Don’t Invest In Crypto Without Doing These 3 Things!
As crypto is on the rise many people are looking to join in on the fun ( and money) and start investing in cryptocurrencies, but with so many scam coins in the market how can you know if the coin you are buying is a good solid coin that will bring you large returns?
Here are the top 3 things to ask yourself/do before buying any cryptocurrency
- Always ask yourself what problem does this coin solve. What’s it’s use case and is it something that people will actually need. Then look at the current solution for the problem the coin/token solves and how the cryptocurrency you are researching stacks up against it.
If your coin/token doesn’t solve some sort of problem and isn’t better in any way than the current solutions out there it is unlikely your coin will bring you the gains you want.
While completing step 1 read the cryptocurrencies website and see how easy or hard it is to understand what the coin/token does. The reason for doing so is because if someone else comes along and reads the cryptocurrencies website and can’t understand what the coin/token does, it is unlikely they will invest in the coin.
(This is important because all coins/token’s price’s only goes up if the coin/token’s supply is burned or if other people invest in the cryptocurrency.)
2. The second thing you will want to do is check the current circulating supply of the coin and its max/total supply if it has one. This is very important because it can tell you how much inflation a coin will be getting in the near or long future. The fully diluted market cap is helpful in finding this out as it shows you the market cap the cryptocurrency would need to hold its current price if all the coins supply were to be released immediately.
You can then ask yourself if you think the cryptocurrencies price will ever reach the fully diluted market cap and 2x or 3x (or more depending on the return you want) from the fully diluted market cap if it is a long-term hold. If it is a short-term hold you should research the cryptocurrency’s coin release estimates and how long it will take for the max supply to be released. You can plan your accordingly or understand the inflation that will eventually come to the coin/token. One thing that is important to note is for coins like ETH or XMR where there isn’t a max/total supply, you should analyze the coins use case/problem it solves and decide if you think “x” amount of money will be invested in the cryptocurrency every year to keep it from becoming a deflationary asset.
To calculate the “x” amount of money or the inflation of a coin that has no max supply head to google and search estimates online for the number of blocks a day and the block reward for the coin. I will demonstrate with XMR. For XMR after 18.4 million coins are mined XMR will have a 0.6 XMR per block reward. Currently, estimates show 720 blocks a day. The math is as follows — 720*0.6*365 = 157,680 or Blocks per day * Block reward* Number of days in a year. This means 157,680 XMR will be released every year and an amount of $43,677,360usd would need to be invested yearly for the coin to not become a deflationary asset.
The $43,677,360 is from multiplying XMR’s current price at the time of writing this article by 157,680 (the amount of XMR to be released each year) (2021–08–16 2:43 pm est)
The data used above is from
Moneropedia: Tail Emission. getmonero.org, The Monero Project. (n.d.). https://www.getmonero.org/resources/moneropedia/tail-emission.html.
Monero (xmr) statistics — Price, blocks COUNT, Difficulty, Hashrate, value. BitInfoCharts. (n.d.). https://bitinfocharts.com/monero/.
3. The last thing you should do is read the cryptocurrencies whitepaper and check if the coin/token is still being contributed to by developers or others.
The whitepaper is important to read as it can explain the coin/token to you in great detail and answer any questions you might have about the coin.
Checking to see if the coin/token is still being contributed to is important because it’s what can keep the cryptocurrency growing, and staying ahead of the competition.
There you have it, 3 things you should do before investing in a cryptocurrency. Let me know down in the comments if I missed anything and how you decide if a cryptocurrency is worth investing in.
Be sure to follow me to keep up with my new articles, and definitely check out my other articles for more insights about different coins/tokens.
Thank you so much for reading and for your support!
Important To Read
Is it very important to always do your own research before making any type of investment, this is not financial advice. This article is based on how I invest and is for entertainment purposes only.
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