Published 4 months ago • 4 minute read

How Do You Choose a Cryptocurrency to Invest In?

A decade ago, choosing a cryptocurrency to invest in was relatively simple. Back then, there were only a handful to choose from. Today, the market has thousands of altcoins competing for popularity, value, and the future of people’s financial portfolio. Investors everywhere are scrambling for the opportunity to grasp this asset and hopefully make a profit from its acquisition.

How Do You Choose a Cryptocurrency to Invest In

The problem is that many people don’t know which coin they should invest in since the market can be quite volatile and the value of any given cryptocurrency can be difficult to project. There are a lot of factors to consider, as well as different types of coins to consider, for that matter. For example, you may want to invest in privacy coins such as Monero, in which case you would need an XMR wallet to hold the privacy-focused coin.

If you’re looking to invest in cryptocurrency, here are some tips to decide which of them is best for your investment portfolio.

Look at Valuation and Market Capitalization

The current value of a coin is one of the first considerations made by nearly all investors in crypto. They look at how much a single coin on a network is currently worth along with its market capitalization. These figures provide a good impression of a coin’s growth and how well it is being adopted. It can also determine if a coin is performing poorly compared to the rest of the competition.

While it is useful to know the current valuations, it is also worth considering the cryptocurrency’s value history. The change in its value can tell a lot about its projected standing later on in the future. It can also provide insight on how a coin moves with the rest of the market—as well as how it responds to past trends in crypto.

While this is a good start to researching options for investments, it is not the only factor to look into. There is still more to a cryptocurrency than how much it is worth.

Understand Mining Protocols and Opportunities

The mining potential of a coin tells a lot about its adoption and long-term viability. The community of a coin is more likely to grow if the network is ample with mining rewards. It makes the coin more accessible to more people who prefer to earn the coin by adding additional processing power to the blockchain to verify entries to its public ledger.

Due to the concept of halving, you’ll notice that the highest valued coins actually do not offer as much to miners anymore. Because of this, their growth begins to stagnate, and their value slowly plateaus. Of course, circumstances differ per coin in this regard, but it is important to look into this regardless.

Diminishing mining opportunities could also be a sign that the cryptocurrency is reaching its maximum number of coins. This is a good indicator the coin may not be a good investment in the long term anymore. It also disincentivizes mining since it means that miners can no longer maximize the coin rewards remaining.

Read the Coin’s White Paper

All cryptocurrencies have something called a white paper, which simply refers to its whole background. It provides information about the technology behind the coin as well as its purpose. It discusses how the coin itself works and what sets it apart from the rest of the market. Furthermore, it establishes the vision of the coin for what the future of money should look like.

This vision is what keeps a coin sustainable as a technological project in the context of finance. It assures users that the altcoin wasn’t simply made on a whim and that the team behind it has solid plans for its development. Like any investor, you want to be sure that your money is put into something genuinely worthwhile—hence, it is worth your time as a potential stockholder to read up on this kind of information.

This also means discerning what you personally believe to be the future, or at least what you want financial technology to do for you. Even the most established coins have differing visions after all. There are cryptocurrencies for example that put a premium on privacy and would do everything for their coin to protect users’ sensitive information.

Research Its History

The white paper is not enough to completely trust an altcoin since it is the developers who come up with the information. While it serves as a decent introduction to the coin, it is best to research further outside of their own content. In particular, a cryptocurrency’s history can provide a clearer impression of whether or not to trust and to invest in it.

On one hand, a coin that is not transparent about its past—remaining vague in public discussion—should probably be avoided. On the other hand, a coin may have suspicious beginnings but can still grow out of those and often turn into strong contenders on the market today. It provides some insight into how their vision had directed the development of the coin.

Hopefully this article has been helpful in influencing your investment decision. Again, there are many coins to choose from on the market, which is why a lot more research is demanded on such an asset. The market still remains volatile, so this decision does play heavily into whether your investment will profit or not. At the end of the day, it boils down to responsibility over your financial choices.

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