The blockchain industry has remained resilient despite challenges, making it clear that cryptocurrency is the future. The value of cryptocurrencies is on the rise, presenting an opportunity for investment.
If you think that the most favorable time for investing in cryptocurrency has already come and gone, then you are mistaken. However, you need to invest wisely. Your choice of where and when to buy crypto can greatly impact your success. How can you select the best cryptocurrency to invest in now? We will provide you with guidance in this article.
Choosing a Cryptocurrency
When considering investing in cryptocurrency, the first step is to decide which digital assets to purchase. Understanding the fundamentals of blockchain, creating cryptocurrencies, and executing transactions are essential. However, the key aspect is evaluating the potential profitability and long-term value growth of the selected cryptocurrency. The question of "Which cryptocurrency should I invest in?" does not have a definitive answer.
Before investing money, study the market and analyze the prospects of a specific project. Pay attention to the following indicators:
- The level of popularity within the blockchain community. If the trading ticker of this cryptocurrency can be found on most major exchanges and news related to its peer-to-peer network is published by reputable blockchain publications, then this indicates that it is one of the most promising cryptocurrencies. Tokens of this network are easy to sell, and by investing money in this project, you are unlikely to incur any losses in any scenario.
- Ease of movement. Reputable blockchain startups produce various types of wallets. Additionally, their coins are supported by numerous third-party developers of multi-currency storage solutions. Having a reliable cryptocurrency wallet (or better yet, multiple options) is crucial for an investor.
- Safety. From the above, it can be concluded that a promising network should be well-protected from hackers. The best cryptocurrencies operating on PoW should have a sufficiently robust network to reduce the risk of a 51% attack. If your chosen project utilizes an alternative consensus algorithm, it should have a well-thought-out protection scheme against dishonest validators.
Some might argue that nearly all digital currencies possess such qualities. At least that's what their developers say. Without special technical knowledge, it's difficult for an ordinary investor to understand the intricacies of writing source code and other nuances. How do you find the best cryptocurrency to buy?
Conducting Research
Fundamental Analysis
The fundamental analysis of the cryptocurrency market is an assessment of the real value and growth prospects of assets, taking into account financial and economic parameters.
This analysis is based on:
- the number of blockchain users;
- methods of using cryptocurrency assets;
- the project development team;
- the economic situation in the world;
- technical parameters;
- the interest in cryptocurrency on the part of users.
In addition, to properly conduct fundamental analysis, it is necessary to pay attention to the news. The mass media has a significant impact on the cryptocurrency market. At the same time, the trader needs to take into account not only the news headlines but also the economic forecasts of experts.
It should be understood that if the analyst only considers the indicators of traditional financial markets, it will not be possible to predict the value of the cryptocurrency. It is necessary to pay attention to global financial policies, the growth rates of economies, the level of demand for raw materials, and the cost of production of certain products. In addition, it is necessary to select specific metrics that are exclusively applicable to cryptocurrency. When conducting such an analysis, it is necessary to look for safe and reliable fundamental indicators. The more reliable and objective the information, the better.
It should be noted that the statements of blockchain developers and the forecasts of professional analysts may turn out to be false. Therefore, fundamental analysis is based on statistical data. For example, the laws passed, the number of cryptocurrency wallets created, or the volume of trades.
There is no single fundamental metric by which an analyst can fully study the state of the market. To make the most accurate forecast, all of the above indicators should be taken into account.
Technical Analysis
The main methods of technical analysis for cryptocurrencies include graphical pattern recognition and algorithmic analysis.
In the case of graphical patterns, the analyst needs to interpret the shapes correctly. It often happens that on the same chart, different people see different shapes that contradict each other in their interpretation. To use this method correctly, a specialist must have extensive experience.
Many traders also use algorithms that incorporate mathematical methods to indicate signals without fully understanding them. This is made possible by software and hardware trading platforms, where these algorithms are available in a ready-made form. However, such traders tend to face various problems during the trading process.
Trend indicators can include moving averages (simple, weighted, or exponential), complex averages (such as MACD, envelopes, Bollinger bands, and price channels), and other related indicators like directional change, probable direction of ADX, and RTR.
