Cryptocurrency Analysis — How to Find The Best Cryptocurrency to Invest 2018

7 min readMar 22, 2018

Cryptocurrency Analysis technique is crucial for anyone who wants to make money from Cryptocurrency whether through trading or investing.

Similar with how you invest in stocks, you need to really understand about Cryptocurrency Analysis before you start buying them.

Cryptocurrency Analysis: What is a Cryptocurrency?

Cryptocurrency is basically a digital currency that is powered by blockchain technology. Blockchain is simply a decentralized database protected with cryptography. It means the data and value are stored not in a single centralized database and not controlled by a single entity. This makes Cryptocurrency a lot more secure because there is no single point of failure. Cryptocurrency not controlled by a single entity makes it more valuable, why? Bitcoin can only increase by mining it, while paper money can printed anytime by the central bank (controlled by government). When paper money is printed, the supply increases and the value decreases.

In order to get the Best Cryptocurrency to invest 2018, I have a few rules:

The Cryptocurrency or Token has to serve a big market or solve a real problem. There is a strategy of using benchmark of existing solution. For example, if we look at EOS as a platform, it also allows people to build on top of it like ETH. It means the market is clearly big and it solves the problem of ETH transaction speed that is getting slower. If there is no existing solution, we need to analyze the market separately. This Cryptocurrency analysis method focuses on network effect and utility. Bitcoin has the strongest network effect currently. This makes it the market leader with the highest market cap.
The market cap of the coin has to be low enough, so that the room to grow is still huge. My rule of thumb is to find Cryptocurrency or Token that is still below $200 million in market cap. If you purchase coins / tokens with already huge market cap (Above $1 Billion), it is harder to get 10x to 100x return. This Cryptocurrency analysis technique focuses on risk and reward management. If you buy a high potential Cryptocurrency near the bottom, the downside is limited and the potential is unlimited. Buying a Cryptocurrency with already higher market cap has an almost unlimited downside and unlimited upside.
The total supply has to be low enough. My rule of thumb is to find Cryptocurrency to watch with total supply of below 100 million coins (hard cap). Even better, with circulating supply of below 50 million coins. I’m not entirely against Cryptocurrency with huge supply of coins.However, as an investor, I think it is easier to make huge gains with low supply coins. We can look at Bitcoin’s amazing growth with its low supply strategy. That’s the reason I try to avoid pre-mine, controlled, centralized options (If you know what those are, put it in comment :p ). Cryptocurrency price is always determined by supply vs demand. When the supply of the coin is low, the sudden surge in demand due to new announcements like development progress and partnership will increase the price of the coins quickly. If the supply of the coin is too huge, even with a huge demand there will still be a lot of traders who dump / sell the coins. This Cryptocurrency analysis technique focuses on supply and demand. This kind of logic applies to anything in life. Things with limited supply like gold will have a better long term value than unlimited supply commodity.

Cryptocurrency Analysis: Different Types of Cryptocurrency

3 types of Cryptocoins or Cryptocurrencies:

Cryptocurrency Analysis: Cryptocurrency as a Currency as we know it (Cryptocurrency). Most people know Bitcoin, right? Bitcoin is a Cryptocurrency. It is a currency that is based on blockchain technology, which can’t be manipulated. This is the first type of Cryptocurrency. It’s function is as a store of value and transaction. Best examples for Cryptocurrency as a Currency would be Bitcoin (BTC), Litecoin (LTC), and Monero (XMR). When you invest in this type of currency, you have to understand a few things that people care about currency. What are those? These could be used in your Cryptocurrency Analysis:

