The world of cryptocurrency is growing on a daily basis, which means that traders will find more opportunity than ever to put their money in well-established as well as newer cryptocurrencies. When assessing cryptocurrency, it should be noted that it is more comparable to an asset, such as gold. Gold is regarded as a store in value, but cryptocurrency actually has far more utility. It has become a hot commodity due to its real-world application. But, how do you decide which cryptocurrency is worth choosing? There is a great deal of options available and this can lead to confusion.
The key is to know what factors you need to consider when making a choice and the most important ones are:
Utility; is there a need for that particular cryptocurrency?
The same type of metrics cannot be used for assessing a cryptocurrency as you would with a traditional company. You need to gauge exactly how useful that crypto is in the real world. How do you figure this out? By asking whether the cryptocurrency solves a real-world problem or not. For instance, not only is Ethereum used as a form of payment, but it can also be used for executing and implement smart contacts on the Ethereum network. Developers can use Ethereum for developing their own smart contracts, which makes this crypto worth selecting.
Vision; what is its goal and purpose?
The whitepaper is the ideal starting point for understanding the purpose of a cryptocurrency and it is published on the official website. It is written by people who created the coin and they outline its purpose. It may be a bit technical, but you can ask questions and see what its goal is.
Competitors; how does it perform against similar coins?
Another factor you need to consider is how the company is faring as compared to its competitors. Bitcoin has reached lofty levels because it was first to the market. However, every new cryptocurrency that’s introduced in the market attempts to build on the weaknesses of the ones that came before it. For instance, EOS solves some of the scalability issues that are seen in Ethereum.
Team; who developed the cryptocurrency?
It is also incredibly important to take a look at the people behind the cryptocurrency before you decide to invest your money in it. What kind of background do the creators have in the cryptocurrency industry? What kind of vision do they have? Again, the important thing to note here is the problem that the crypto aims to solve.
Supply and Demand
You are considering the demand side if you are trying to gauge the utility of a cryptocurrency, but it is far easier for traders to consider the supply side of the deal. If the crypto in question boasts a finite supply, then it is a given that over time, the price will continue to rise as dictated by demand. On the other hand, if the supply of a coin continues to increase, its value will be diluted. This is the same as when a company continues to issue more stock. An expert from GigaFX suggests, it is a better idea to put your hard-earned money into a cryptocurrency that has a finite supply, assuming it has a real value in the world. For instance, one cryptocurrency that has a limited supply is none other than the pioneer itself i.e. Bitcoin. Software is used for controlling the supply of BTC and miners get new tokens when the next block on the blockchain is created.
It is also a good idea to assess the supply side of the coin in terms of its market capitalization. It is true that market cap is nothing but a number, but this number represents the liquidity of the crypto. In the finance world, liquidity is of the utmost importance because it breeds even more liquidity. This means that buying and selling the cryptocurrency will be considerably easier and this will encourage others to do the same.
The Holdings of the Founder
The largest cryptocurrency in the market is none other than Bitcoin, followed by Ethereum, XRP, Bitcoin Cash and EOS. One important thing that you should note about the cryptocurrency you are interested in is the percentage that’s held by the founders of the coin itself. Just like you assess a company by looking if its director is buying or selling their shares, the same can be applied to cryptocurrency. It is speculated that if a founder is not cashing out on the highs, then they have a lot of confidence in their coin. Therefore, the holdings of the founder can be very useful.
Price vs Value
No matter what asset you are investing in, ultimately it is all about price vs value. Just because the price of a crypto is low doesn’t mean that it is a good investment. For instance, in the stock market, if a stock is cheap then it is because the company is not earning any profits and is trying its level best to just stay afloat in the market. However, profits cannot be used as a measure of performance where cryptocurrencies are concerned so you have to look elsewhere automatically.
One way for valuing Bitcoin is to compare the transactions to price. The number of transactions that are taking place in Bitcoin can be used to see how valuable the crypto is for making transactions. If the price of the coin is higher relative to the people who are utilizing it, then it is probably overpriced.
These are some of the most important factors that you need to consider before you decide what crypto you want to trade and which platform to trade on. You can read GigaFX reviews and the the reviews of some other companies too so you can work with the best platform. For choosing cryptocurrency, while it is true that everyone has different perspectives, it is best to make this decision after you have done your research. Otherwise, you may end up investing in a cryptocurrency that is not meant to last and you can lose your money. Be smart and you will earn huge profits in the future.