Oscillators, also known as leading indicators, encompass various indicators such as:
Momentum, Parabolic SAR (parabolic time-price system), Stochastic lines, Rate of Change (ROC), Ultimate Oscillator (UOS), Percentage Price Oscillator (PPO), Commodity Channel Index (CCI), Relative Strength Index (RSI), Force Index (FI), and Money Flow Index (MFI).
In the process of analyzing promising cryptocurrencies, it is necessary to take into account not only price changes but also trading volume.
Fluctuations in this indicator may indicate various trends. At the same time, indicators of trading volume, or market strength, complement the information obtained using oscillators (which are useful during periods of a sideways sluggish trend or tipping points) and trend lines (which highlight the current price trend). One of the simplest indicators of market strength is the "on-balance volume" (OBV). The Volume Accumulation Indicator (VA) is more complex.
Mathematical indicators from different groups may contradict each other and indicate opposite trends. It all depends on the mood of the market. If a beginner is faced with a similar situation, they may make a significant mistake when making a decision. A trader needs to remember that during periods of weak, "sideways" volatility, oscillators will be useful, while trend indicators can be risky. If the trend is pronounced, it is better to use trend indicators, as oscillators will be uninformative. Thus, the trader needs to use the indicators correctly and understand the nuances of their functionality.
Risk Assessment
Once you have identified several promising candidates, it pays off to evaluate the risks associated with them. Look closely at past volatility rates, market capitalization rankings, daily trade turnover figures, and overall exchange listings. Highly volatile currencies tend to be riskier investments than those exhibiting lower variance. Also, keep tabs on regulatory developments worldwide since governments often intervene unexpectedly causing sudden shifts in valuations.
Tokenomics
Tokenomics are the principles and rules by which value is distributed within a project, that is, a mechanism for stimulating ecosystem participants. For the considered model to become interesting for investment, it must have the following properties:
- Initially, a large volume planned for the public sale stage (ideally, not less than 30-40% of the total issue)
- The shares of venture investors and founders are limited by westing/separation algorithms (that is, assets are allocated not at one time, but in small parts, and this process is stretched over time, usually for several years). Thus, market participants are guaranteed that at some point a major participant will not exit the project and will not drop the asset price to zero, selling off his share at once
- Assets reserved for founders or project reserve funds are under smart contracts. That is, certain conditions must be met to unlock them and enter the market.
Usually (almost always), this information is presented on the official resources of the projects, as it is the basis of their tokenomics. I recommend that you do not trust this information but instead conduct your own verification. Westing algorithms are typically embedded in smart contracts, allowing them to be tracked. It is not always possible to do this, but where possible, it is necessary to check. Checking smart contracts is a complex topic that deserves a separate, in-depth article. Therefore, we will delve into this procedure at a later time.
In addition to the official project resources, you can also utilize third-party information sources. For example, Messari.io, CryptoRank.io, ICODrops.com, and others. Smart contracts can be analyzed using the resources of the corresponding blockchains. For example, for smart contracts of the ERC20 standard, one can use etherscan.io.
Listing on Exchanges
An indirect but crucial parameter indicating the success and prospects of an asset is the number of exchanges on which it is traded. If the cryptocurrency you have chosen is traded on 2-3 exchanges whose names you do not recognize, it is hardly worth paying attention to such a cryptocurrency. The opposite is also true. Exchanges also conduct their own evaluation of projects before listing them. Generally, leading exchanges do not list coins outright; reputation holds more value.
You can access information about cryptocurrency trading locations on specialized crypto-screening services that monitor the progress of crypto projects. The largest and most popular cryptocurrency websites are coinmarketcap and coingecko, but there are others.
Liquidity
An important parameter for analysis is the liquidity of an asset on exchanges. If you notice that the trading volumes of the coin are low, there are hardly any orders on the order book, and the coin's price follows a pattern with gaps, it is not advisable to invest in such a coin. Most likely, you will not be able to sell it later, or at least sell it at a higher price.
Conclusion
In conclusion, choosing the best cryptocurrency to buy now requires careful research, analysis, and risk assessment. Fundamental analysis helps you understand the underlying value of the token, while technical analysis can provide insights into market trends and price movements. Evaluating tokenomics, exchange listings, and liquidity are also essential factors to consider before making any investment decisions. By taking the time to thoroughly research and assess these criteria, you can increase your chances of finding a successful investment opportunity in the ever-evolving world of cryptocurrencies. So, make sure to approach the selection process with diligence and caution to secure the best returns on your investments.
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