Cryptocurrencies are highly volatile. And irrespective of how profitable, popular or not that they are, their prices, while high today, could fall by over 80% in 24 hours. While any cryptocurrency is prone to sporadic price rises or crashes, many factors can help determine which cryptocurrency could very likely have a great rise over a period of time or a potentially tremendous fall.
The extreme volatility of cryptocurrencies and the great profit or loss potential they pose implies the need for great research to be carried out before purchasing any of them. To do this with the highest probability of success, there are many factors to study when choosing a cryptocurrency to purchase, and to show you a significant part of what to cover, here is how to do research on a cryptocurrency coin or token before investing:
1). Identify The Token’s Purpose Or Use Case:
The purpose or use case of a cryptocurrency is what it was primarily created for. Most currencies were created for use either in a video game, decentralised application, and several other uses. But many more were created with no use case and only projected to grow based solely on speculation.
Cryptocurrencies that have a use case always have a good chance to experience growth, especially those cryptocurrencies whose platforms where they would be used have already been launched. As for cryptocurrencies that were created with no use case, a very small percentage of them ever succeeds, with the vast majority crashing completely because they had no apparent use case, and so, eventually little to no trading activity.
2). Read The Whitepaper:
Almost every cryptocurrency usually has a whitepaper. The whitepaper explains everything about the cryptocurrency including its purpose and the technology used to build the project.
When researching a cryptocurrency project to invest in, always read the white paper as it contains information on the cryptocurrency and if there’s a valid roadmap for the project. It’s also important to lookout for typographical errors because most cryptocurrencies that are released as a scam to cause people to lose their investment usually have typographical errors, unlike cryptocurrencies that were created by a strong team.
Depending on what you read in the whitepaper, investigate further across other means before you make a purchase decision.
3). Research The Founders Of The Cryptocurrency:
When a cryptocurrency is created for a good use case, the team is always well known as they’d be mentioned in both the whitepaper and on the project’s website. But when it is highly speculative or sometimes malicious, the team will stay hidden.
It’s important that you give higher preference to cryptocurrencies with a well-published team than others with an anonymous team. While there have been many successful cryptocurrencies with an anonymous team, you must try to ensure that the cryptocurrency is not a rug pull and fulfils many other research parameters before you commit to purchasing them.
4). Find Out Where You Can Buy, Sell Or Use The Cryptocurrency:
When a cryptocurrency is newly released, it is usually first available on decentralised exchanges like PanCakeSwap and Uniswap before it eventually makes it into centralised exchangers like Kucoin, Binance, Gate.io and several others in a few months. And so, you need to first see what exchanges the cryptocurrency is currently listed on before you purchase.
When a cryptocurrency is listed on centralised exchanges, it means it had survived its initial lifecycle on the decentralised exchanges without crashing out, and in the process, met the conditions of the centralised exchanges it is listed on. At this point, it is safer to purchase the cryptocurrency. If it is listed on the bigger and most popular exchanges, then it means it’s more likely to stay for a long time.
If a cryptocurrency is not listed on any centralised exchange, it means the risk of purchase is very high, and so, you’d need to tread with great caution before purchasing. The only strong advantage of buying at this point is there’s a good chance that if you buy before it gets listed on popular exchanges, the cryptocurrency may rise in value by between 1,000-100,000% by the time it gets listed, and this rise could happen in a very short time. In all likelihood too, the cryptocurrency could crash out completely along with your investment in it.
5). Check The Maximum, Total And Current Supply Of The Cryptocurrency:
When a cryptocurrency is released, it usually has an immediate quantity in circulation, a total amount available for trading, and a maximum possible amount that can be mined.
If the cryptocurrency has a very high number of available units, then there’s a good chance that its price will rise very slowly because of its abundant quantity in circulation, But if the volume is small, the price will rise quicker because of scarcity.
For instance, there are just only ever 21 million bitcoins but over 100 billion dogecoins. As a result, bitcoin rose from around $0.0008 at inception to an all-time high price of over $60,000 per bitcoin in 2021. But dogecoin has only risen from an all-time low price of around $0.00008 at inception to an all-time high price of around $0.7 per dogecoin in the same year of 2021.
Scarcely available cryptocurrencies generally rise faster than abundantly available cryptocurrencies.
