How to Choose the Right Crypto to Invest In

Studies show that a small allocation of crypto to your portfolio actually reduces volatility overall. This is because of the disproportionate upside to crypto investments. If crypto fails, your 1–5% allocation has only a 1–5% downside risk. However, the potential upside is far greater than that of traditional assets.

Crypto can be a great investment, but crypto projects are often very high risk as well.

So how do you choose the right ones?

Tokenomics

Looking at the economy of a project’s token can help you evaluate a project.

• Market cap: Refers to the overall value of a crypto. A higher market cap value can often indicate a more stable price compared to low-cap coins.
• Inflationary/deflationary: This refers to different states of crypto supply and value. So an inflationary token will increase the total amount of its coins in circulation, like DOGE. While a deflationary token refers to a crypto that has a limited or decreasing amount of coins in circulation, such as BNB.
• Scheduled burns: These are used to decrease the number of tokens in circulation by permanently destroying them. This can be done to increase the value of tokens in demand or to value correct amid unfavorable market conditions. Shiba Inu, widely considered to be a “memecoin” increased its burn rate by about 130% amid a downturn in the market and has subsequently raised its coin scarcity and jumped in value by 9%.
• Utility: The utility of a token refers to the actual function of the asset, which can tell investors about a token’s use and potential. Some tokens like CryptoWallets SPEND tokens allow people to vote on wallet hostings and therefore have utility. Others like DOGE, have little to no real-world utility and therefore a strictly speculative asset.
• Total supply controlled by the team: The amount of tokens owned by its owned development team is an important consideration for investors. The more a token is owned by its creators, the easier it is for the creators to control the price by sudden token burns or by overly influencing voting protocols. Additionally, projects overly owned by their staff are at risk of sudden large-scale token dumps, which can flatline their value, though there are methods to avoid this.
• Locked token amount: This often refers to a number of tokens being blocked from being traded for a set amount of time. This is done to prevent “exit scams,” large-scale sell off’s or to stabilize supply until full product rollout. For investors, locked token amounts may indicate more stability and commitment from a project team.

Crypto Services

When choosing the right crypto, investors can use market predictions about new services to extrapolate the potential of a crypto project. Let’s use crypto debit cards as an example.

According to the Digital Journal, the crypto debit card market is expected to increase at a CAGR (compound annual growth rate) of 58.6% by 2029. Therefore an investor could summarize that crypto projects that onboard customers into this kind of crypto service earlier are better positioned to benefit from the prospective growth of this sector.

Investors can also use other indicators to bolster these kinds of assessments. For example, Visa has announced that it has had 2.5 billion in crypto debit card transactions this year and had partnered with 50 leading crypto platforms to provide this service, again indicating the confidence of the smart money investment in this market, and perhaps the viability of investing in projects that are part of this space.

Online Presence

As a potential investor, you need to be able to identify what a healthy crypto’s online presence looks like, how to identify red flags and meaningfully interpret their online activity across online spaces.

On Twitter for example you can analyze the online presence of a company by seeing how often a project’s account posts, finding out how many followers they have and then conducting a quick audit for bots with services like TwitterAudit.com or followeraudit.com.

When auditing for bots, larger accounts, like Ethereum’s 3 million will normally see 8–9% of potential bots, which isn’t a major concern. But lower follower accounts, like the now infamous SquidGameToken’s 8k followers, had a whopping 17% estimated to be bots, which is a red flag, for an account of this size.

The purpose of bots is to artificially manipulate markets, feign engagement and sometimes drive investors towards shady crypto projects, and these bots are not just limited to Twitter.

Other websites like Reddit or LinkedIn can also suffer from bot activity, so remember to check a profile for suspicious activity. This can include a lack of profile pictures, little to no engagement with other profiles, strange grammar or syntax errors and postings at odd hours in relation to their supposed timezone.

Another way for investors to track a crypto project’s potential is by using GitHub. GitHub is a hosting service for software development, and by looking up a token, let’s say Polkadot (DOT) and clicking on “insights” a potential investor can look at how many “commits” it had lately. These commits represent changes made to the project’s software and therefore, indicate ongoing activity, overall project commitment and progress for the crypto.

Developers

Due diligence and transparency can often be jaw-droppingly lacking in the crypto world, like the infamous “Evil Ape” developer who a week after launch walked away from the company with about $2 million, after it was established that the developer himself was never verified.

Knowing who is behind the project, their reputation, and what other kinds of projects they’ve worked on, can let you know what you are getting involved in.

Take a look at a crypto’s “who are we” or “about” section to learn about the members of the project, give their names a google, and check them out on LinkedIn and GitHub to see who and what they’ve worked on. A crypto project that has a good team behind it, will be excited to show them off to try and get you to invest.

Final Thoughts

Knowing what crypto to invest in is about understanding what a crypto does, how it does it and how it all fits together in the market.

By being able to answer these questions, would-be crypto investors can confidently pick and choose the right crypto for their portfolio, and profit in this growing sector.