Cryptocurrency not only revolves around Bitcoin and Blockchain, the digital world of cryptocurrency is far bigger and more than that.
According to the crypto market, there are more than 5,000 cryptocurrencies and many more digital currencies are being launched each day. This is challenging the crypto market and those existing cryptos and the question arise “How to evaluate cryptocurrency”?
Suppose you see an eye-catching cryptocurrency to invest in, how you should check whether it is safe to invest in it or it has the growth potential? Remember, Analyzing cryptos before investing is the actual skill one should have.
This is also not necessary that all cryptos are real, many in the market are unreal. So beware of that because scammers eagerly waiting. Scammers have seen the potential of digital currencies, they have designed some tokens to scam people and take their money away.
Evaluating and checking the growth of cryptocurrency is just the same as the fundamentals of the stock market. But today, Investors are in a dilemma where to invest and the growth potential of which coin is good?
If you are someone who is looking to invest in cryptos or you are an investor. We have mentioned some techniques for you to make you understand “How to evaluate cryptocurrency”. In this blog, we will guide you to analyze any cryptocurrency before investing.
“If the cryptocurrency market overall or a digital asset is solving a problem, it’s going to drive some value”- Brad Garlinghouse
Also, read| Top 10 Cryptocurrency to Invest in 2022
How To Evaluate Cryptocurrency
Here are the 8 ways that will help you to know “How to Evaluate Cryptocurrency”-
1- Check the Uniqueness of the Cryptocurrency
- The uniqueness of a cryptocurrency is judged by the factor of “How unique it is” not “How speculative it can” because the uniqueness describes its value and growth potential.
- Do critical scrutiny of its uniqueness to understand the term how to evaluate a cryptocurrency.
- Check how unique is its technical operation, function operation, etc and how it can stand out in the market.
Understand this with an example of Bitcoin-
Bitcoin is unique in itself but nowadays most of the digital currencies are like a copy of it, not at all unique. The nature and function of those cryptocurrencies are similar to Bitcoin.
Earlier when Bitcoin was launched in 2009, it was the only digital currency that can combine both decentralization and anonymity with delivering services to investors.
Bitcoin is unique in itself, furthermore, many altcoins came after the success of Bitcoin, showing them as the alternative of bitcoin but are similar to it.
These similarities make the various altcoins irrelevant because their functions are similar to hundreds of coins available in the market. That’s why Bitcoin always comes up as the number one choice for investors in comparison to those thousands of cryptocurrencies in the market.
2- Check the Team and Their Projects
- In the fundamental analysis, the financial data that available in the market is not sufficient.
- Without complete data, how you can analyze the future potential of a cryptocurrency? In that case, we check the team and their projects to analyze/evaluate future growth.
- If you want to analyze the potential of cryptocurrency and credibility, check the team behind it.
- Also, remember most of the fake cryptocurrencies list the name of some named individuals as their team members. So, do deep research and check whether the listed team members are part of it or not.
- Furthermore, some of the cryptocurrencies have unknown team members. In that situation, do deep research, check the track record, experience, how they can guide, etc to understand their future project.
- The important thing is to check whether the founder is just a social media expert or has a track record in this particular field.
- After evaluating the team members, check their previous projects as a group, individuals and check whether the project was successful or not.
- Check the team members’ history of scams and fraudulent schemes.
- Also, check the active members it has. The size and active members tell how well the ideas and functions of cryptocurrency are accepted and how far it can go.
- For checking the size and team behind a digital coin, check their Facebook, Twitter, Telegram, or Reddit fan base
- Tokenomics means how the token is designed and the rules are set for its use in the ecosystem.
- A token with a good “tokenomics” is the desirable one with good future insights.
- Tokenomics makes it a well-designed cryptocurrency or token, it can handle the inflationary pressure, fungible in nature, can be stored and exchanged.
- With good tokenomics, the token becomes significant clients, users, suppliers, sponsors, and investors in the ecosystem.
- For long-term survival for any crypto, tokenomics play an important role.
- Also, remember with a tokenomics breakdown a strong project can easily fall.
- The project success is determined by tokenomics.
- We all know the crypto market is volatile and that’s why cryptocurrency turns into speculative rather than functional digital coins. At that time “tokenomics” help in reclaiming the sole purpose of the token.
4- Long-Term Vision
- While evaluating you should not miss out on this area.
- Nowadays most projects claim they will change the future of humanity with some type of blockchain system. Which is great! But you need to figure out whether the project can be possible or is that necessary.
- In the long term, there should be a clear reason behind the coin.
- If the user is buying the coin only in speculation, it can be a risky investment.
