Here’s a thorough review of how to analyze the cryptocurrency you are considering investing in. Read it carefully and you will learn the basics behind making good investor decisions.
When going through the process of finding the best cryptocurrency to invest in, there is a lot of information to get into. Here at ICOshock, we try to gather this information in an easy-to-understand manner, which makes you better equipped to start your investment trip. One of the most important things you should do before putting your money into any cryptocurrency is to do a basic analysis of the projects you are interested in.
You can of course be very lucky and shoot the golden bird by pure guess. However, if you have faith in the crypto and blockchain technology that supports them, you should spend some time on your investment. In this guide we will show you how to do a good analysis of cryptocurrency. Read on, so you can take safer and more informed investment decisions.
NB! You should never invest more in crypto than you can withstand losing.
Where do you start when you invest in cryptocurrencies?
The amount of information available about investment in and analysis of cryptocurrency can be perceived as quite overwhelming. Here are the three most important things you should begin to put in.
First and foremost: Do you really know what cryptocurrency is? Or are you primarily interested in investing because you’ve heard about the Bitcoin millionaires who became filthy rich in just a few years? All investments are, of course, about returns. Nevertheless, it’s important that you know what you are considering putting your money into.
A cryptocurrency is a decentralized currency whose transactions (in most cases) are carried out on top of a blockchain. A blockchain is a decentralized network for transactions run by users worldwide. Cryptocurrencies are secured by cryptographic principles and is, to the very highest degree, digital currencies.
Even though cryptocurrencies are growing rapidly, there are still few countries and companies on a global scale that accept the units as payment for services. Cryptocurrency has a long way to go in order to work in conjunction with existing financial systems and structures.
Because the cryptographic currencies are decentralized, the currency units are also unregulated. This means that the price may vary greatly. It’s not unusual to see price variations of tens of percent in just a few days. Nevertheless, the trend has been rising since the first cryptocurrency was launched by Satoshi Nakamoto under the name Bitcoin in 2009.
The cryptocurrency market is in an explosion
We definitely hear most about Bitcoin and Ethereum in the media. But did you know that there are over 3,000 different cryptocurrencies in the market? And it’s not as if it stops there; new crypto currencies are being launched at a furious speed. The crypto exchange market is in an explosion.
This means that you as an investor must keep track of the sysacs – in any case, if you are interested in investing in more than just the crypto giants. Be aware that you will have a wealth of choices before you start investing, so you’re a bit better prepared. There are a number of different projects that look very similar to each other. In addition, there is huge variation among project types.
Think of cryptocurrency as a whole new world economy where all voids are to be filled. If you are looking at the number of services available worldwide, it’s not hard to understand why the cryptocurrency market grows so fast. Entrepreneurs tend to be the first and best on the pitch, and there is no doubt that the number of cryptocurrencies will continue to increase.
Invest in projects you have faith in
Therefore, it is important that you as an investor choose projects you have faith in. Take a good look at the functionality of the cryptocurrency. Then you can think through which areas you think might best fit the new technology. In such a turbulent market it is important to have ice cream in the stomach, and the easiest way to achieve this is to have faith in their investments.
Be prepared for the existence of many different variants of crypto currencies, once you have decided to invest. This is a bit like choosing service providers, such as mobile subscriptions or power providers. Crypto is not new anymore and therefore there is great competition, also within different sectors.
Here are some cool questions to ask yourself when choosing the type of cryptographic projects you want to invest in:
Why do I believe in this cryptocurrency within this area?
- Are there any examples of successful crypto currencies within the area already?
- Is there a lot or little crypto competition competition in the sector I have chosen?
- Have the cryptos in the area I have chosen to start rising in value
- How does market history look like crypto currencies in the sector I’m considering investing in?
Step by step: How to analyze cryptocurrency
Then you have some simple first steps to follow to begin with your investment project. Now we’ll go through exactly how to analyze the cryptocurrency once you’ve chosen them.
A cryptocurrency is not the same as the underlying blockchain
In the first place, it is important that you understand that cryptocurrency and blockchain are two different things. They hang close together, yes. But one is not the same as the other one. When investing in cryptocurrency, you also invest in the underlying blockchain. Therefore, in order to analyze cryptographic currencies it is important that you also analyze the blockchain project they are linked to.
Bitcoin was the first cryptocurrency and it was launched in 2009. Back then, the blockchain was designed just to support financial transactions. Thus, Satoshi Nakamoto did not imagine that the Bitcoin blockchain would be used for anything but shopping with Bitcoin. The vast majority of cryptocurrencies launched today do not follow this structure.
Now it is common for the cryptocurrency to be just one small part of the larger blockchain-project that is being developed. At Ethereum, for example, the main focus is smart contracts and decentralized applications. The renowned cryptocurrency ether (ETH) supports this operation, but a cryptographic currency is by no means the main focus.
Therefore, when analyzing the cryptocurrency, you must go a little deeper than just looking at the economic development trend. In addition, you will learn about the blockchain project, which in reality is where your money ends.