6). Check The Number Of Holders:
The number of holders of a cryptocurrency is the number of people who have purchased the cryptocurrency. When the holders are in hundreds of thousands to millions that’s a good sign that a lot of people have confidence in the cryptocurrency’s future. But if the holders are in the few hundreds or early thousands, you need to tread with caution.
7). Check The Market Cap:
The market capitalization, also called the market cap of a cryptocurrency, is the total value of all the tokens or coins of the cryptocurrency currently in circulation. When a cryptocurrency first launches, its market cap could be a few thousand dollars then it continues to grow. If you’re an early risk taker, you could purchase when the market cap crosses $1 million, but preferably $10 million. But is safer when the market cap has crossed $50 million as it means the cryptocurrency is steadily growing in value.
If the market cap of the cryptocurrency is over $100m but under $1 billion, you’re usually in a safe purchase neighbourhood and can get the cryptocurrency with a lesser chance of it crashing out and a higher chance of it growing immensely and faster than the well established ones.
8). Check The Market Rank:
The market rank of the cryptocurrency can tell you where it ranks amongst the over 13,000 cryptocurrencies in circulation. If the cryptocurrency is ranked number 1, like in the case of bitcoin, then it means it is highly valuable and gives the most long-term security. If it is number 13,000 then it means it is likely going to crash soon or has a slim chance of not crashing out.
By checking and studying the market rank of the cryptocurrency in comparison with others, you have a better chance of finding the right tokens that will not just last a long time but will grow many times over.
9). Check The 24 Hours Trading Volume:
The 24 hours trading volume of a cryptocurrency shows you how much trading activity happens with the token and how much liquidity it has. If the 24 hours trading activity is less than $1 million, it means liquidity is low and you may have a problem selling $100,000. If it’s over $100 million it means liquidity is circulating around that value and selling tokens worth $1 million would be easier. If it’s $1 billion, the same applies.
When the 24 hours trading activity is substantially large, it means a lot of people are trading the cryptocurrency, there’s liquidity, and the coin is probably going to last a long time.
10). Check The Daily, Weekly, Monthly, 90 Days-Interval, & All-Time High & Low Prices:
The current and historic price of the cryptocurrency is very important to help guide you on a purchasing decision. If the current price is 20,000% higher than the all-time low price, then it means the cryptocurrency has continued to rise over a period of time and may continue rising, making it a less risky bet. If the current price is over 80% lower than the all-time high price, it may make sense to buy the dip in price, but you need to compare it to the all-time low price and see how it has been rising and falling over the past few days, weeks, and months.
You can easily study these through a chart on research platforms like TradingView to study the historic price change which would help guide you in making an informed decision before you purchase.
11). Compare The Top Gainers/Losers To The Top Trending & Most Visited Coins:
You can also compare the top daily, weekly and monthly gainers and losers, trending, and most visited coins. When you see a coin appearing across all three sections consistently on a platform like CoinMarkeCap, it may be a token to purchase because it’s drawing a lot of attention across the board and can very likely start growing soon.
12). Check What The Media Are Saying About It:
Lastly, it’s important to also see what the media is saying about a cryptocurrency, its founders, history, use case, and overall potential. While the media’s opinion should not influence a well informed and researched decision on your part, it is important that you study what the media is saying to cover all loose ends in your research
Where To Carry Out Cryptocurrency Research
TradingView is a platform that features charts and historic prices of cryptocurrencies, stocks, commodities and currencies. It’s very useful for doing research before you make a trading commitment and is used by thousands of traders worldwide. On the same platform, traders can read news, engage in a community, and share ideas about the market
If you’re looking to trade cryptocurrencies successfully, TradingView is one platform to carry out in-depth research on every time.
You can visit TradingView here.
CoinMarketCap is a web platform that tracks cryptocurrencies, ranks them, features their price changes, the trending coins, the most visited coins, the top gainers and losers, the max supply of cryptos, their 24-hour trading volume, their market cap, snippets of their whitepaper, a chart to follow the historic price change, cryptocurrency news, and much more.
It’s a great platform to carry out cryptocurrency research and is used by thousands of traders worldwide who trade cryptocurrencies.
you can visit CoinMarketCap here.
Coingecko is another top cryptocurrency research platform like CoinMarketCap and covers pretty much the same thing as the platform does. It’s very powerful for cryptocurrency research and is a great tool for traders worldwide to use.
You can visit CoinGecko here