Secure: People would love to make sure they can’t be hacked. That’s the first thing people care about. Because it is a store of value for them.
Against Inflation: Why do most people buy houses / properties / lands and gold? Why do the prices of those assets have gone up? It’s scarcity. Lands and gold are not reproducible commodities, they are limited. Would the price of a diamond so high if it is not rare? When we understand about this, we should consider investing in Cryptocoin or Cryptocurrency that are scarce or limited. There are only 21 million Bitcoins that can be mined in total. We have more than 7 Billion people in the world. This is the reason that Bitcoin’s price has gone up astronomically. People believe in it as a store of value. If you compare Bitcoin to Fiat currency like USD or EUR and all other currencies in the world, banks can always print more money and lend those paper money out to boost economy. (That’s another topic, you should do some research about it!)
Network of users: If you talk about a currency, it has to be accepted by many people to make it valuable. For example, if you create your own “Tommy Coin” and try to use it to buy clothes, would people receive it? Maybe yes, maybe no. Today, many companies would gladly accept Bitcoin and Ethereum as form of payment. That’s a great network of people who use the Cryptocoin to buy and sell.
Anonymous: Would you like everyone to know whatever you buy and sell? Maybe not? This is where privacy comes in. People would love to buy and sell with Cryptocoin, but they prefer the transaction to be anonymous and untraceable by others. It means that privacy coins actually have really good future in the long run. They can exist together as alternative payment systems.

2. Cryptocurrency Analysis: Cryptocurrency as a Token (Utility Token). Ethereum allows people to build decentralized applications and smart contracts on its platform. Ether itself is also a Utility Token. It is used as “Gas” to pay for the fee of sending Ether and other tokens to an address on the blockchain. The fee is paid to the miners that confirm the transaction. Of course, Ether can also be used as a currency to buy something. People usually use Ether to participate in an ICO (Initial Coin Offering) of a new token that is issued via Ethereum platform.

A simpler way to explain this is to think about the time you bought a Windows software, you are given a “Windows Product Key”. You then need to fill in the secret code in “Windows Product Key” to be able to use the software.

Utility token works like that. So if you want to use Ethereum platform, you have to use Ether. Ether is a fuel for operating the distributed platform Ethereum. It means when you buy and keep Ether, the price could go up when more people need Ether! Makes sense? It’s like you buy and store fuel and sell it to those who want to use their cars. It’s as simple as that. Some examples of utility tokens are Ethereum (ETH), EOS, Neblio (NEBL), Hawala.Today (HAT).

So if you are looking into investing in Cryptocurrency as a Utility Token, you need to make sure that people need whatever the Token can buy! To know whether many people will need it, there are a few things you need for Cryptocurrency Analysis:

Usefulness of the platform. Is the platform useful? Think about Ethereum, the price of Ether keeps going up because it enables people to create their own smart contracts. That’s amazing and useful. If you are buying a token from a useless platform, the token is never valuable, it’s like a fake monopoly money. There are so many useful tokens out there that you can invest in.
Scarcity. If the token’s supply is limited, people have no choice but to buy the token from others to be able to use it. So when you want to buy a token, make sure that it is useful and also limited. Limited supply will drive the price up when people need it!
Users. Will there be many users for the platform? Will the number of users grow over time? When there are more users, the value of the utility token will go up because the users need it. With that, you have to always look at the community that uses the platform. Is the community of users growing fast? Or is it just a community of investors and speculators? It will succeed better when the community of users grow faster.

3. Cryptocurrency Analysis: Cryptocurrency as Company’s Share. With this type of Cryptocurrency, you can receive dividend from the company’s profit. The number of Cryptocurrency of this type is pretty rare. A good example is Modum.io (MOD). It is literally providing services to companies and leverages blockchain for the services and to get capital. When you are investing in Cryptocoin as Company’s Share, you should think about this for Cryptocurrency Analysis:

Customers. Do they already have customers? How big is the market? Would they be able to keep getting new customers and retain them?
Profit margin. How good is the profit margin? Can they maintain the profit margin for a long time?
Barrier to entry. How hard is it for new competitors to enter the market? Who are the existing competitors? How hard is it for competitors to take away the existing customers?

With various Cryptocurrency Analysis Techniques, you will be able to understand the potential of the Cryptocurrency you want to invest in.

If you find this useful, please give a “Clap” so that others can see it too!

Also read:

Many Thanks if you Join KuCoin Exchange through my referral link: https://www.kucoin.com/#/?r=Mgxya3

Join Binance via my referral link: https://www.binance.com/?ref=16938825