Cryptocurrencies like Bitcoin and Ethereum have grown in popularity in recent years, offering a wide range of investment options, from cryptocurrency ETFs and meme coins to established stablecoins.
Choosing the right cryptocurrency and deciding exactly which ones to buy and which ones to avoid isn’t always easy. According to Sophialine Marlowe, a cryptocurrency journalist at Bitcoin Magazine, this is due to the sometimes very unpredictable nature of the cryptocurrency market.
Especially for beginners who are not familiar with cryptocurrencies, investing in these digital currencies can sometimes seem like pure gambling. That is, buying coins and hoping for big profits. Of course, you can do that, but relying entirely on luck is not a good strategy!
In this article, we’ll take a closer look at some important steps you can take to make an informed decision about which cryptocurrency to buy today.
1. Cryptocurrency Market Research
The first step is to start from the beginning. What exactly is a cryptocurrency, how does it work, why does its value increase, and why do many cryptocurrency coins fail? What is the underlying blockchain technology and how can it affect its value?
There are many different types of cryptocurrencies, each with their own unique characteristics and uses. Therefore, it is very important to learn the basics of this technology. You don’t need to be an expert, but you need to at least understand the field to successfully invest in cryptocurrencies.
Regulation is another factor that can affect your currency. Check the relevant laws in the Netherlands (and Europe) and how they may affect your investment. For example, sometimes it may be more tax-friendly to invest in the short term, and sometimes it may be better to hold the currency for a longer period and earn money through staking.
So, read as many books and articles on this topic as you can, watch videos and courses. Once you learn as much as you can and understand the broader market, you can take the next step.
2. Understanding Cryptocurrency
Once you have a general understanding of cryptocurrencies, you can start looking into specific coins. Learn more about the basics of a particular cryptocurrency, the blockchain it is based on, its technical features, and its goals.
Each high-quality cryptocurrency has a specific purpose within the digital economy. Some coins are designed purely as alternative currencies, while others aim to improve blockchain technology, facilitate smart contracts, centralized financial services (DeFi), crypto casinos, crypto video games, NFTs, and more.
If a cryptocurrency has inherent “utility,” solves a problem, or adds real value to the market—that is, if it can be used for more than just investing in it and hoping its price goes up—then it is likely to be a valuable cryptocurrency investment.
3. Look at the people around you.
Cryptocurrencies may be a technological masterpiece, but if no one is interested in them, they mean little. The important aspect of cryptocurrencies is the people involved.
On the one hand, there is a team of founders and developers. A strong and experienced team with a vision for the coin can be a very good sign and can indicate a successful project. To assess this, you can check, for example, what previous projects this team has worked on and whether the project has a good reputation within the cryptocurrency community.
On the other side, there is the community, or fans. The community engagement and activity surrounding a cryptocurrency can tell you a lot about the viability of the project. If a lot of people are very excited about it and are sharing it on social media, forums, and websites like Reddit, the coin is more likely to receive a lot of “hype” and rise in value quickly.
4. Market Position and Competition
Of course, cryptocurrencies do not exist in a vacuum. It is important to understand how to analyze a coin’s market position and compare it to its competitors. Look at its current market cap, trading volume, and where it ranks on cryptocurrency exchanges.
Compare your coin to other projects. Are there other cryptocurrencies that have the same utility and purpose? If so, does your coin add something new, improve on the current technology, or are they more similar?
All cryptocurrencies can be bought, sold, and settled internationally, so they almost always have something in common. Learn more about improved security protocols, scalability solutions, decentralized applications, smart contracts, NFTs, sustainability (in terms of energy consumption), and how new coins are created.
If there is no standout “USP” (unique selling point) and no reason for users to choose the new coin over an established one like Bitcoin, this may not be a good sign.
conclusion
Choosing the right cryptocurrency to buy requires thorough research and careful consideration of several factors.
By understanding the fundamentals of cryptocurrencies, evaluating the purpose and technological innovation of a particular cryptocurrency, and considering market conditions and regulations, you can make informed decisions and invest in cryptocurrencies that have a future.