Finding Hidden Gems in the Crypto Market and Key Points to Consider Before Investing

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Finding Hidden Gems in the Crypto Market and Key Points to Consider Before Investing

With over 10,000 crypto tokens in the booming crypto market today, investors need to evaluate their investments for positive returns

Since the launch of Bitcoin BTC/USD as a peer-to-peer digital currency that has espoused the virtues of blockchain technology, the world has increasingly warmed to the concept of a decentralized future where humans can transact with each other and with businesses , without the involvement of any central banking authority. A growing number of digital currencies, or cryptocurrencies as they are better known, have since sprung up, with many competing to attract more users and investors. Over the past few years, the rapid growth rate of crypto adoption has caused cryptocurrency prices to soar, attracting even more investors to this thriving asset space. However, this has also led to an increase in the number of bankrupt crypto tokens as bad actors attempt to defraud investors’ capital through pump and dump schemes, rug draws and bid frauds. initial coins (ICO) are among other types of cyber thefts. It is therefore even more important for newbie investors to conduct their own thorough research and only invest in crypto tokens that meet a number of assessment criteria listed below:

Selection of crypto tokens with real use cases

Although every crypto token can be traded in the short term, crypto investors would do well to invest in those tokens that have strong fundamentals in order to benefit from long-term capital appreciation. From this value investing perspective, it is advisable to invest only in crypto tokens with an underlying blockchain project that offers a product or service that adds tremendous value by decentralizing traditional businesses like banking, art, games and commerce, among others.

Despite cryptocurrencies like BTC, Ethereum ETH/USDSolana SOL/USDgimbal ADA/USD , as well as seemingly more popular crypto tokens, it is important to note that there are also many other new era projects providing services. These new-age projects are cloud computing, video streaming, decentralized storage, and energy markets, which could potentially be game changers in the space in which they operate. Crypto tokens like Polygon MATIC/EURSpotted DOT/USDStorj (STORJ), Golem GLM/USDcosmos ATOM/USDtheta THETA/USDZillika ZIL/USDfilecoin IDF/USDAmount QNT/USDArweave AR/USD are just a few examples of choices that investors might consider when considering new projects.

Ensure that the governance and funding mechanism is robust

While most crypto tokens adopt a proof-of-work (PoW) or proof-of-stake (PoS) consensus mechanism to validate transactions in their blockchains, there are a number of scaling solutions launched that have a slightly different approach to governance and use an off-chain consensus feature to accommodate higher transaction speed on their platforms. While this may not seem like a big deal to the average crypto investor, ensuring that the crypto token can perform consistently even during bouts of market volatility and support the core product or service is essential. without falling in value as in the case of Terra and Token Luna. With a number of different types of crypto tokens such as meme coins, altcoins and stablecoins available today, investors should be sure of the stability provided by the primary governance structure before committing with their invested capital. .

When crypto tokens are launched through an initial coin offering (ICO), the cryptocurrency equivalent of an initial public offering (IPO), the funds raised are used to power the underlying blockchain project and documented in the token whitepaper. Investors should read this document carefully to validate whether the funds raised through an ICO are secure, used efficiently, and do not raise suspicions that would indicate a possible downgrade in the future.

Assessment of tokenomics, market potential and market capitalization

For investors looking to invest in a particular crypto token for the long term, it is crucial to understand the economics of the token, or tokenomics as it is known within the crypto community, to identify potential red flags. and avoid investing in risky tokens. Factors such as maximum allowed token supply, current number of tokens in circulation, percentage of tokens held by large investors or crypto whales, and how tokens are minted or burned are important in understanding how the particular token will behave in the longer term. . Crypto tokens with a finite supply and that are more evenly held across its investor base are a better bet than those controlled by a few select crypto whales.

Get insights from technical indicators, direct competitors and peers

Despite all the above factors, it is relevant for investors to consider key metrics such as volatility, risk/reward ratio, Sharpe ratio, and other technical indicators before taking a new position in a token. particular crypto. Tokens that are in an extended bear should be watched for re-entry on signs of a reversal. On the other hand, those crypto tokens that are in an extended bull run require investors to exercise caution in order to avoid buying at the peak of their rally.

It is always a good idea to look at all the crypto tokens operating in a particular sector or industry, to understand which of them offer the best investment potential. Competitor tokens will always be the best critics of each other and can be found on social media platforms like Telegram, Reddit, and Discord.

Although the above framework provides crypto investors with a basis for making investment decisions in the bustling crypto market, there are risks associated with investing in cryptocurrencies due to market dynamics. constantly evolving. Choosing fundamentally sound crypto projects that are undervalued compared to peers or traditional companies operating in the same space offers a greater chance of not only generating significant long-term returns, but also the opportunity to invest in projects that will lead humans to a decentralized environment. coming.

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