Well, you find out some new Cryptocurrency and want to invest in it expecting that it surged like ethereum or litecoin and multiple your investments.
But if you are thinking that there is no room for a new cryptocurrency then you might want to think again! Yes, there is room for new cryptocurrency to grow in the market.
The cryptocurrency market is a very volatile market you can take advantages of the volatility to make good returns in a short period of time. There are many Cryptocurrencies which prices are multiplied within a short span
Ethereum price rises from $10 to $383 within a span of 1 year and in the month of May and June the prices of ethereum multiplied by 8X from $40 to more than $350.
There are lots of others cryptocurrency which surged within a short period of time.
I think this was enough to show you that there is room for new cryptocurrency to grow in the market and investing in that emerging currency can multiply you investment within a short span.
Wait but how to hunt that new cryptocurrency? How do you know it has potential to grow in future?
Here the point is not only to find out the new cryptocurrency but also to see it has potential to grow and that cryptocurrency is not a scam. So your hard earned cash was invested in the proper place.
There are more than thousands of cryptocurrency in the market and 2 to 3 new cryptocurrency are added to the list every month.
So how can you find the genuine cryptocurrency that can multiply your investment?
See finding the new cryptocurrency is not a big deal you can just do a simple google search and you can get it or you can go to a website like coinmarketcap to find some new coins.
But the hard part is that how can you know that the cryptocurrency is genuine and has potential to grow in the market.
No one can exactly tell that the currency can grow or not. But we can predict it can grow or not in the market by considering some factors which I am listing in this post.
So without further ado lets directly jump toward the points to consider before investing in any cryptocurrency.
Technology of the coin
The most important point to consider is what technology is used in the coin.
For what purpose it has built and it can be able to solve the problem of people.
For simplification, let’s take some examples
I had talked about the growth of litecoins in this post. So why litecoin got so much popularity. If you are techie person, you might know that litecoin is almost similar to bitcoin then why did it get so much of popular. There is not much difference between bitcoin and litecoin but the major difference from which litecoin gained popularity is the speed of transaction.
If you do any bitcoin transaction you might know it takes 13 or more minutes for a single transaction depending upon how much amount of bitcoin is being traded.
But it doesn’t happen in case of litecoin as they use their own network named the “lighting network” like their whitepaper says and the transaction is honored within 2 to 3 minutes.
I know there might be other reason for litecoins popularity but I think this was the major factor for the growth of litecoins.
Let’s take another example i.e ethereum, it surged from 30$ to 300$ within a span of 1 month and now ethereum is second most popular cryptocurrency in the market.
So what was the main reason behind the growth of ethereum, yes it was the technology behind ethereum. The growth of ethereum is because of its blockchain which is available for other apps developed on ethereum blockchain.
Other than this ethereum also actively works on building developer tools for blockchain based apps called DAPPS (Decentralised Apps) and they also have a language called Solidity for coders to develop a decentralized app.
You might have heard about Dashcoin or Darkcoin, it was one of the most popular currency in the market.
Why Dashcoin got so much popular and has a value of $286 at the time of writing this post because of its technology.
So what technology does it use?
As its white paper says it is the most anonymous and secured currency in the market even more secure than bitcoin. Bitcoin is not fully anonymous as you can just put the wallet address in blockchain Explorer and find all about the transactions that happen in that wallet but this is not the case with Dashcoin.
So we can conclude that technology on which the coin is based is the major reason for the growth of the coin but it is not the only thing to be considered, there are other factors to be considered before investing in that particular coin.
So what does coin or asset mean? Ok, let’s make it simple, any cryptocurrency which is mineable is a coin and the cryptocurrency which is not mineable is an asset.
So why we have to consider these things?
from my experience, if the currency is asset then it is most probably a scam. I am not saying that every non-mineable currency is a scam. There are lots of currencies which are non-mineable but they are trustworthy. So think twice before investing in any non-mineable currency.
Ok now let’s talk about mineable currency. Mining process is divided into two basic types i.e Proof of works and Proof of stake. There are many others process of mining which other coins use but these two are the most used type.
Proof of work
In this mining process, the miners will get a reward for their work. miners put their hashing power to mine the coin and verify the transaction, then they get rewarded for their work in the form of new coins.
The coins which work on this process are trustworthy because there is a mining community that is mining the coins, which means that the coins can be trusted.but there are some coins which are scam that have a small community of miners. if a large number of miners are mining that coins it might not be a scam.
Proof of stake.
This mining process is totally different from proof of works. Here you have to buy some coins first, then put it in your wallet for a fixed period of time and then you get some reward or interest on it. From my experience coins which are mineable on this process are most probably going to be a scam.
Centralised or decentralized
Simply speaking never ever invest in a coin which is centralized. So why not to invest on coin which is centralized?
If the coin is centralized all the power and control of that coin is in the hand of a particular person or a company they can do anything they want with that coin.
But it doesn’t happen in case of a decentralized coin because the power and control of the coin is in the hands of people who own the coins.
So think twice before investing in centralized coin.
Circulation and total supply
Circulation and the total supply of coins directly affect the value of the coin. So before investing in any coin, you must see how much coins are in circulation in today’s market and what is the total circulation of that coin. Also, you have to see that on what time period or how frequently the coins are added in circulation since its inception.
If the coin has unlimited supply then it is very tough to predict that how the coin will perform in a future period.
So why market capitalization is an important factor to condsider before investing in any cryptocurrency.
Simply the market capitalization is directly proportional to the value and demand of the coin. More market capitalization means more and more people are investing in that coin and this leads to increase in value and popularity of coin.
Quick info: More than 70% market share is captured by King and queen of cryptocurrency i.e Bitcoin and ethereum at the period of writing this post. Bitcoin has $93.43 billion and ethereum has $32.84 Billions of market capital which is about 72.44% of total market share.
According to Investopedia, the term liquidity means “liquidity is the ability of an asset to be converted into cash readily on demand.”
Let’s make it simple by taking an example. you bought ‘X’ amount of coins for $100 and you want to sell that coins on the second day.
So what liquidity here means is that, how much money did you get for that ‘X’ amount of coins and is there any buyer who is readily available to buy these coins. You can sell it easily if the coins have more liquidity and if not then the coins have less liquidity.
In cryptocurrency market, the coins like bitcoins, ethereum, litecoins, etc have more liquidy because you can easily sell them.
But if you have bought some coins which are new in the cryptocurrency market then it is difficult to find a buyer for that and thus the coin has less liquidity.
So liquidity is an important factor to be considered before investing in any new cryptocurrency.
MLM (Multi-level Marketing) Or Chain marketing
If you found that the coins are anyways connected with MLM or chain-marketing then don’t invest in that coin. because it might be a scam.
Other things to be considered before investing in Cryptocurrency.
Which blockchain is the coin using?
Who are the creators of that coins?
Read the whitepaper of that coins.
If you properly study the coin by considering the above factors your hard earned cash will be invested in a proper place. So do proper research before investing in cryptocurrency.
I am Jitendra Dhage founder of innovativetricks.com. I am a mechanical engineer by education but my interest in technology brings me in the field of cryptocurrencies. I started this blog to share my knowledge and experience about cryptocurrency.