How to know which cryptocurrency to invest in
Crypto investors are now looking to objectify their choices based on facts and a much more detailed valuation of cryptocurrencies. Reasons for investing in cryptocurrencies must now be carefully listed. While many factors can be taken into account when evaluating a cryptocurrency, there are actually 4 factors that come up all the time and allow a cryptocurrency to be properly evaluated for a long-term investment.
We offer you to discover these 4 basic factors to evaluate any crypto currency:
Teams launching new cryptocurrencies are putting together beautiful white papers with ambitious business plans or innovative architectures that are supposed to lead to a new technological revolution. The aim is to convince as many investors as possible at the time of their ICO..
However, when investing in a cryptocurrency, the number 1 parameter to be taken into account is above all the potential for the adoption of crypto-currency by as many users as possible. The most promising technologies without end-users are worthless in the end. It is by no coincidence that Bitcoin continues to be the market leader crypto currency even though it is a first-generation Blockchain whose technology has since been surpassed by Ethereum or Cardano, the leader of 3rd generation cryptocurrencies..
It is estimated that 90% of the value of Bitcoin, let alone a cryptocurrency, comes from the number of people using it. While fiat currencies are imposed by the states, the popularity of a cryptocurrency is never acquired in advance. Before considering investing in a cryptocurrency, it will be necessary to analyze its potential for adoption by as many users as possible.
Decentralization is the most important point in the model advocated by cryptocurrencies. Without decentralization, we could quickly fall into Ponzi schemes and move away from what a cryptocurrency should be. Trust in people or companies is a problem that a cryptocurrency seeks to solve.
If the technology behind a cryptocurrency cannot guarantee the registration of transactions carried out, then questions will arise about its security and in particular whether it meets the standards in this area. It is thereby essential to ensure that the code behind a cryptocurrency project has been tested by numerous tests in order to limit the risk of bugs and hacks. In addition, there is no substitute for use in real-world conditions.
This also explains why Bitcoin is still the benchmark today. Not content with having the largest number of users on its Blockchain, Bitcoin can boast a unique seniority in the field. This is an essential guarantee of its robustness and solidity.
The creators of a new cryptocurrency project have important work to do to ensure that the innovation eventually brought by their technologies does not harm the security of their cryptocurrency. A lot of legitimization work is to be done. In the end, the real major technological innovations remain quite exceptional because this requires a team with a high level of expertise and knowledge. This is not on every street corner!
We must therefore be careful of the so-called innovations which in reality have not been sufficiently tested and have a significant number of weaknesses not immediately detectable. A key point of this factor is this, as it is always difficult to evaluate a technological innovation. The most technical people can get lost in it so let’s not talk about non-technical profiles.
Taking a step back from so-called innovation can pay off. It may be necessary to allow time to validate that the code of a cryptocurrency does what is advertised and is not vulnerable to attack. Innovation yes, but not at the cost of safety!
The highly profitable bonuses offered by some cryptocurrencies are less complicated to get for people with a certain level of skills in cryptos or crypto currency brokers. If you find that a team throwing a cryptocurrency reserves too many pre-mined chips or does this as part of its ICO,it is an obvious sign that the main inspiration of the team is to make money.
This is not negative but it is better to invest in cryptocurrencies by being aware of all the elements. This will allow you to act as well as possible.
In some cases, these reserved tokens may prove justified if the team in charge of crypto-currency produces in return quality work that brings added value to all investors. Profit is not disgraceful, since the best engineers and technical profiles must also find it interesting to invest their time to develop a cryptocurrency project. The extreme case where a team does not reserve any means of getting remuneration can also be negative, or even cause for concern, since it can lead to abandonment of the project in the medium term.
The « NVT » ratio
This is the most developed method of analysis, the equivalent of that used for equities, which are valued through the/price/earningpriceratio. This ratio lets you know how much investors are willing to pay one share for every dollar of profit. A high price-to-earnings ratio means that the market and investors expect strong growth. And vice versa.
The equivalent of this ratio for cryptocurrencies is the ratio of “network value to transactions” or “NVT”. This is, the ratio between the value of the cryptocurrency traded and the development of its network. This model has been popularized in recent months by Willy Woo. Woo is an analyst specializing in cryptocurrencies. He has even launched a tracker on this ratio.
Thanks to this tracker on the “NVT” ratio of bitcoin, Willy Woo has been able to model the value of bitcoin. Especially to anticipate its upward and downward variations. That, according to the exchanges and the development of its network.
Comparison between Technical Analysis (AT) and Fundamental Analysis (AF)
Technical analysis allows to highlight trend, supports and resistances of the course or even a diagram. This analysis will allow us to determine with more or less precision the strategies to follow. A graph analysis curve can allow you to identify the different assumptions. In order to know how the course will behave. This analysis is made up of indicators that most often use psychology and mathematics. It is a practical approach toanalysis based on hand-picked indicators. This analysis will give you a visual report through which you can make a decision. But the indicators used will not take into account information such as :
- growth potential
- actual asset valuation
- network impact.
While technical analysis focuses on asset prices and price history,fundamental analysisincludes a list of indicators and information on a broad field. This is in order to have a concrete overview of the health of a project/company. The indicators used in a fundamental analysis relate to the overall project studied. For example: the team behind the project, the idea, the community, the business model… But we also use more complex data indicators, such as: analysis of on-chainchain activity (network/blockchain), social sentiment.
The technical analysis will allow you to identify key points of sale and purchase. Although very effective, traders using only the AT omit a set of indicators that would allow them to have a much more precise idea of the situation.
Utility of Data Analytics
Data analytics is a scienceinvestors apply to cryptocurrencies. They use it to refine fundamental analysis. In traditional data analytics we find financial, social and technical data. This practice applied to cryptos goes as far as decoring the activity of a network.
Here are some examples of in-depth fundamental analysis criteria:
- The study of the economic, token,
- The interaction of the community on the networks,
- The study of the volumes of mentions,
- Quantifying the value of the network
Here are some examples of the type of information you will need to cover by doing an in-depth fundamental analysis. This method of analysis provides a complete view of the fundamentals of a project. You will be able to define the potential of a crypto. Obviously, it requires a little experience and habit to master the tools, method and logic.
You don’t have to be a math crack, or an expert in data processing, let alone be a trading genius. Of course, if you know the technical analysis it can only be complementary! However, by being a trader/investor with traditional methods, you will miss datamade transparent (searchable) thanks to the blockchain and valuable during your analyses.
Investing in cryptocurrencies is never a trivial act. A euphoric end to 2017 may have led. Some new entrants believe that it was enough to invest in cryptocurrencies to have a very rapid return. This is not the case. And the current period in the world of cryptocurrencies since the beginning of 2018. Bitcoin entered into its 4th Bear Market. It reminds everyone that there are essential criteria to take into account before investing in a cryptocurrency.
This article presented you with the 4 basic factors to consider when investing in a cryptocurrency. Don’t hesitate to react in comments by giving us the factors you take into account on your side before investing.