What makes a good Crypto: 4 factors to look into before investing

Not all crypto coins are worth investing in. 

The crypto market is filled with different myths of chaos, unpredictability, and extreme volatility. Yet, success stories of people who made the right calls long before others could see them keep popping up everywhere. 

The big question is, what sets good cryptos apart from the noise? 

If you’re looking to invest in a good crypto, here are four factors you must consider before investing any money.  

A crypto coin that demonstrates a steady rise in price despite fluctuations has a higher probability of becoming a good one to invest in. 

Regardless of the coin’s tokenomics, other factors such as hype, speculations, and the absence of regulations tend to affect a coin’s price over time. Nonetheless, a good coin can withstand these forces and retain its value over time. You should look out for this before investing in a cryptocurrency. 

When examining a coin’s price history, it is advisable to check the price at different timespans to gain insights into possible short- and long-term trends. This is important because it’ll help you align the coin’s prices with your long and short-term goals. 

You should also watch for coins showing signs of a pump and dump scheme, otherwise known as a “rug pull.” This term represents a strategy market manipulators use to drive a coin’s price up through false hype. When sufficient people are tricked into believing the currency is very valuable and “the next big thing,” they “dump” it by selling it off, and at the end of the day, the price is driven down. This scam is commonly seen with low-cap cryptocurrencies. 

When considering the best cryptocurrency to buy now, you also need to check the number of high-authority platforms on which it is listed and currently traded. Being listed on reputable platforms like Binance often indicates the coin’s authenticity, significantly reducing your chances of falling victim to a “rug pull.” 

A cryptocurrency’s market capitalization refers to the total worth of all its units in circulation. It is the full value of all the coin that has been mined. For instance, Bitcoin’s market cap is currently $673.18 billion, as one Bitcoin sells for $34,480.34 today. 

Before investing in a particular cryptocurrency, you should calculate its market cap by multiplying its current unit market price by the total amount of units in circulation. This metric gives you important insights to guide your decision-making regarding that coin. A crypto’s market cap indicates its trading volume, stability, and growth potential. 

Cryptocurrencies can be categorized into the following groups based on their market capitalizations:

• Large Cap Cryptocurrencies: These cryptocurrencies have a market cap of over $10 billion, E.g., Bitcoin and Ethereum.
• Mid-Cap Cryptocurrencies: The market cap of these cryptocurrencies is between $1 billion and $10 billion. E.g. Tezos (XTZ) and Monero (XMR).
• Small-cap Cryptocurrencies: Small-cap cryptocurrencies have less than $1 billion in crypto market capitalization. E.g., Spheroid Universe (SPH), Dust Protocol (DUST).

Roughly speaking, good crypto is expected to have a mid or large market cap, which indicates that more people are into the crypto and consider them stable and lower-risk investments. Nonetheless, this doesn’t mean that large and mid-cap cryptos can’t also experience dramatic swings in market caps due to market volatility. Instead, it shows that they have a better track record and lower probabilities for uncertainties. 

The word “tokenomics” was coined from the words “token” and “economics.” It refers to all coin features that make it interesting, relevant, and valuable for investors. These features often include the coin’s supply, mode of distribution, utility, etc. 

A crypto coin with well-defined and structured tokenomics is a good coin for you to invest in because it has a laid-down structure for how the coin will be distributed and its practical uses. The general rule of thumb to apply here is that a coin with a well-defined incentive for distribution and straightforward utilities will always be in demand. 

For instance, bitcoin is hard to come by, thus satisfying one of the “first lessons of economics: scarcity.” The coin’s tokenomics specifies that entities who can devote their attention and skills to mining Bitcoin will get new tokens. Furthermore, bitcoin’s tokenomics also specifies that only a limited amount of the coin (21 million) can be mined. So, an infinite number of people scramble for the limited supply, ultimately increasing its value. In addition, bitcoin offers utility in the blockchain ecosystem. It has a practical purpose as a decentralized digital currency that serves as a means of payment and store of value.

On the other hand, some coins have no specified tokenomics. Some of them were created strictly as a joke, and their value is based solely on the attention they receive from the online community. Investing in coins with no utility or well-defined tokenomics can be more risky than with their well-defined counterparts. 

Of course, this doesn’t imply that investing in meme coins can never be profitable. It can be if you’re timely and current with every other market force determining their value. However, their long-term growth potential is not guaranteed. 

Yes, you’ll have to read through technical documentation —- if you want to increase your chances of making suitable investments. 

A crypto coin’s whitepaper is an official document that gives you specific details about the goals and strategies of the coin’s usage. It contains data, developer project plans, project timelines, and just about any other tiny fact about the currency. 

When looking to invest, the first thing to look into regarding whitepapers is the availability of one. A good coin should have a whitepaper. Furthermore, the paper should be easily accessible and understandable. After reading it, you must be able to give details about the who, when, what, and why of the project. This is usually where you should find information on the coin’s earlier discussed tokenomics. 

Some white papers may bore you with numerous technical specifications and details. You don’t need to be concerned about that. You only need to be able to figure out the team in charge of the project, what their long and short-term goals are, and their proposed action plan for achieving such goals. 

Considering factors before investing in a cryptocurrency is about gathering as much information as possible. We do this hoping that we make the best call when we finally make that call. 

But, sometimes, you just never know. 

Yet, a coin’s market capitalization, tokenomics, price history, and white papers significantly affect its return potential. Looking into them before investing can help you protect yourself from unnecessary risks. 

And in the famous words of Benjamin Franklin, “an investment in knowledge pays the best interest.” So, Do Your Own Research (DYOR) before investing in crypto. 

This article was written in cooperation with Katerina Orr