Technological and digital advancement has revolutionise practically everything around us by incorporating digital innovations and creativity into all creations by mankind. 115 years ago, it would have come to any ordinary man’s mind of what a joke it would be to fly in the sky- until the Wright brothers invented their first successful airplane in 1903.
Today, the Internet has made its mark across continents, which I certainly believe, deserves a rank as one of of the greatest wonders of the world with size and outreach beyond measurable.
Over time, rapid digital advancement has led to the creation of small yet mighty devices equipped with virtual assistant, voice recognition and touch sensor. Technological development has provided businesses with greater opportunities through the adoption of artificial intelligence, automation and virtual reality resulting in greater efficiency and cost savings in the long run.
Welcome to Industry 4.0, where digital and technological development has advanced to a whole new level with the birth of cryptocurrencies and the blockchain ecosystem.
With hundreds of coins listed on the exchanges, it becomes increasingly difficult to spot a precious sun among thousands of stars. So how do you choose a few cryptocurrencies that would be good to invest in for short or long term investment?
Here’re 9 important steps to help you look for good Altcoins to invest in.
Step 1: Obtain a High Level View of the Cryptocurrency Market
To get an overall view of current coins development in the market, start by identifying which coins are performing better than the rest by making reference to:
1) Ranking list featured on one of the largest cryptocurrency market capitalisation tracker platform CoinMarketCap,
2) Coins with obvious signs of fluctuating price trend, and don’t forget to also take note of
3) New coins that are climbing the crypto billboard chart.
Step 2: Determine the Real Value of a Coin
The real value of a coin is determined by its trading volume in a day, liquidity, market capitalisation and trade price on cryptocurrency trading platform.
Step 3: Ascertain the Cryptocurrencies 24 Hours Trading Volume
Depending on your what your investment style are, few of the best crypto trading exchanges to buy any altcoins such as Binance, Bitmex and Changelly, allows you to analyse trade volume rankings for all cryptocurrencies from 1 minute up to a 24 hours trading chart.
Essentially, the 24 hours chart shows the how frequent a coin is being bought and sold in the last 24 hours, which enable you to predict the direction and movement of the coin.
- In the event of a news breakout or a change in prices, a growing volume indicates that the mass are responding to it and a momentum could build up heading towards a specific direction i.e. price continue to rise or fall further. In contrast, a minimal change in volume dictates that only a small group of people are supporting the trend.
- Coins with low volume and have a sudden heavy movement indicates that it has received some strong support and may go through a correction.
The value of volume trades are measured in both USD and BTC. Coins with high trade volume indicates that the particular coin possess a more solid establishment and has a stronger network.
However, there are some exceptions to just looking at the 24 hours volume.
The 24 hours volume chart fails to recognise sudden surges that was a result of an action by the “Pump & Dump” schemes where large amount of coins are bought at a lower price to gain following by the mass public before selling the newly purchased coins at a high price, resulting in a significant fall in price. In this case, use the hourly average volume to spot any abnormalities in coin movement in comparison to historical chart.
Step 4: Sufficient Coin Liquidity
A trading volume of a coin goes hand in hand with its liquidity. Highly liquid coins allow you to enter and exit a trade easily and benefit from any change in movement regardless whichever investment position that you’re undertaking.
One easy and simple method to get a decent feel of a stock’s liquidity is to look at its 5 minutes candlestick chart.
Less Liquid Coins
- If you have limited time to spare in a day for trading and wish for tap into any opportunities that arises, a 1 minute or 5 minutes candlestick chart provides ample of opportunities for to make some quick gain from short selling and buying.
- On the other hand if you wish to know how the coin has been progressively throughout the day and over the past few days with a purpose to invest and hold for a longer period of time, the 1 hour and 24 hours chart is what you should be looking at.
A coin’s overall liquidity is also determined by the percentage of its’ footing over the entire trade volume and the direct comparison to the BTC volume. This indirectly means that the value of coins with smaller trade volume are easily affected with even the slight movement of trades. The goods and the bads. Nevertheless, risk could be minimised by using a larger and more reputable cryptocurrency exchange trading platform.
Step 5: Realistic Pricing and Market Capitalisation
Market capitalisation is important as it depicts the size of a cryptocurrency. A cryptocurrency market size is derived by multiplying the Market Price with the Number of cryptocurrency issued in the market.
One thing to take note is that market price is based on the perceived coin value by the public. A coin could be overpriced or underpriced as it is largely influenced by the movement of market demand.
Bear in mind that market capitalisation could be manipulated in two ways:
Amount of coins issued during an initial coin offering (ICO).Typical projects normally offer a pre-sale by allowing investors to make purchase of coins up to a 40% discount and may set a smaller limit on the Hard Cap to create a demand post coin issuance. Investors who are looking for a quick profit realisation would sell their shares bought at a discounted price after the ICO. If the price of the coin plummeted after the ICO due to a low take up rate, it could potentially means that the technical and perceived future growth potential of the coin did not receive much support from the investors.
