What to check before investing in crypto (how to make fundamental analysis)
Navigating through the whims and caprices of cryptocurrencies can be very daunting considering the complexity of the technical concepts and the market trend. People get more confused as they try to decipher the cryptocurrency dynamics. In this guide, we will try to make things easier to your journey of making your first investment.
The truth is that, anyone can make fantastic returns from investing in the right cryptocurrency. You just have to arm yourself with much information and invest at the right time. While cryptocurrency markets are not always predictable, knowing the fundamental analysis will boost having ideas of what probable scenarios may be.
Here are what to check before investing –fundamental analysis.
#Step 1: Finding the Right Sources of Information
Getting adequate information is an asset in making good investments in cryptocurrency. In order to assess a token or coin, you have to know where to source information and you can get such from:
Token’s White Paper
This is the foundational document of any project. It’s a detailed proposal with the grandest display of outlines, the purpose and developmental plan of the project.
The white paper should thoroughly be read before taking a decision. One sour experience people face is that, most white papers are too technical to the understanding of non-technical person.
Community Forums: Reddit /Steemit//Bitcointalk
Forums are one of the best ways to get adequate knowledge of the coin under review. One will get simple descriptions of the workability of the coin, objective views about the project and easy-to-understand analysis of the coin.
The diversity of views from the forum will provide an easy grasp to the investmentability of the coin. The forum offers the opportunity to ask question(s) and get more clarifications.
The project website is a good place to source information. Virtually all the project sites have white paper uploaded on it, also questions and answers (Q&A) section, link to community channels might be useful.
#Step 2. Market Capitalization
Market capitalization is very vital in deciding whether to invest in a coin or not. It’s the aggregate market value of an asset represented in fiat currency. Market capitalization gives a clearer picture of the product’s growth pattern.
To calculate the market capitalization of a cryptocurrency, you multiply the circulating supply with its current price.
For easy understanding, if there are 2 million tokens in circulation at $1.5 per coin, the total market cap of the coin is $3,000,000.You can get the market capitalization of over 3000 cryptocurrencies from www.prices.org
Please, note that, a low-cost cryptocurrencies can have equal market capitalization, if the low-cost cryptocurrency has more coins in circulation than the high cost one.
#Step 3. The team
The composition of the team plays a major role in making decision to invest or not. The unfortunate thing these days is that, cryptocurrencies have attracted people with questionable character to join the frail. Unfortunately, what we have today, are money grab projects whose members identities are hoax.
So many cryptocurrency companies hide their identities, citing security reason and many people still believe them. A good project should be willing to give detailed information about its team.
How experienced and in-depth are the members of the team? We recommend you listen to team members especially the management team when they are being interviewed. If you’re living in a major city where they attend conferences, interact with them. Don’t believe what they put up in their website, carry-out a due diligence check.
#Step 4. Use Case
We have many projects with a weak use case, preying on the public who don’t evaluate the practicability of the project. If a project cannot solve real problem confronting the public, it’s not worth investing. What we have today are many projects raking in millions of dollars without adding values to the industry. This is why, full regulation is needed to sanitize the industry and make every player to sit-up.
Coin’s utility potential should be seriously scrutinized before you invest, find out what people are saying concerning the project and do a background research.
#Step 5. Current situation on the market
Cryptocurrency’s position on the market is very important to evaluate before investing your hard earned money. Coins with large number of traders making large trading volumes tend to out-live uncertainties and speculations in the industry. Volume trade is an important indicator to test cryptocurrency coin’s popularity.
Examine the performance of the coin and how it’s trading across different markets. Check, how many exchanges are trading that particular cryptocurrency. It’s laughable to see one or two exchanges trading a particular cryptocurrency. That project cannot survive the heat and doesn’t look promising.
#Step 6. Community attitude analysis
This method gives you an idea, the attitude of the users and their various activities. The community comprises of interested persons, coin holders, developers and the management team .How interactive is the community? Did they discuss burning issues? Does management team take swift actions to issues raised? These are things one needs to find out.
Positive relations and mutual contributions in every community make a positive impact on the value of the cryptocurrency. Projects suffer setbacks if comments emanating from such gathering are negative; it affects the price of the coin.
As a prospective investor, adopt a strategy that could help you analyze information you gather from this tool.
#Step 7. Coin Supply
The law of supply and demand plays a key role here. The reason why Bitcoin holders are holding their BTC coin is to create artificial scarcity, thereby making the price to skyrocket. The BTC holders use pen and calculator to calculate how much the missed for not investing between 2009-2011and how much they intend to make in 2025.Withholding Bitcoin has a lot to do with Bitcoin supply. When we have low supply of a viable coin, the demand will be high and the price will increase.
People tend to invest more on coins that, the supply is low during crowdsale. You need to pay attention to this subject when carrying-out your analysis.
#Step 8. Roadmap
Roadmap gives an idea where a project is heading in a couple of months or years. It’s unfortunate that some projects do not have a roadmap, forgetting that, investment is all about the future. A project cannot claim to be a long-term project if it doesn’t have a roadmap; people shouldn’t waste their hard money in such project.
A good roadmap should state what has been done and what will be carried out in subsequent time. Some started with few things put in place but, it was the roadmap that convinced people, that the project looks promising.
#Step 9. Government policies and interference in cryptocurrency
The concept of cryptocurrency is relatively new and financial regulatory institutions around the globe are still trying to come in terms from the implications of such a high flying technology. Cryptocurrency technology and new open system innovations from the FINTECH industry are improving the concept of digital currency, making cryptocurrency a threat to fiat currency. This is putting the government of the day on a hot seat.
Creating regulation is a welcome development, at least to curtail the excesses of the cryptocurrency scavengers who are reaping off unassuming investors and also endangering country’s own paper money. We also consider regulation as a massive boost to economic competitiveness. A balance has to be struck since countries react differently to cryptocurrency since the emergence of Bitcoin in their respective countries.
How do a new investor factor all these before investing? You as an investor need to consider government policies as it affect your own region before investing. Pay attention to the behavior of governments towards cryptocurrencies in your locality.
#Step 10. Timing Is Key
Once you nurse the feeling to invest in cryptocurrency, there’s need to consider the timing. You need to invest at the right time before you can hit the bull by the eye. Global chaos is sometimes seen as beneficial to Bitcoin likewise few other cryptocurrencies. Cryptocurrencies are apolitical and sit outside the influence of any government. History shows that, Bitcoin increases in value at a very rapid pace, followed by a little dwindling, until it stabilizes.
Investors need to use tools and information on websites such as Cryptomaniaks.com to analyze the price action and make informed decision before investing.
Disclaimer: This is guide is intended to get the public well informed. Whatever you use this information for is solely at your discretion and we will not be held liable in any way.