Research through several good information sources
Once you’ve decided on a crypto and read about the underlying blockchain project, you can begin your analysis. Knowledge is power, and this is definitely also the case with cryptocurrency. Therefore, you should find more reliable sources of information to teach you more if this is something you should invest in or not.
The best place to start is on the project website. Here you will often find more types of documentation that outline objectives, vision and rollout plan. The best document to read is the so-called white paper document. This will give you a thorough and understandable review of how the project looks, as well as how the cryptocurrency should work on the blockchain.
After learning more about your investment option directly from the source, it’s a good idea to start looking elsewhere. Forums like Reddit, Steemit, and Bitcointalk are all good places to start. You can also get a good deal of information on the blog of the blockchain project, if any. Remember to watch out for people that are ‘shilling.’ Shilling is when someone is creating hype around a coin to increase its value. This is a regular occurrence that can be done by the team of the project, holders of the tokens that want to increase their value as well as bounty hunters, people who “promote” a coin in reward for tokens.
As you read, it’s important that you find out if you get more or less faith in the project you are considering investing in. Investment is of course about obtaining sufficient information. But you should have a good stomach feeling about where you place your money as well.
What void does the cryptocurrency fill?
Once you’ve learned more about the cryptocurrency you’re considering, there’s one question you should ask yourself: What makes this cryptocurrency unique? As we have already seen in this guide there is a huge selection of cryptos to choose from. You as an investor should make sure that there is something special about the projects you choose.
This is primarily about identifying which existing void on the market the current cryptocurrency fills. What real problems can it, and the blockchain project that drives it solve? Can you find examples of consumers who would use the cryptocurrency?
Think of cryptocurrencies as service offerings on an already saturated market. New businesses are being launched in all the world’s industries all the time. Whether they survive or do not act basically if they come with any competitors do not already deliver. Such is the case with cryptocurrencies as well, and price developments will depend entirely on a potential demand.
Look at the price development for the cryptocurrency
In conclusion, take a look at the price development for the cryptocurrency (s) you are considering. Knowing more about the background of the project and identifying real market needs makes it easier to look at such a development. If the price has already “exploded”, as with Bitcoin, it is less likely that it will explode again.
If, on the other hand, the cryptocurrency has had an upward trend over a period of time that indicates stable growth, this could be a better investment option. You should further look at whether the price is only related to general market variability (for example, if Bitcoin goes up or down), or if it develops in response to removal of fixes and the like.
Ideally, one should look at the cryptographic currencies that grow when the underlying blockade project comes with new updates. This means that the value of the project and the value of the currency are closely linked. If the project offers something the market wants, the crypto price will continue to match project development.
In terms of price development, it is also crucial that you do not forget how turbulent the crypto market is. These are totally unregulated currencies that will rise and fall at an enormous pace. In order for you to sleep well at night, that’s why you should be well educated about what kind of blockchain project you’re really investing in.
Good characters to keep in mind when analyzing cryptocurrencies
To distinguish the cliff from the wheat with regard to crypto there are some signs you can look for. We take three good signs first and see three bad signs in the section below.
Vision documentation: White paper, rollout plan, and objectives
Vision documentation for the different blockchains is definitely an important place to begin with to gather information. But they can also give you an insight into whether the project you are considering is favorable or not. Look for the following things to review the documentation:
Whitepaper: This is basically like a corporate plan or a corporate vision for the blockchain project. The document should say something about the technology behind the project, but should also include sections about why the cryptocurrency and the blockchain stand out. If you find a well-written and solid white paper, this is a strong sign that you can count on the project.
Roadmap: The unfolding plan for the blockchain project will depend on when in the project you start investing. If you invest early in the launch phase, you will be given the opportunity to see how the management plans to implement the technology they have developed. This can give you good hints if the rollout plan seems logical and thoughtful.
Objectives: Does the cryptocurrency you are considering invest in plan to outperform Bitcoin or Ethereum? Should it become the world’s largest cryptocurrency in just a few years? Of course it is nice to dream, but it is important that the goals of the project are realistic. Look for goals that relate to the rest of the documentation in a sensible manner.
Who is behind the cryptocurrency?
Although the cryptocurrency market is growing enormously, it still represents a relatively small market when viewed in a global perspective. It also means that the market is a fairly small network, where there are both good and bad rumors.
When analyzing the blockchain project associated with the cryptocurrency, it’s a good idea to familiarize yourself with who is behind it. Are these competent people? Do they have experience from other cryptographic projects? Why have they chosen to launch the cryptocurrency? You should trust the people you invest in.
Furthermore, it is important to always verify the identity of the management and the team behind the cryptocurrency. There are a tremendous amount of scams in the cryptographic world, most often at the stage of investment. The scams are becoming more and more sophisticated, and it is therefore common to find both false pictures and documentation. Do a search on Google and LinkedIN on key people in the project to verify that their identity is correct.
Has the cryptocurrency established itself with good partnerships?
It is true that cryptocurrency is traditionally in opposition to the established. But the fact is that if a cryptocurrency is going to work well, especially now that the competition is so tough, it needs a small footing at existing institutions. This may be within different industry sectors or that the project has good relationships with, for example, a government.
