How to distinguish facts from fiction in the crypto world and make sound investment decisions
When digital currencies made their rather humble entrance to the financial scene back in 2009, there was only one player in the market – Bitcoin, and people weren’t exactly lining up to express their support or join the newly-emerged project. Fast forward to today, and the concept of digital currencies has become a worldwide phenomenon, giving birth to an industry that was at one point valued at nearly 3 trillion USD. There are currently over 10,000 cryptos in existence, and more than 300 million crypto users around the world, so we can safely say that things look completely different right now than they did a little over a decade ago.
The crypto hype is impossible to refute or ignore, and its influence on the global financial system is growing stronger by the day. Although Bitcoin remains the largest crypto asset, both in terms of popularity and value, there is a lot more variation in the market, which translates into more investment opportunities. People can buy Bitcoin, and other established digital currencies on exchanges like Binance and add them to their investment portfolio with ease.
However, the growing number of coins also makes it a lot more difficult for investors to make their way through the increasingly more competitive and complex crypto environment and figure out which projects are worth their attention and money. Even experienced users are struggling to make sense of all the recent developments in the market and separate fads from facts.
Sifting through the noise is important in order to protect yourself against scams or poor investment decisions. So, if you want to minimize risks and increase your chances of success, here are a few tips to keep in mind.
Stay away from too-good-to-be-true propositions
Cryptocurrencies are praised for the numerous benefits they provide, which is why many people jump right into it without doing their due diligence, pushed by FOMO and blinded by the sparkle and shine of potential returns. When you come across a new crypto that you don’t know much about, especially one that sounds too good to be true and promises great profits, it’s best to maintain a healthy skepticism and analyze things with a critical eye. There’s a high possibility that the project is, in fact, a scam. Only fraudsters guarantee large returns in order to attract victims.
And even the project is legitimate, the potential for high returns also means there’s an equally high potential for losses. Keep in mind that crypto is not a get-rich-quick scheme. So, if you want to invest in digital currencies, you shouldn’t let yourself be influenced by your emotions. Try to use your better judgment and look out for red flags if you want to enjoy a smooth investing journey.
Research the team behind the project
We know of several prominent and promising tech projects that were either inspired or created by people who didn’t have the perfect pedigree – with Steve Jobs providing the best example – and the world of crypto is no different. Many crypto founders and developers that have managed to set up successful crypto projects were either college dropouts or still in their teens when they first got into the field. That didn’t undermine their skills or contribution.
However, even if the background bias may have no place in crypto, it’s still important to get to know the team working on a crypto project if you want to evaluate its true potential. Find out if the team members have any previous experience in the field, what projects they’ve worked on in the past and what they have achieved so far. If you can’t find any information about the developers or their backgrounds, take it as a warning sign.
Check out the trading volume
A great way to assess the potential of any crypto project is to take a look at its trading history and volume. In general, a larger trading volume means greater liquidity, more appreciation potential and more market interest. Lower trading volume usually signals a lack of interest in the token, meaning that the project might be abandoned or dealing with serious development issues. You also want to observe the coin’s price history and watch out for any trends that might stand out.
You can easily check out these metrics on established exchanges. Apart from providing information about how to buy Bitcoin and all other major cryptos on the market, these platforms also allow you to verify trading volume at different price points, so you can get a better overview of how each project has evolved over time.
Put your tech skills to good use
It’s difficult for non-digital natives to understand what different digital currencies imply. But if you happen to be tech-savvy, you’ve got an ace up your sleeve, as it’s a lot easier for you to decipher the ins and outs of a crypto project. Start by analyzing the white paper and road map. These are official documents that will tell you all the technical information about the project, the development strategy that the team has set and how they are planning to achieve their objectives.
If you want to be more thorough in your research and dig deeper into the matter, you can look into the code to see how much activity goes into developing the project or spot any weaknesses that might spell trouble as things evolve.
Following and support
Community involvement also plays an important role in a project’s credibility and success. The people who support a crypto initiative can push the coin forward or cause its demise, so it’s important to know how many followers each project has and who are and who are the people forming this community.
However, the hype crypto enthusiasts create around a project can also be deceiving. Sometimes the buzz exceeds the crypto’s potential or utility, so don’t rely on community sentiment alone when choosing a crypto to invest in.
There are plenty of variables at play that can make or break a crypto project. Therefore, you need to do your homework, analyze all these vital factors and let this information guide you on your investment journey.