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Cryptocurrency: How to Screen for the Best Investment

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investment strategy

When it comes to any investment, it’s important to understand the underlying fundamentals, and in many cases the technical side of the trade, too.

Both can help determine what to buy, when to buy, and when to sell.

Let’s start with the fundamentals.  We want to answer five questions:

  • Target market / Purpose of the coin
  • Is the technology quick, reliable and easy to use?
  • Is there a solid team behind the cryptocurrency?
  • Growing adoption in the press
  • High demand for the coin, or low?

What problem does it solve regarding a long-term investment?

This is one of the most important factors in determining the potential long-term value of an investment.

In fact, we’ll often advise that you think of crypto like a tech stock.  What’s the purpose of technology?  Does it solve something that has real world value?

For example, users apply Bitcoin to various payment options. These include everything from international payments and online gambling to paying for pizza…

For example, people use Ripple as a tool to exchange money across borders.

According to UPROXX:

“Cross-border payments are notoriously slow and inefficient in part because you have to get the currency together, exchange the currency at the current rate, and get it to the person you’re sending the money to. XRP is designed to speed that process up; you just buy the XRP, send it to the person, and a process that normally takes hours or days is done in seconds, and with a clear, transparent public record to boot.”

IOTA developers created the coin to enable Internet of Things (IoT) devices to make micropayments to each other, as well as to traditional bank accounts. Therefore, increasing the investment options available to users.

Two, consider the development team behind the show.

Do they have a long-term vision for the crypto?  What do users think of the technology?

So, you’re considering getting involved with an existing crypto or even an ICO, or an Initial Coin Offering, which acts as a fundraising mechanism for new projects. Understanding who is on the development and management team is one of the most important steps when before committing to an investment.

It doesn’t matter how attractive the coin or offering may seem, don’t proceed without research.  Failure to do so can lead to disaster and potential scams.  For example, it’s often a red flag if the team behind the coin does not have any named full-time developers. Additionally, be cautious if none of the team members has any domain experience.

If at any time, a team is unwilling to identify itself, be very careful when considering an investment.

Also, if members of the team claim prior association with universities or companies, double-checking with reputable third-party sources can provide the facts you need.

Third, pay attention to float and max supply of coins.

Just as you would with a stock, you have to take the float and supply into account.

One of the things that make Bitcoin so valuable is that only 21 million coins will be created. Once all these coins are mined, there will be no more supply, and demand will determine the future price. If we look at Ripple for comparison, its supply of 100 billion coins is part of the reason its price is low.

We also need to understand how easy it is to buy specific coins.

If a currency is available on big exchanges that many people have access to, then it has much more potential to increase in value. The easier a currency is to buy, the more likely it will benefit from favorable news.  Or, if a currency is hard to attain, it could mean that it might be undervalued.  This is where extra research into the coin could pay off and be beneficial to your investment.

Once you’ve determined which crypto you’d like to invest in, be sure to pay attention to the technical pivot points.  We’ve discussed some here.

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