There’s no denying that cryptocurrencies are a high-risk, high-reward investment. One won’t find a shortage of stories of people getting rich or losing their life savings on an asset whose value is highly speculative and not based on any standard.
Nevertheless, with over 12,000 cryptocurrencies actively trading and thousands of new ones entering the market every month, crypto isn’t about to disappear anytime soon.
Some cryptos may be worth investing in, while others may be better left alone. But with so many to choose from, how can an investor effectively separate the wheat from the chaff?
The first step is the simplest: scouring the Internet for insights from experts, fellow investors, and others. Articles, blog posts, and reports are fair game, but forums and discussion boards provide a closer look since you get to talk to people active in the cryptocurrency scene.
One of the largest of these forums is the Bitcoin Forum. Despite its simplistic appearance, it has over 3.4 million members, with around 300 new members joining every day. Even if it says Bitcoin in its name, the forum also discusses up-and-coming cryptos as much as the tried-and-true ones (non-Bitcoin cryptos are known as “altcoins”).
Although distributed among various discussion boards, Reddit is also home to a sizeable crypto community. The subreddit r/CryptoCurrency alone has an estimated 4.7 million members, with thousands online at any given time. Some cryptos also host their own official subreddit, such as r/ethtrader for Ethereum and r/Tether for Tether.
These discussion boards feature a search function to make perusing potential cryptos easier. Be wary of threads that contain nothing but praise for crypto, as it’s not unusual for bots and fake accounts to put it in a positive light.
2. Decentralized Exchange
The decentralized nature of cryptocurrency means there isn’t a bank or common financial institution to manage exchanges. In this case, trade can only happen through a peer-to-peer market called a decentralized exchange (DEX).
Contrary to popular belief, a DEX doesn’t facilitate the trading of fiat and actual crypto, only crypto tokens. It employs a series of smart contracts to enable seamless trading of these tokens, their values based on liquidity pools.DEXs like Solana DEX and others provide up-to-date price and volume data on active crypto coins.
Such information gives people an idea of cryptos that’ll give them more bang for their invested buck. The exchanges also usually don’t require personal info to initiate the trade, and the funds are secure in the traders’ e-wallets.
Most budding cryptos publish their whitepapers before establishing an Initial Coin Offering (ICO). This publicly-available document offers a technical glimpse into cryptocurrency and how it works. Investors looking to put their money on any ICO outside established names such as Bitcoin and Ethereum should consider reading whitepapers.
Whitepapers may be long, tedious, and filled with jargon, but not so much those on cryptos. As the general public (and potential investors, to an extent) will be reading them, their authors try to keep complicated terms and explanations to a minimum. But it pays to know a couple of crypto words like blockchain or smart contracts.
At the bare minimum, whitepapers should be able to provide info on six crucial aspects:
- Purposes for initiating the crypto project
- Feasibility in real-world applications
- The type of consensus mechanism to use
- Distribution of pre-mined crypto coins
- Technical details (usually via graphs and stats)
- Detailed project timeline
A complete understanding of the whitepaper allows for making more informed decisions on investment strategies, whether to stake Solana tokens or others. How much info the paper discloses can mean the difference between a promising cryptocurrency and one doomed to fail.
4. Official Website
Another excellent source of firsthand information is the cryptocurrency’s official website. It may not necessarily offer as much information as a whitepaper, but it enables people to conduct their own background checks on the people behind the crypto.
The website should have a “Meet The Team” page and contain the following details:
- Photos of the team members
- Educational background
- Work experience
- Achievements and accolades
- Experience in the crypto industry
The lack of such a page should be a red flag. Projects run by anonymous developers can be huge liabilities, as investors won’t know who to turn to if things go south. Much worse is the lack of anything on the website. Such was the case for one project that rode on the popularity of a Korean TV series on Netflix. Its website has long shut down, but screens archived on the Wayback Machine showed that it didn’t have any published information (apart from a decently-detailed whitepaper).
Even after doing due research and determining that crypto is promising, experts advise against putting every cent on it. As mentioned earlier, the asset is highly speculative, meaning it’s also volatile. It’s possible for a tremendous gain one day to result in an irreparable loss the next day.
Experts recommend following the 80-20 or 70-30 ratio to avoid such a scenario. It involves putting 70% to 80% of the investment money on well-known cryptos and the rest on the new crypto with the potential to grow. Diversifying a crypto portfolio mitigates losses if the latter drops in price and volume.
Also, consider holding onto the bulk of the investment for as long as possible. Check market values every week or month instead of every day; even crypto on the verge of collapse can suddenly come back from the brink.
As more cryptos enter the market, it’s no surprise that more players will try their luck at getting rich from them. The industry will improve, even lay down standards to make it less volatile, but caution is the name of the game for now.
Choosing a good crypto investment demands thorough attention to detail, which is only possible through intense research. Visit the crypto’s website, peruse its published whitepaper, scour the discussion boards for additional insights, and see how it performs in the exchange. If done right, crypto may yield high rewards for reduced risk.