28.11.2021

How to choose a cryptocurrency for investment?

Bitcoin appeared in 2010, but it has only become so popular in recent years. Bitcoin is a recognized leader in the crypto market. Over the past decade, the dominance of this coin in the market has reached 80% more than once, and bitcoin has managed to become synonymous with the cryptoindustry.

However, the situation is gradually changing – thanks to blockchain innovations of crypto projects that are not related to the leading coin.

Just a year after the creation of Bitcoin, there are many alternatives known as altcoins. Taking Bitcoin’s blockchain technology as a benchmark, altcoins have tended to offer new ways to use blockchain. Some of the altcoins can be called direct descendants of bitcoin, at least because they “branched off” into separate cryptoassets after an important update in the bitcoin network.

In the early 2010s, very few altcoins were introduced, but after the debut of Ethereum in 2015 and the subsequent growth of its popularity in 2017, the number of altcoins on the market has increased significantly. Ethereum smart contract technology allowed projects to easily create their own cryptocurrencies, resulting in several startups that remain major players today.

Bitcoin retains a tangible advantage, which, however, is gradually decreasing. At the same time, today the crypto market allows you to determine the value of any altcoin, avoiding its comparison with bitcoin.

Comparison of investments in bitcoin and altcoins

At first glance, due to its dominance in the market, bitcoin seems to be the only cryptocurrency worth investing in. Thanks to a decade of history and the financial revolution initiated by the coin, as well as the growing influence of even the most conservative financial institutions, Bitcoin has secured a market leadership for many years, and only extraordinary circumstances can change the balance of power.

However, the boom in the cryptocurrency market has turned some outstanding altcoins into big players. Yes, Bitcoin attracts the attention of even novice traders and cryptocurrency owners, while altcoins have the potential for growth and influence, which has already allowed some of them to outstrip Bitcoin in these indicators. For example, this year, only 10 of the top 100 coins on CoinMarketCap performed worse than Bitcoin this year, including 15 of the top 20 cryptoassets. (We have excluded seven stablecoins from the top 100 cryptocurrencies.)

Each altcoin has its own advantages and disadvantages, which makes you think about its long-term performance. Many altcoins, especially those that appeared during the boom in the cryptocurrency market, held strong positions, but over time they collapsed due to various factors. Some of them were associated with outright exit scams and misled people who did not exercise due diligence in the relationship of cryptocurrency investments. In this article, we’ll go into detail on how to find really worthwhile tokens.

Five factors for assessing the prospects of altcoin

There is no one-size-fits-all way to value cryptoassets, however several important factors can tell a lot about the value and direction of an asset. Each clause also contains several key questions for assessing the benefits of an altcoin.

Functions

Altcoins are usually created with a specific set of features aimed at solving specific problems in the industry through a blockchain solution. An altcoin that does not have clearly defined functions, most likely, will not be able to become a store of value in the future.

The problem with some altcoins, the hype around which eventually died down, was precisely that they became the solution to non-existent problems. Other altcoins are declaring their readiness to surpass Bitcoin, and here a potential investor should already think about it.

Here are some questions to ask when analyzing:

  • What is altcoin capable of besides copying an existing coin?
  • Is the purpose of the altcoin useful and achievable in the near future?
Developers and support

The valuation of a company is related to the contribution of its team to the business. Likewise, when analyzing a crypto project, you should keep a close eye on the team behind the altcoin.

Start with the developers and their accomplishments. Apart from the places of work, you should also appreciate the effort they put into the project; determine if these efforts have yielded positive results; and see if the team is effectively communicating their own progress to the public.

Ask the following questions:

  • Are the developers trustworthy and well known in the industry?
  • How actively is the team releasing interesting updates as part of the crypto project?
  • Does the team strive to improve their product and does it regularly communicate with investors?

Keep in mind: This point may be more relevant in the case of new altcoins that have yet to make an impact on the industry. But if the altcoin has been around for quite some time, the next factor is likely to be more important to it.

History and reputation

The members of the crypto project team can boast of interesting achievements. However, this does not guarantee the success of this or that altcoin. At the same time, some events in the history of altcoin can cause a positive assessment of the crypto asset on your part.

Answering the following questions will help you identify potential risks:

  • Have there been scandals around the coin?
  • Is there any information on hacks?
  • How long has altcoin been on the market and how much has its value increased?
Volume

If you are not one of the brave investors who are ready to invest in a completely new project with high investment risk, you should analyze the performance of altcoins on the open market. In addition to studying the history of prices, you can assess the state of the altcoin market through its trading volume.

Simply put, when people are trading higher altcoin volumes more in the market, the coin is in great shape. It’s even better when people find real uses for altcoin.

Two important questions will help to understand this:

  • How many people are currently using altcoin?
  • Is altcoin available on any of the major exchanges?
Availability

If by now you are not disappointed with the altcoin, you should probably clarify how easy it is to acquire this asset. After all, a promising altcoin that is difficult to buy is more likely to cause a lot of inconvenience than benefit the portfolio.

Altcoins that are easy to acquire, more accessible to the public and have a better chance of entering large markets and capitalization growth.

Ask yourself the following questions:

  • How do I buy an altcoin?
  • Can you buy altcoin with credit card, bank transfer or P2P?

If you are unsatisfied with the answers to these questions, then you might be better off sticking with your current plan until you realize it’s time to invest in altcoin.

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