That’s why it’s always a good sign if the cryptocurrency you’re considering already has gotten good business partners. It is even better if these partners are larger companies that will give the cryptographic project more credibility and greater access to an existing consumer market.
It may also be useful to check whether the cryptocurrency is recognized and respected among the rest of the cryptographic market. Certain projects are known to have good relationships with their competitors; others struggle with the opposite. It is a good idea to go for investment currencies that in any case do not have any enemies in the market as a whole.
Bad characters to keep in mind when analyzing cryptocurrency
These were the good signs you should look for when analyzing cryptocurrency. Let’s go through the warning lights you should be extra aware of.
Lack of documentation and unrealistic plans
We were so far into this before. The documentation of a blockchain project says a lot about the project’s potential for success. But there are also a lot of cryptos and associated projects that lack documentation completely. In most cases, this is a terrible sign.
You should think about cryptographic currencies you analyze as you would do with any other business. What would you have thought about a major investment that had no documentation about their plans on the website? Or who communicated in a bad and incoherent way? If you are a smart investor, you are unlikely to have put your money into this type of business.
As we mentioned earlier, you should also pay particular attention to unrealistic plans and objectives. If the project is completely way over their heads in their claims, you may have a fraud. But it can be equally bad to invest in a cryptocurrency whose management does not understand limitations. Stick to those projects where you yourself believe that management can achieve what they say they are going to.
Too much competition
A cryptocurrency must do more than just ‘be the next Bitcoin or Ethereum’. Remember that you are looking for the unique projects that stand out in the crowd. This does not mean ideas that are identical to existing cryptocurrencies on the market.
Excessive competition within the intended sector of a blockchain project is a sign that the team behind has not thought carefully enough through its plans. Then they aim to float on the success of other cryptio investors to a much greater extent than to create new value themselves. And if we are, to be honest, there are no new cryptos that suddenly will pass Bitcoin or Ethereum. If you do invest in a cryptocurrency that is in a exessive competitive industry, make sure to pick the most promising one, or spread your investment on several of them, as most of them are not going to last.
Look for cryptos that aim to stand on their own legs. As long as the project has identified an area of potential to grow and comes with innovative solutions, it has a chance.
Poor potential for growth
Unless you are an investment expert yourself, we understand that it is difficult to assess the growth potential of a cryptocurrency you are looking at. Nevertheless, there are certain things you can follow to identify which cryptos have potential or not.
First and foremost, in many cases, it is risky with cryptocurrencies that have too many currency units. You may have heard that Bitcoin has a maximum number of devices of 21 million? When a cryptocrurrency is programmed for the first time, it will most often set such a maximum number. But in many cases, it’s much much bigger than just 21 million.
This can be problematic in terms of market demand. For example, if there are 100 billion units of a cryptocurrency, the market demand needs to be big for every single device to have any significant value.
Another bad sign is whether a cryptocurrency has had a slow growth since its startup. Of course, this can of course turn around. But, most of the time, slow growth means that the project lacks something essential to establish itself on the market. Take a look at the cryptographic currencies you analyze against the rest of the market. Then you will get an overview of whether they follow the trend or not.
How to choose cryptos for analysis
Now you know a lot more about analyzing cryptocurrency than most people. Then you only have to pick out some cryptographic currencies for analysis so you can start investing in this groundbreaking market.
What do you believe in?
This is the most important question you should ask yourself as an investor. What do you really believe in? You do not have to be professional to have thoughts about the projects you are talking about. Basically, we recommend you to go a little after your stomach feeling.
It might be good to start with some areas that you already feel comfortable with, or at least have an interest in. What do you think will affect future consumer demand? Is it trade? Easier and more efficient handling of personal information? Communication?
The crypto exchange market has exploded and continues to explode in many ways. This means that you can find cryptocurrencies that belong to almost any market segment. To get through the entire analysis we recommend in this guide, it might be smart to read about something you’re interested in?
Here are some of the key areas of cryptocurrency and blockchain today:
- Decentralized applications
- Money transfers and access to banking services for all around the world
- Handling sensitive information (patient information, voting etc.)
- Decentralized trade (sale of property or other digitized values across borders)
- New economic systems (systems that aim to replace existing and traditional financial systems)
Which cryptocurrencies stands out in the crowd?
If you know which areas you want to dip into, start exploring the cryptocurrencies found here. Then, the next step is about trying to identify which ones stand out in the crowd.
A simple strategy here is to find out which cryptocurrency is greatest in your chosen investment area. For example, if you are looking for decentralized applications, the natural answer will be Ethereum. When you know who the king is, it becomes easier to look at the opponents who come with innovative ideas.
Compare the slightly smaller cryptos you believe in against the regents. Do they offer something new? Are they coming with new functionality? Is this solid? Do they have a more extensive, or more focused, project in mind? Comparing the newcomers with the most established crypto currency within a particular area makes it easier to distinguish the good investment opportunities from the good ones.
If you follow the steps in this guide, you are well on your way to making a solid analysis of the cryptographic currencies you are considering investing in. We recommend that you take good care of time now so that you can feel confident about your choices. Then, just wait and follow market developments in the time to come.