There are two ICO terms that you would need to be familiar with here; the Soft Capitalisation (Soft Cap) and the Hard Capitalisation (Hard Cap). Soft Cap is the minimum amount of funds that are required to be raised during the ICO in order for the ICO to be considered as a success. Whereas a Hard Cap is the maximum amount of funds allowed to be raised.
On the other hand, if the price of the coin remains stable and demonstrate fluctuating signs towards an increase, this indicates that the coin has received a strong support base.
Inflated price.Before a dump was undertaken, the managing group would feature news and send messages to any social media and communication channel to direct attention onto the coin in which they have already invested (pumped) into earlier. The group would quickly sell their stakes (dump) when the price of the coin increase (inflated) due to subscribers entering into buying position.
There are times where the price of a cryptocurrency skyrocket from more than 50% to above 100% before seeing a deep dive within minutes. Don’t be alarmed as this is the result of an action by a Pump & Dump scheme.
Late subscribers will end up buying the cryptocurrency at a much higher price and suffer a painful loss when they start to get panic and sell their current holdings at an even lower price due to fear of losing out (FOMO).
Step 6: Experienced Team of Developer and Active Developer Activity
It has become increasingly easy for anyone to idealise an interesting and creative cryptocurrency concept but which of these ideas have successfully been converted into a prototype or an actual “product”? It requires a team with deep knowledge and experience of creating successful products to take on real action to execute a thorough business plan for the coin.
It’s always a smart move to get to know who would be managing your investment by taking some time off to conduct a profile check on the team of developer.
A professional team of developer conducts frequent activities on the official website, telegram and social media. If the developer provides regular development updates on the cryptocurrency, make consistent improvisation to the coin and quickly respond to enquiries, you can be more assured that your interest are prioritised.
A legitimate developer recognises that every original and revolutionary cryptocurrency is one of its kind and would take an extra step to launch a core wallet designed specifically for the coin.
Step 7: Comprehensive White Paper with Projected Milestone
White Paper is a report that educates readers about everything they need to know about the specific cryptocurrency. It contains informations such as the coin’s technology, what problems the project proposes to solve and how does it plans to solve it. A good White Paper is one that speaks valid ideas with clarity and is supported with technical findings.
One problem though. How do we read a cryptocurrency White Paper with all those buzzwords and technical terms? Surely there’s a way to navigate our way through without pulling hairs.
What we personally like to see here is the projected milestones, current constraints with future improvisation and development plan as it shows that the team is constantly striving to strengthen the coin and its technology.
By keeping in mind that the idea of a white paper also functions as a marketing paper, it would also be smart to keep a cautious mind and always question every information presented in the report.
"What does this project do? How does it works? Why do we need this project? Why does it has to be done on a Blockchain?"
If you still could not comprehend what the project does after asking yourself the above questions, please do not hesitate to follow your gut feelings and don’t invest in it. The last thing that you would want to do is to invest in a illegitimate project.
Step 8: Unique Coin with High Usability has a Great Growth Prospect
With hundreds of cryptocurrency projects in process, many new coins are making reference to the legendary Bitcoin with some improvement and innovation in place. Look for original ideas that addresses a lack in the real world and targets a larger group of users than an existing project.
Coins with high usability would attract the larger fraction of the community to use the coin as a simple cash alternative. Projects that does not limit to just one blockchain functionality and have features which are better than its predecessor, is a gold mine for keep due to its potential for long term growth.
Step 9: Wide Community Support Base and Established Ecosystem
If the cryptocurrency has a large base of dedicated followers and investors, it is quite likely that this particular cryptocurrency will see a faster pace to the top of the chart and can stand the test of time. When time is ticking especially fast in the cryptocurrency world, having a strong supportive community plays a great role in propelling a coin forward, cushion the impact of any abnormal movement and help the coin to recover during recessionary period.
Regardless whether you have made your mark as a millionaire or are still HODL-ing, believing that patience is a virtue of success, we certainly believe that cryptocurrency is real. It is here to stay.
Be especially mindful thought, that knowing at which stage of the life cycle that the cryptocurrency is in before you jump into the wagon makes a lot of differences on the opportunities that you would get. Apply the portfolio laddering technique once you’ve gotten a small list of potential coins that you would love to invest in so you are able to spread out the risk and still reap the benefits from both short and long term investments.
Nothing is certain in the cryptocurrency world. It is very important to hold yourself accountable to your investment by keeping up to date with any news in the market. When it comes to making investment, it would be a wise move to revise your cryptocurrency portfolio from time to time to reduce the risk through diversification. So as the saying goes, never put all of your eggs in one basket. Keep a rational mind and do not be carried away by your feelings.
So there you go, 9 easy steps which covers the essentials needed to discover and invest in a good cryptocurrency. Feel free to follow through this guide like a cryptocurrency investment checklist adding pointers from your research findings. Should there be an important area that we have missed out, please do not hesitate to share your thoughts and experiences in the comment section below.