The more you know about the cryptocurrency market, the more questions you have. It's normal, as blockchain technology and crypto markets are ever-evolving and in such a fast-paced environment if you blink, you lose.
If you are thinking of making your first cryptocurrency investment, play-to-earn crypto games might be a great idea to start your crypto journey. When choosing a crypto project, most cryptocurrency investors look at a few things first, to make sure they are taking the right decision. There are many factors that can affect the crypto market at any given time, so before you take the leap and buy digital assets, make sure you are well-informed about the state of the crypto market, the cryptocurrency projects that caught your eye, and any other relevant news from the cryptocurrency space.
We've compiled a list of things you should know before investing in crypto and we're going to walk you through it, step by step:
What to know before investing in a crypto project
We know how exciting digital currencies are, and they do make fantastic crypto investments if done right. But how can a new crypto investor distinguish between a great investment opportunity and a scam? We're here to help potential crypto investors learn what to do in such a situation so they don't risk losing all their money on a bad investment. However, ours is not financial advice in any way. It's just a list of common-sense steps to follow.
There's also the option of contacting a financial advisor that could help future token holders make the appropriate investment decisions.
Without further ado, let's see what some research has to say on the subject:
Get a feel for the crypto market
The first thing anyone interested in crypto should do is read a lot about crypto. Make sure you understand how crypto assets work and the mechanics behind digital currency and blockchain technology. There are thousands of new tokens you could invest in. Take the time to read about the most important ones, as there are way more investment opportunities in this field than just Bitcoin.
Study concepts like peer-to-peer transactions, decentralized exchanges, smart contracts, and any other notions pertaining to the crypto community. The more you understand, the easier it will be to establish your financial goals when it comes to investing in crypto.
Another critical aspect is understanding the market's current trend and price history. While bull markets are the upward trend where prices are high and the crypto confidence even higher, a bear market might signify that you should hold your investment a bit longer. During bear markets, crypto prices fall dramatically, and crypto investors lose confidence in the market.
The timing of your investment in everything
How many times in life have you heard the phrase " Timing is key."? Well, when it comes to investing in crypto assets, the expression is equally valid. We refer to several things when we say timing is everything in cryptocurrency investments.
First of all, as we mentioned before, the up or down tendency of the market is essential. If you invest in a bull market right before it's about to go bearish, you'll see the value of your new tokens plummet in a short time frame. However, during a bear market, if you invest, the price action of your tokens will increase exponentially as soon as the market recovers.
Unlike traditional equities markets, crypto markets are open non-stop so you can buy tokens anytime from crypto exchanges. Another timing-related action that major investors frequently use is buying the dip. It refers to purchasing more of a digital currency while its price is low.
If you don't time your investments strategically, you run the high risk of making emotional decisions. Acting out of FOMO or FUD can make you lose money in the long term.
Don't invest more than you can lose
We've been saying this over and over again, and for a good reason. Digital currencies are inherently volatile, and you never know how a token with a high trading volume and large market cap might start losing value.
Investors always look at crypto coins with a high market cap. They research more info about the token's circulating supply and max supply. Bitcoin, for example, has a limited supply of tokens that will ever exist. In contrast, other projects might have an unlimited supply of coins.
Whenever you decide to invest money in crypto, make sure you don't need that amount for anything else. Investing in major cryptocurrencies, as well as new ones, can both make your money disappear or multiply it beyond your imagination. You should be prepared for both scenarios.
Watch out for cryptocurrency market scammers
Not everyone is honest in the crypto market, and especially on social media channels, you might find people that promise huge returns from obscure crypto assets. You should always do extensive research before reaching for your debit card or bank account to exchange fiat currency for crypto.
If you don't find enough information about the project team, if they don't have a white paper or a road map, or if you discover any red flag at all, that isn't a good sign. You should take a step back and consider some alternative investments.
Read the cryptocurrency project's white paper
Every cryptocurrency project should have a well-written white paper that is easily accessible to any future investors.
A crypto white paper is an official document that details the project's purpose and the technology that supports it. Any serious project will have such a white paper where it clearly presents the value of the project, the utility, real-world use case, all the technical specifications, token allocation, the road map, the team members, etc.
