There are many factors to consider and many things to grasp before a new investor makes their first cryptocurrency investment. Before diving head-first into the crypto world, prospective investors must first choose the type of crypto exchange platform that best suits their needs. These platforms include:
- Cryptocurrency exchanges: typically classified as centralized (a central organization controls all activity on the platform and decides which projects can list their tokens for trading) or decentralized (there is no central authority and any crypto project can list their token for trading).
- Mobile applications: neobanks, brokers and other financial applications such as payment solutions that offer cryptocurrency to their customers.
- Crypto ATMs: physical locations where you can withdraw crypto by using a crypto credit card or purchase it by depositing fiat currency.
- Cryptocurrency Trusts: certain traditional financial institutions have begun offering their clients exposure to the price movement of Bitcoin and other leading cryptocurrencies through traditional funds. These trusts enable investors to gain exposure to the crypto market in the form of a security while avoiding the challenges of buying, storing, and safekeeping crypto directly.
- Futures Exchanges: markets which allow you to bet on the future price movement of a cryptocurrency or token. Most centralized cryptocurrency exchanges now provide futures investment opportunities.
Now that they have decided the channel through which they want to join the market, investors then have to do their own research (DYOR) on which cryptocurrencies and tokens to put their investment dollars into. There are many things to look for when deciding if a cryptocurrency represents a good investment opportunity. These things include:
- Market capitalization: the total value of all tokens in circulation.
- Token supply: how many tokens are in circulation and how many more are yet to be minted or mined. The token inflation/deflation rate will give investors an idea on the sustainability of the current market capitalization and price of the token.
- Whitepaper: the document that outlines the plans of the team behind a cryptocurrency or token in their entirety. Reviewing the whitepaper in detail is a necessity for anyone who truly does their own due diligence.
- Use case: what problem does the product or token solve?
- Token Utility: cryptocurrencies and tokens will provide their holders with certain benefits. These utilities may include participating in launchpad token offerings, gaining access to special promos, and purchasing in-app items among many others.
- Stage of product development: is the platform or product live? When will it go live? The longer an investor has to wait for a live product, the more likely the token is to come under heavy selling pressure which will suppress its price.
- Market timing: “No one can time the market” is a popular quip, but there are certainly ways investors can help themselves. One popular strategy is to dollar cost average (DCA) in which an investor buys the coin or token at regular, pre-determined intervals.
- Team: A strong, experienced team is an important consideration in determining the potential of a project. ****
These are just a few of the variables to look for in assessing a cryptocurrency project or token for investment. Potential investors are advised to ‘turn over every leaf’ before deciding on which platform to use and which coins and tokens to invest in.
Cryptocurrency exchanges are by far the most popular choice for investing in crypto, let us move to the next lesson to dig deeper into these platforms.