With more than 10,000 crypto tokens in the growing crypto market today, investors should evaluate their investments for positive returns
Since the launch of Bitcoin BTC/USD as a peer-to-peer digital currency that supports the virtues of blockchain technology, the world is warming up to the concept of a decentralized future where humans can transact with each other and businesses, without the involvement of a central banking authority.
An increasing number of digital currencies, or cryptocurrencies as they are better known, are now competing to gather more users and investors. In the past few years, the accelerating pace of crypto adoption has led to a rise in the price of cryptocurrencies, which has attracted many larger investors to this burgeoning asset space. However, this has also led to an increase in the number of crypto tokens that will be damaged, as bad actors try to defraud investors of capital through pump and dump schemes, carpet pulling and Initial coin offering (ICO) scams among other types of cyber theft. This makes it even more important for novice investors to do their own thorough research and invest only in crypto tokens that pass a number of evaluation criteria as listed below:
Choosing a crypto token with a real-world use case
While every crypto token can be traded for the short term, crypto investors would be better off investing in tokens that have good fundamentals to benefit from long-term capital appreciation. From the perspective of this value investment, it is recommended to invest only in crypto tokens with basic blockchain projects that offer products or services and add extraordinary value by decentralizing traditional businesses like banking, art, games and commerce among others.
Although cryptocurrencies like BTC, Ethereum ETH/USDSolana SOL/USDCardano ADA/USD , and as well as crypto tokens that seem to be more popular, it is important to note that there are many other new age projects that provide services as well. These new age projects are cloud computing, video streaming, decentralized storage and energy markets, which could be game changers in the space they operate. Crypto tokens like Polygon MATIC/USDPolka dot DOT/USDStorj (STORJ), Golem GLM/USDCosmos ATOM/USDTheta THETA/USDZilliqa ZIL/USDFilecoin FIL/USDAmount QNT/USDArweave AR/USD These are just some of the main examples that investors can consider when studying new projects.
Ensure strong governance and funding mechanisms
While most crypto tokens use proof-of-work (PoW) or proof-of-stake (PoS) consensus mechanisms to validate transactions on the blockchain, there are a number of scalable solutions being launched that have a slightly different approach to governance and use off-the-shelf consensus features. chain to accommodate higher transaction speeds on the platform. While this may not be important for the average crypto investor, it is important to ensure that crypto tokens can continue to function despite market volatility and support a central product or service, without crashing in value as in the case of Terra and Luna tokens. With different types of crypto tokens such as meme coins, altcoins, and stablecoins available today, investors should be sure about the stability provided by the main governance structure before committing their invested capital.
When a crypto token is launched through an initial coin offering (ICO), which is the cryptocurrency equivalent of an initial public offering (IPO), the funds raised are used to strengthen the underlying blockchain project and are documented in the token’s whitepaper. Investors should carefully read through this document to verify whether the funds collected through the ICO are safe, put to use effectively, and not raise suspicions that will indicate the potential of pulling the carpet in the future.
Tokenomics evaluation, market potential and market capitalization
For investors who want to invest in certain crypto tokens for the long term, it is very important to understand token economics, or tokenomics as it is known in the crypto community, to identify potential red flags and avoid investing in risky tokens. Factors such as the maximum token supply allowed, the number of tokens currently in circulation, the percentage of tokens held by large investors or crypto whales and how tokens are printed or burned are important to understand how the token will perform in the long term. . Crypto tokens with limited supply and held more evenly across the entire investor base are a better bet than those controlled by a select few crypto whales.
Get insights from technical indicators, direct competitors and peers
Despite all the above factors, it is important that investors consider key indicators such as volatility, risk-return ratio, Sharpe ratio and other technical indicators before taking a new position in a certain crypto token. Tokens that are in long bear should be watched for new entries in reversal signs. On the other hand, long-term crypto tokens require investors to be careful not to buy at the peak of a rally.
It is always good to see all the crypto tokens that operate in a certain sector or industry, to know which ones offer better investment potential. Competitors tokens will be the best critics and can be found on social networking platforms like Telegram, Reddit and Discord.
While the above framework provides crypto investors with a basis for making investment decisions in a crowded crypto market, there are risks associated with investing in cryptocurrencies due to the ever-changing market dynamics. Choosing a crypto project on the basis of sound undervalued when compared to peers or traditional businesses operating in the same space gives you a higher chance to not only generate large profits in the long term, but also the opportunity to invest in projects that will lead humanity to decentralization. season.