HOW TO SELECT Crypto COINS
The crypto coin market is growing exponentially. Investing in the right coin can give you extraordinary gains, while a wrong one can wipe out your entire capital along with your hopes of becoming rich. “How to select your crypto” helps you learn the skill of selecting a winning coin quickly and efficiently that otherwise could only be learnt through experience.
The Cryptocurrency Landscape
The first thing you should know is – There’s a lot of money to be made from the cryptocurrency market. Perhaps, even more than what a stock market can offer.The reason could be that unlike traditional currencies (such as INR, USD, EUR or GBP), cryptocurrencies are not controlled by anyone. No bank has authority over it, and even governments cannot manage it. It’s all software — open source, peer-to-peer, and decentralised.
So, does that mean, everyone should invest in cryptos? Well! Why not? But not without being mindful. There are big risks involved with money in the digital world. Let’s be aware that the reason most people fail to become rich by trading in cryptos is because they don’t understand how the system works; or how to choose the best option to invest in.
Considering there are more than 10000 crypto coins to choose from, selecting a coin or making a portfolio of coins can be a little daunting. More so for the investors who are not digital buffs. So, here in this section, we are attempting to bring out some of the most important aspects of coin selection in easy to comprehend terms.
Read the White Paper
White paper is the most important document for any cryptocurrency. Every coin has one. It is a formal presentation of the idea of the project. Although it can be fairly technical at times, it is a useful document to get your basics right. A good white paper explains what problem the proposed cryptocurrency stands to solve and how. It also explains how the developer plans to fund the project, its development timeline and complete roadmap along with the details of the team involved.
Ideally, one should treat the white paper as a business plan to make an informed decision on whether to invest or not. The advantage of a white paper is that it is accessible for free and in most cases you can find it on the currency’s website.
Click on the following coins to check their respective White paper:
Circulating Supply of the Coin
The term circulating supply refers to the number of cryptocurrency coins or tokens that are publicly available and circulating in the market. It can increase or decrease over time. For example, the circulating supply of Bitcoin will gradually increase until the max supply of 21 million coins is reached. Such a gradual increase is because of a process called ‘mining’ that on average generates new coins every 10 minutes. On the contrary, the circulating supply can also decrease with time because of coin burn events (like the ones performed by Binance) thereby permanently removing the coins from the market.
The circulating supply refers to the coins that are accessible to the public and should not be confused with the total supply or max supply. The total supply is used to quantify the number of coins in existence, i.e., the number of coins that were already issued minus the coins that were burned. On the other hand, the max supply quantifies the maximum amount of coins that will ever exist, including the coins that will be mined or made available in the future.
It is important to understand this because more supply in future will affect the price. A fixed maximum supply (as in the case of Bitcoin) is always better than an uncapped supply (as is the case with many altcoins).
Market capitalization is calculated as:
Market Capitalization = Total Number of Coins in Circulation * Price per Coin
A low market capitalization coin has higher price volatility than high market capitalization coins which makes it worth comparing.Low market cap coins are also called penny stocks and often get subjected to pump and dump schemes. High market cap coins are less likely to have pump and dump schemes because it is harder for manipulators to influence the price where there are more buyers and sellers. So beware of any coin with low daily volume but high market capitalization, as it may represent manipulation at times.You can use market cap as a deciding factor before selecting a coin to invest. The chosen coin should ideally have a market cap that is big enough for institutional investors to invest. Some cryptocurrencies are in partial circulation which means more coins will hit the market in future thereby affecting the market cap.
Trading volume is the number of coins that are traded in a particular period; typically 24 hours. The higher the trading volume, the more liquid the market is, which means that there are more buyers and sellers and the price will not fluctuate as wildly. A coin with a high trading volume is generally a good long-term investment.Look for coins with over $10 million daily trading volume on popular exchanges.Check if the volume has been manipulated. If someone just created his accounts on a certain exchange and made a lot of trades within a short period of time, it is strongly advised not to invest in this kind of coin because this could be just a manipulation to pump up the price.
Control over the coins
It is often advised to look for details explaining the control over a coin. A centralised coin is one where the ledger is controlled by one group. This group can be a person, a company or even a government. Centralization does have its advantages, it makes the system easier to control and at the same time the system can flexibly adapt to changes. But in hindsight, it also means the max supply may not be capped.
In most cases decentralisation is more beneficial to the coin, as it has no single point of failure. More nodes means greater security. Bitcoin is a popular example.
Hashrate is the measure of computational power per second used when mining i.e to verify transactions and add blocks in a Proof-of-work (PoW) blockchain. It is measured in units of hash/second, meaning how many calculations per second can be performed.
High hash rate is always considered good for a cryptocurrency because it is a sign of its popularity where more people are taking interest. A graph showing an increasing trend in hash rate clearly indicates more demand and stability.
You can look for the hash rate charts on CoinMarketCap.com
This aspect comes handy while choosing a relatively newer coin to invest in. The developer should have a history of activity with the developer’s community, this would make him credible as a person who does work. Look for activities like forum posts and code submissions.
When a new coin launch announcement happens on public forums & public software depositories such as github, it is likely that the coin has launched using source code from that repository. If the developer has prior experience in coin development, the chances are the coin would perform better than others.
Click on the following coins to check their respective Source Code:
It’s very hard to tell a fake coin from a real one just by looking at it. Checking the social media presence helps you identify if they are fakes.
No coin is successful without the support of the community. The importance of a community cannot be overstated. The community provides feedback, direction and often money. A coin’s value is derived from its utility and its community. If a coin does not have a good community, then it will not have good utility either. It is crucial for any coin to have a strong social media presence.
Crypto communities can be easily found on top social media platforms such as Reddit, Twitter, Bitcointalk forums and Slack teams.
Cryptocurrencies are not well regulated, so there are a lot of scammers trying to make a quick buck by creating scam coins that will ultimately fail.No information on the owners of a coin or where it is based is a clear tell tell sign. The more anonymous a cryptocurrency is, the more likely it is a scam.
You should always check if there is an individual holding a big percentage of a coin or if there is an organisation which is holding a large number of coins in one wallet.Then check how many wallets have a certain number of coins, i.e.,1 million coins, 5 million etc. This information is vital for understanding whether a coin can be manipulated or not. If there are 100 wallets with 1 million coins, then it means that there are 100 people who can manipulate it at will. On the other hand, if there are only 5 wallets with 1 million coins, then it means that only 5 people own and can manipulate it at will.
It’s completely up to you how you decide which coin(s) you ultimately invest in. There’s no magic formula, no secret trick. However if you use the information provided here in conjunction with any other resources that are already available to you, at least you will make the most informed decision possible. And when it comes down to money: don’t invest more than what you can afford to lose.