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Numbers don’t lie and so far, the numbers say that cryptocurrency is a solid investment. Bitcoin, for example, was crowned the top investment vehicle for the 2010s, beating out both gold and traditional stocks. Needless to say, many more investors are adding cryptocurrency to their portfolios.
But the thing about the crypto world is that there are so many tokens in existence. At any given time, there are thousands of cryptos in the market and if you’re looking to invest, you might be a bit confused. So how do you pick the right crypto for investment?
1. Consider Use Cases
Few things predict the longevity of a cryptocurrency like the use cases that are attached to it. Use cases, in this sense, refer to the things you can do with both the token itself and its underlying blockchain. XRP, for example, sees widespread use for settling cross-border payments. Ethereum the blockchain also sees a lot of use in the DeFi, NFT, and D’App sectors and this trickles down to its native token.
You see if a blockchain or a token are constantly being used, there will be demand for them. And if there is demand, the price will rise and stay high and this is good news for you as an investor. So when you first begin considering a cryptocurrency as an investment, ask yourself what its use cases are.
This is not usually difficult to find out. You can visit the project’s website and look at its whitepaper or ‘About page’. Also, Google the project and look up interviews with its team that discuss how the token or its blockchain will be used. If it seems to have viable use cases, then it might be a good investment. If not, you best be cautious.
2. Old vs. New
When choosing the most effective coins to purchase, you have to strike a balance between newer cryptos and those that are tried and tested. The benefit of the older cryptos like ADA and BTC is that they have survived countless crypto winters and industry shifts and have mostly proven themselves in the market.
As such, many investors are less wary about them being inauthentic or unstable investments. On the other hand, there is a benefit to investing in newer tokens. Many crypto investors are always on the lookout for the next big token and hope to invest in it before it takes off. Some of the earliest Bitcoin investors became millionaires after the token took off and many are trying to re-create the same success with newer tokens.
When picking a crypto to invest in, you will have to consider whether it is an older token that has survived the market for a long time or a newer one with a lot of potential. If it is the former or the latter, it is still worth carrying out due diligence about its use cases and other factors to make sure it is right for you.
3. Price History
While no one can fully predict the future, looking at a token’s price history can give you an idea of what its price trajectory might be. This is because crypto market forces often cause patterns to emerge within the price movements of tokens in the market. For example, you see from looking at the price history of Bitcoin and Ether that they saw major price slumps several times over the years due to crypto winters and spiking soon after.
Looking at Bitcoin, you’ll also see that it usually sees a price spike just after it completes a halving. So if you were investing in either of these tokens, you should have an idea of how likely they are to bounce back after a slump and when they tend to see declines. So, when looking for crypto to invest in, look into its price history and consider if it is promising.
If a token has seen ups and downs, you know that there will be some volatility involved. At the same time, if the token has seen a sharp decline from its peak and shows no signs of a recovery then you might want to proceed with some caution.
4. Community Opinions
The good thing about the crypto space is that it is a very social one and there is no shortage of opinions and recommendations on what tokens to try and why they are worthwhile. For many crypto investors, staying tapped into the community is a way of finding the next big things to invest in.
So, when thinking of a crypto to buy, look towards the community for some ideas. These include Twitter/X accounts that discuss crypto, blogs, Telegram groups, Subreddits, and much more. If you notice the same token organically being recommended in multiple circles, you might want to give it a closer look.
At the same time, it is best to apply caution. Those who run pump-and-dump schemes often try to use these crypto communities to push their fraudulent projects. This is why you should make sure that the projects are being organically endorsed by the community and not based only on paid promotions.
Consider what exactly people are saying about the token; are they explaining its use cases and security and why it has value to offer? The crypto world is full of hyped but empty projects so make sure you do your due diligence.
5. Consider the Team Behind It
Some of the most successful crypto projects have one thing in common, which is that they have a team of passionate experts behind them. Cardano, for example, was founded by one of the people who had founded Ethereum years before and who is a computer scientist. Because there are fewer barriers to entry within the cryptocurrency industry, many unqualified and unscrupulous people are launching their own crypto with no worthwhile plans.
So when you’re considering investing in a crypto, look into its founders and the team behind it. What are their backgrounds? Do they have expertise? Have they fronted successful crypto projects before? A well-qualified and experienced team is more likely to have created a crypto that is worth investing in.
If the team has no technical expertise or this is their first project, you should be cautious if you choose to invest. If the project has a completely anonymous team then you should be very cautious. While Bitcoin’s founder is unknown and has gone on to become a global success, don’t count on the same happening for a new project in 2023. All in all, make sure you carry out due diligence on the team.
6. Staking Potential
Cryptos that are based on a proof-of-stake consensus can be staked for interest. For crypto investors, especially those who HODL, this can be a way to earn passive income. So, if you’re looking to invest in cryptos, you might want to consider the ones that have a proof-of-stake consensus and perhaps create another crypto income stream.
Most times, you can find out if a token can be staked by searching online or reading its whitepaper. If it is, it could be an added benefit of investing in the token, though not the only reason you invest.