Investing in alt coins? 5 Questions you Should Answer First.
The cryptocurrency capital market is worth more than USD$220 billion. It might still be tiny compared to other commodity markets, but it has been growing consistently, sometimes explosively in the past 10 years. So you’re fairly new to the world of digital currency and want to invest in something. Bitcoin just happens to be more than your saving’s worth. Well, there’s always alt coins to invest in. As they say, better late then never, right?
The decision to invest should always come with a thorough research. Unless you have so much money to spare, you’d definitely want your investments to bear fruits for you. In this post, we’ll go through some of the things you should do before making that decision.
If you go to coinmarketcap.com, you can access the full list of all the alt coins available. All the relevant information, including market capital, current price and the historical price graph can help you decide which coins to invest in. Remember though, any investments have its own pros and cons. As a cryptocurrency investor though, it’s important that you find the cons first. If there’s too much, it’s really not worth putting your time in to research more on it.
1. What is the alt coin offering?
Fundamentally, any cryptocurrency exist to serve its users. Like Bitcoin, that is used in peer-to-peer transactions or Ether, as “fuel” for operating applications on the Ethereum network. Some alt coins offer solutions to problems we didn’t know exist, like Ripple that acts as a bridge currency in the Ripple system or LBRY, a pay-to-view content system. As an investor, you should be able to make a judgement on whether the project has potential.
2. Is it short-term or long-term?
This is the most important question you need to answer about the project. All good investments have potential to make profit but it can either be short-term or long-term. Both types have it perks: in the former you get to see your investment grow every day but in small amount. And in the latter, you might end up with a bigger margin of profit, but you’ll have to be patient.
Stable coins like Bitcoin, Ether, Ripple or Dash are well established enough to be less likely to experience severe plunges or make big gains. Whereas new coins that are in the height of its activity and development can potentially give you a bigger gain in a short period of time. You’ll have to figure out your strategy before you decide where to invest.
3. What is the alt coin’s marketing strategy?
Just like selling a product, the marketing strategy ensures that the demand keep increasing. It might seem irrelevant for a user to know, but as an investor, you’d want more people to demand for the alt coin you’re investing in. It’s a simple economic theory of law of supply and demand. As price goes up driven by rising demand, you’re only going to make more profit out of your investment.
And that’s why having information about the project’s roadmap, it’s branding and strategy would help you in your decision-making. Moreover, positive mentions in trusted media sites such as Cointelegraph.com, CryptoCoinsNews.com and Altcoin Reviews would definitely add credibility to the alt coin you’re choosing.
4. Is the project unique?
One of the core values of an alt coin is the functionality of the coin. A project that has a unique solution can easily gain interest in the market. However, new technologies can bring many risks. A negative event can quickly cause investors to lose interest in the project, even with improvement. A clear example would be DAO, where an attacker exploited a vulnerability that caused a loss of more than USD$50 million USD.
5. Does the fluctuations make sense?
Finally, a deeper look at the historical price graphs would be helpful. Try to find out whether the highs and lows are an effect of actual events such as new features in the project. Like how Ether price soared up more than 2000 percent due to the foundation of Enterprise Ethereum Alliance (EEA) to connect large companies to technology vendors in order to work on projects using the blockchain.