5- Market Capitalization of Cryptocurrency
- The term market capitalization is defined by the price of an asset multiplied by the total number of assets available in the market.
- The formula for Market Captalization= Circulation Supply × Price.
- Now you know the market capitalization. To get the price of a cryptocurrency divides the market capitalization by the circulation supply.
- The formula for Cryptocurrency is = Market Cap ÷ Circulating supply.
- The potential of a cryptocurrency can be found in the size of the circulating supply and market capitalization.
- The price of coins will rise faster and the team’s efforts can be seen easily with a smaller circulating supply.
- In price, bitcoin is rising faster with just a supply of 17 Million. The more market capitalization increases, the more the price rise at the top.
Understand this why circulating supply matters with XRP and Litecoin example-
- The market capitalization of XRP is around $15 Billion and Litecoin’s market capitalization is around $5 Billion.
- XRP is trading at $0.35 and Litecoin is trading at $92.
- The circulation supply of XRP is 41 Billion and the circulation supply of Litecoin is 61 Million.
- The reason why the Litecoin prize is higher is because of the circulating supply.
XRP’s circulating supply needs to be equal to the size of its market capitalization for trading the dollar. The price will rise when the circulating supply chain is smaller in size and vice versa.
As an investor, if you are investing in a coin that rises faster in price, check and consider the circulating supply to evaluate its growth potential.
6- Trading Volume
- Trading volume gives a brief of the number of cryptocurrencies exchanging hands over some time.
- If you want to evaluate eth potential of a digital asset, check the trading volume and you will get a brief of it.
- Also, keep in mind that in different exchanges you will see different trading volumes. It depends on the total transactions that happened in the exchange within 24 hours.
- So you need to check the trading volume of a cryptocurrency in different trading volumes.
7- The Market Potential of Cryptocurrency
- A token can be useful, but if one person needs and uses it, the demand for that token will be low in the market.
- For creating volume and demand there needs to be enough market for token and cryptocurrency.
- By looking at the various social channels of a token you can get a fair idea of its market potential.
- If the token has a lot of market engagement and market demand after they sold out their “initial coin offering”, the market potential of that token is good.
8- Total Supply of Cryptocurrency
- Coins that are available in the market + New coins that are not available in the market – Coins that are burned= Total Supply of a cryptocurrency in the market. As the total supply of bitcoin is 21 million.
- Check the relation between the available supply, market capitalization, and price for understanding the price potential of a digital currency.
- Check the coin has a real value or is a speculative asset in the market.
- Some cryptocurrencies provide real value keeping aside their speculative nature.
Not just solely depend on the project’s hype that has been created in the market, do deep research, read documents, evaluate things before buying a cryptocurrency. So many crypto projects are being launched today, you have to evaluate new projects with growth potentials.
Just remember that a high-quality cryptocurrency project with a long-term vision is the best way to grow your portfolio.
For getting proper knowledge of the project,’s validity go through the documents, media coverage, their long-term vision, tokenomics, hype in social media, etc. After understanding the project’s validity, then you can conclude a project’s intentions.
How is a cryptocurrency valued?
A cryptocurrency is valued by the number of people involved in it and when its demand is more than the supply. Also, a cryptocurrency is valued when it is useful and the demand is thoroughly increasing. Example- Bitcoin.
How do you analyze crypto?
Technical analysis is used for analyzing crypto in which the price changes, statistical trends, historical volume, long and short-term forecast/prediction made on the price.
What are the fundamentals of crypto?
The five fundamentals of cryptos are-
- Active address
- Transaction values
- Staus of that crypto
What is a fork in cryptocurrency?
Like you “fork in” a road to indicate the changed diversion, a similar “fork in” is used in the crypto-technology platform to tell users about the new update.
Which crypto will explode in 2022?
EverGrowCoin is on track to explode in the year 2022. It also becomes the first yield generation token that rewards users in BUSD.
Can Blockchain be hacked?
Blockchain technology is a public ledger that verifies and records transactions. Constantly network of users is reviewing blockchain, which makes blockchain hacking difficult. Also, after receiving the goods transactions are erased in the blockchain.
Which Cryptocurrency is best for long-term investment?
These are the seven best cryptocurrencies to invest in for long term investment-
- Bitcoin (BTC)
- Ethereum (ETH)
- Solana (SOL)
- FTX Token (FTT)
- Cardano (ADA)
- Binance Coin (BNB)
- Yield Guild Games (YGG)
How long does a person need to hold crypto?
A person should hold crypto for a long time only when he/she expects the price to increase over time, for example, 6 months or 1 year. Some investors also hold the crypto for multiple years.