How to Know If Your Crypto Investment is Good?
There are a few things to consider while choosing the best cryptocurrency to invest in for you. To diversify across different cryptocurrencies, you should follow to the appropriate asset allocation. This reduces your overall investment risk.
According to data by Coin Gecko, the global cryptocurrency market cap is $855 billion. With so much diversity and so many crypto coins involved, one can get overwhelmed and confused about the best crypto investment out there.
In this article, we will dissect how to know if your crypto investment is good and the factors you should keep in mind.
Table of Contents
How Do You Know If a Cryptocurrency Investment is Profitable?
When it comes to finding the best crypto investment for you, there are a few things to consider. You can’t simply jump right in according to what’s popular at the moment. You should practice thought and care when it comes to investing in cryptocurrencies.
That said, here are a few to keep in mind when figuring out what’s a good crypto investment for you.
1. Market Capitalization
Being the top crypto coins, they might seem like an obvious choice to invest in. But it’s still worth doing your research about these two coins and seeing whether you can work with them, according to your financial situation.
To get started with Bitcoin investing, check out my guide which is perfectly suited for beginner BTC investors.
2. Total Coins Available and Current Supply
Looking at whether a cryptocurrency has a limited supply is also an indicator of whether it’s a good investment. You should also consider the number of coins that are currently in circulation.
For instance, Bitcoin has a limited supply. The maximum number of bitcoins that can be issued—mined—is 21 million. There are at this moment (January 2023) around 1,736,087.5 bitcoins left to be mined. This means that more and more people are investing but the supply is limited. As a result, as long as more people are starting to use Bitcoin, the demand for Bitcoin will increase.
So, a limited supply coupled with an increase in demand leads to an increase in the price of any crypto asset.
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3. Coin’s Purpose
It’s essential to know the fundamental goals and objectives of the coin when searching for the finest cryptocurrency investment. What sets a certain coin apart from the competition?
Potential innovations for the coin can evolve over time. A coin will have a wider acceptance range the more use cases it has. The more it is used, the more its worth will rise. The coin’s value will decrease if its function and utility decrease.
4. White Paper
Every cryptocurrency has a ‘white paper.’ This document includes all the details of the coin, such as:
- The vision of the creators
- The Purpose of the coin
- The Problems it will solve
- The Technology it uses
The white paper also mentions other important factors about the coin that helps determine its credibility and longevity. If the white paper seems realistic to you, consider investing in the coin with initial capital.
As time passes, you will realize whether the vision of the coin is being followed. If it is, then that means that the coin’s price will likely go up.
Another element to keep in mind to know if your crypto investment is good is the price of the token.
For beginner investors who don’t have a lot of capital, investing in low-priced coins can offer the best profits. Don’t forget that there is an opportunity to diversify even with low-priced coins.
However, keep in mind that not all low-priced coins are created equal. Thus, they should be approached with extra caution. While there is the opportunity, there is also the risk of cheap coins not being reliable. An example of that would be LUNA, which crashed from $120 to worthless within the span of 48 hours. Thousands of investors lost money because no research was done before putting their money into a low-priced coin.
6. Future Prospects
If you want to find a good crypto investment, try to identify which coin has an edge over the others in terms of prospects. This means looking at the utility of each coin and seeing whether it can be of use in the future.
Also, look into who is behind the development of the coin. Is it a dedicated team of professionals with good track records that are spending time and effort into creating and maintaining this coin? Or is it a couple of people out to make a quick buck at the expense of others?
7. Trading Volume
Another indicator to look out for is a cryptocurrency’s trading volume. This shows you how much a coin has been traded within a specific period.
A high trading volume means a lot of investors are buying and selling. Subsequently, this means more price stability and liquidity.
A great example is that of Bitcoin, which has the highest trading volume of any cryptocurrency.
Low volume suggests a lack of investor confidence in the coin which can lead to price fluctuations and poor liquidity.
How Do You Realize Profit from Crypto?
There is no one-size-fits-all approach that you can take to time the market right and realize profits. However, you can keep a few things in mind to make reasonable decisions.
For example, if you are thinking of selling your crypto to lock in profits, do plenty of research to assess the long-term value of the cryptocurrency.
Learning about price moves is a great complementary tool to investing in crypto. In Trading for Success, I map out in a step-by-step fashion how you can analyze the price of an asset successfully – a strategy that you can then use in not just the crypto market but any financial market.
Moreover, it’s best to focus on optimal gains rather than trying to hit a home run every time. It’s simply impossible to time the market perfectly. As such, keep in mind that even if your decisions are not perfect, you can grow your portfolio.
If you focus on the optimal profits for you, you can then compound them by shifting those gains to other crypto coins that are just beginning a price run. Compounding in this way can then lead to significant earnings.
Therefore, instead of aiming for a 100% incremental gain, focus on smaller increases like 30% increments.
How Do I Acquire a New Cryptocurrency Before Listing?
New cryptocurrencies are sometimes available for presale before an exchange lists them. You can keep an eye out on social media, crypto news sites, and crypto-focused tracking sites, such as CoinMarketCap, to stay on top of this information.
Final Takeaway – How to Know If Your Cryptocurrency Investment is Good?
If you want to become a successful crypto investor, it is imperative to follow the appropriate asset allocation. Within the world of cryptocurrencies, you should look to diversify into various coins.
But don’t just diversify for the sake of it. Investing in a ton of cryptocurrencies will not result in profits if you do it without any mindful decision-making. You should still do your research and see whether your options for diversifying make sense and will be beneficial to you.
You can figure out which coins are your best bet by keeping the factors mentioned in this article in mind. In the end, remember to start with small amounts and be consistent with your research and strategies.
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