If a cryptocurrency project lacks this white paper, that's not a positive sign. If you locate the white paper, but the information provided seems insufficient or misleading, that isn't a good sign either. Take the time to read it carefully and make sure the project is legit.
For more info on how to read and understand a cryptocurrency white paper, check out our dedicated article on the subject.
Compare the roadmap with developer activity
Potential investors of a cryptocurrency project have many tools to verify the project's progress. With open source technology, anyone can check out the latest developer activity to understand the current phase of the project.
Any project worth investing in will provide a GitHub repository link to its interested users. This link should allow you to see the latest updates on the project's trajectory. Is the road map updated with the work that is done? Are deadlines kept? Past performance is not necessarily the key indicator of future results, but it can give you an idea of the track record the cryptocurrency project has.
If there's a huge gap between the GitHub entries and the road map's milestones, you might want to investigate further the veracity of the business.
Understand the token's market capitalization & other metrics
Before investing in any cryptocurrency project, you should look at the tokenomics behind it. There are a few basic market metrics you should take into consideration before investing in crypto:
Market capitalization: A cryptocurrency's market cap is determined by multiplying its price by the total supply of coins or tokens in circulation. Generally speaking, a cryptocurrency with a large market cap is more established and is considered to be more stable.
Bitcoin, for example, is the cryptocurrency with the largest market capitalization in the crypto sphere. That doesn't mean new projects with a low market cap are not a good investment. If you're interested in a new crypto project that has outstanding potential and is backed up by several partnerships, don't let a low market cap deter you from investing. It probably needs more time and exposure to increase its value.
Trading volume: Another essential metric to observe is the token's trading volume. This measure displays the volume of cryptocurrency trading over a specific period of time.
A high volume indicates that many investors are buying and selling, which increases liquidity and stabilizes prices. On the other hand, a low volume denotes little investor confidence in the price movement. It may result in significant price volatility and poor liquidity.
Token supply metrics: Cryptocurrencies can have a limited or unlimited supply of tokens. The max supply refers to the total number of coins that a cryptocurrency can have. Bitcoin, for example, has a max supply of 21 million coins. Ethereum, on the other hand, has no limits on the currency supply.
Another interesting metric is the circulating supply which shows how many coins are being traded or held in a wallet at any given moment. This metric helps you understand a token's scarcity that can influence the value in both ways.
Do your own research before investing
We can't stress this enough. Research is paramount before any type of investment. Besides the white paper, road map, and different crypto metrics discussed above, you can also research the project's social media presence in depth.
What does their website look like? Is it up to date? Do they frequently post on their social media channels? Check out their Twitter, Discord, Reddit, Telegram, etc. You should join any online community pertaining to the project you're intrigued it.
It is widely accepted in the crypto community that a project with a strong and healthy community is on the right track.
Keep the long term in mind
Some people get into crypto thinking they will get rich fast, but that's the wrong assumption to start with. When investing in crypto, you should look at things with a long-term approach, and your investment strategy should also be devised for the long term.
Just think about Bitcoin for a bit. It took Bitcoin around ten years to reach the $50.000 threshold, and along the way, many investors lost interest, sold their coins, or even lost them. Only the people that held on to their Bitcoin coins for all this time could reap the benefits when the price skyrocketed.
The same can apply to any token that will survive long-term. That's why a crypto investment should not be seen as a fast way to make easy money.
Cryptocurrencies and the global adoption of blockchain technology are still in their early phases, and it might take years to reach maturity. That means that there are many opportunities for early investments into projects that might become as profitable as Bitcoin in the future.
The key is to take your time and base any financial decision on rationality, facts, and numbers instead of emotions and trends. Make a habit out of having a checklist of steps you should take before diving into a new cryptocurrency project, and stick to it almost religiously.
Take the necessary precautions before making any cryptocurrency investment. You will be less likely to put your money into a failing project or, worst, get scammed. Look for a token with utility and projects with real-world use cases, as well as a robust and enthusiastic community and a solid development team.
Always remember the saying, " Not all that glitters is gold." It's as much true when it comes to crypto as in any other aspect of one's life.
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