Crypto companies, on the other hand, doesn’t have balance sheets. Prices are mostly based on the promise of innovative new technologies and mainly on hype. So essentially, there is no way to understand the underlying value of these coins and the technologies/companies they represent. Fortunately, many cryptocurrency investors have found a smart way out, and it’s not very different from the way stocks are evaluated by everyday value investors. We at Itsblockchain bring to the basic steps on figuring out if a coin will make it or break it:
- Know the brains behind the project, the creators, and developers that are building the technology which the coin represents. For reference, solely because of the faith people place in the leadership skills of Vitalik Buterin, Ethereum’s creator has buoyed the price of Ethereum at about $300/coin, even while Ethereums consumer-facing applications of the technology are not yet commonplace.
- Locate the markets which sell the coin. In the early days of the cryptocurrency, you might only be able to make a purchase at a single web exchange (Bittrex, Poloniex, etc.). Though when their popularities, they might become available through more exchanges, which would increase its trading volume and price. If you buy an undervalued coin before it becomes available in multiple exchanges, there is a great potential upside to it. Also, pay good amounts of attention to the coins bought and sold primarily in the East or West. Cryptocurrency mania tends to quickly cross oceans, adding millions of new potential buyers.
- Next, your attention should be diverted to other companies and entities that are using or partnering with the coin/technology you’re interested in. Microsoft’s involvement with Ethereum is a good sign, for example. Real-world uptake due to problem-solving ability is essential and definitely increases the value of the coin.
- Find out the price history of the coin. Carefully look at its inflation, volatility, and stability and try to underline the reasons behind it like does it respond to a hype cycle, then come crashing down (pump and dump)? This will increase your accuracy in anticipating future price movement.
- It is absolutely imperative that you understand the technology behind any coin that catches your interest and it’s usage. Yes, cryptocurrency tech is mostly based on coding, and at times can be difficult to grasp, so that you don’t end up investing in something with a real world application that you don’t understand, even if that application won’t come into being for months or years.
- Coins worth investing in will always make available a Roadmap that explains future plans, release dates, and other events of note. Achieving these goals in a timely manner tends to raise coin prices, so understand what’s coming up and try to invest before big events launch.
While you do all of this, it is important that you also devote time to discussions on crypto forums like Reddit and Bitcoin Talk because of this is where people with a very broad horizon of knowledge and experiences explain the technicalities and their vision of the coin.
See, at the end of the day, there is no way to predict which coin will make it or break it. Investing in crypto currencies is surely risky, but you can keep this risk at bay by doing your research properly.