value.
Aside from market cap, another thing you need to pay attention to is the crypto white paper. This document is pretty much a blueprint that explains everything you need to know about a crypto initiative. This includes its purpose, technology, and how it plans to achieve its goals.
Legitimate cryptocurrency projects take their white papers seriously because it’s their chance to prove they have something to offer to potential investors. If you stumble upon an initiative that doesn’t have a clear, detailed white paper, it’s a big red flag.
But reading the crypto white paper is just one part of the process. You also need to research the cryptocurrencies created by these initiatives and examine their past performance alongside the underlying technology they rely on. If you look at how a coin has performed over time, you can get an idea of how stable it is and whether it has growth potential or not.
However, you shouldn’t rely only on historical data because the crypto market is known for its wild ups and downs. These past trends are just a piece of the puzzle, and that’s how you should treat them. You also need to understand the underlying blockchain technology of a project. This means that you should figure out what makes it different or better than everything else that already exists.
For example, is the blockchain faster, more secure, more scalable, etc.? Does this venture solve real-world problems? Does it offer something truly innovative?
The more you understand the technology behind a cryptocurrency project, the better equipped you’ll be to make smart investments.
Nobody can ignore the power social media has over almost everything, including crypto. Platforms like X, Reddit, and Discord are full of discussions about what’s hot and what’s not, and the hype coming from social media can make or break a new cryptocurrency in no time.
It’s not unusual to see coins go viral just because a community has rallied behind a crypto initiative or because a popular influencer mentions them.
These platforms are also where you’ll find a lot of conversation about decentralized exchanges, which play a big role in how trends are shaped. Traders often use these exchanges to discuss new ventures and share strategies on trading, which can lead to sudden changes in price.
But it’s not all just hype and speculation. Government regulations also have a significant impact. When a country announces a crackdown on crypto or introduces new regulations, you’ll see opinions, predictions, and panic on social media. And, of course, everyone’s talking about the current price of popular coins, especially when there’s a big price jump or crash.
There’s a constant flow of information, and it can be overwhelming, but it’s also really valuable if you can filter out the noise coming from the know-it-alls. If you keep an eye on social media, you might spot trends early on, and that’s great if you combine it with actual research before you decide to invest.
Finding a great financial commitment doesn’t come by accident, so be prepared to do a good deal of homework. The marketplace is full of hype, but you need facts. The truth is, not every coin out there is worth your time or money, so let’s see what to consider when you’re looking for a valuable cryptocurrency.
One of the first things you should check is the technology behind the cryptocurrency. The one that’s truly valuable has a real-world application and solves an actual problem. This could be anything from improving transaction speed to providing more secure ways to store data. Technology also determines how scalable or secure a crypto project is, which directly impacts its potential for success.
You also need to pay attention to trading volume. The higher it is, the easier it is to buy or sell the cryptocurrency when you want to. When you find a combination of strong technology and good liquidity, you’ve found something that’s worth investing in.
More often than not, you’ll hear someone say that crypto is a speculative investment, and they won’t be entirely wrong. A lot of cryptocurrencies are speculative because their value is based more on their potential than their actual use. But if a cryptocurrency is widely adopted and has strong partnerships, it usually means it’s a relatively safe bet (or as safe as crypto can be).
As a new asset class, most cryptocurrencies that become mainstream and build reputable partnerships are more likely to grow in value.
To make a smart investment, you’ll also need to pay attention to exchange trends. One growing trend is using cryptocurrencies for cross-border payments, which is easier and cheaper than what you get with traditional banking systems.
Aside from payments, it’s also helpful to compare cryptocurrencies with other alternative investments like precious metals or stocks. If you can understand how crypto stacks up against other financial products like EFTs or futures, you’ll get a better idea of where the economic landscape is heading.
No matter how good a cryptocurrency looks, remember that all stakes are risky, and your funds can be lost if you aren’t careful. To be successful, you have to know how much risk you can tolerate, plus you also need to spread your investments across different coins and digital assets. Diversification is one of the oldest rules in the book, and it applies to crypto just as much as it does to traditional investments.
A balanced portfolio that includes both well-established coins like Bitcoin and smaller initiatives with high potential for growth can help protect (and reduce risk) against making poor decisions that would cause you to lose money.
A worthwhile economic endeavor in the crypto world means strong technology, real-world use cases, high liquidity, and community support. Generally speaking, cryptocurrencies with a solid track record and widespread adoption are safer choices. But you need to keep in mind that investing in crypto is unpredictable/uncertain, no matter how you go about it.
2. How can you tell if a cryptocurrency is valuable?
A valuable cryptocurrency usually has a unique, effective technology that solves real-world problems. A high trading volume is another good sign, but you should also check the cryptocurrency white paper to understand the venture’s use case.
Government regulations can have a huge impact on the crypto exchange, so you should stay informed about them. When new regulations are announced, they can cause the prices of crypto to plummet or skyrocket, depending on what the investors think and how regulations affect their confidence.
Choosing what crypto to buy should never be a guessing game. You should never hope that it does well or invest money into something you only kind of, sort of think will do well. Maybe. In the future.
Before you invest, take the time to learn how cryptocurrencies work, do your research, and keep an eye on social media to see how trends affect prices. The crypto marketplace changes by the second, and something that seems like a sure thing now might be a disaster later today or tomorrow.
Regardless of whether you’re dealing with major players like Bitcoin or you’re looking into new digital undertakings that are still trying to make a name for themselves, keep learning, be careful, and always diversify your portfolio.