The growth of cryptocurrency has been nothing short of remarkable since its inception with Bitcoin in 2009. Since that time, there has been a proliferation of other cryptocurrencies with the total market revenue expected to show an annual growth rate of 14.40%. As a result, the cryptocurrency market is projected to reach $64.87 billion by 2027.
Despite the growth of this digital asset, many would-be investors remain unsure as to which cryptocurrency to invest in. From Bitcoin and Ethereum to XRP and Dogecoin, navigating the financial aspects while keeping abreast of the technicalities can be challenging. In this article, we have outlined some of the key things to consider when choosing which cryptocurrency to invest in.
When investing in cryptocurrency, choosing one with a high market capitalization is a good place to start. Market capitalization is an indicator of a coin’s overall value and is calculated by multiplying the total number of coins in circulation by the current market price of the coin. Coins are placed into one of three categories, depending on their total market capitalization, as follows:
- Small-cap: Small-cap cryptocurrencies are typically newer and less established. They can be volatile but can offer higher growth potential.
- Mid-cap: Mid-cap coins offer a balance between growth potential and stability.
- Large-cap: Large-cap cryptocurrencies are usually well-established, less volatile, and considered safer investments, although with potentially slower growth compared to smaller counterparts.
Economic principles state that the more scarce the supply of something the higher its value. When considering which coin to invest in, find out whether the supply is limited and how many coins are currently in circulation as this will impact the price of the coin in the long term.
For example, Bitcoin has a total cap of 21 million coins, after which no more coins will be mined. As the demand for Bitcoin increases while its supply remains limited, it will lead to an increase in its price. It’s important to differentiate between coins with limited supplies, like Bitcoin, and those with unlimited supplies, such as Ethereum and Solana. You can find out the value of 1 SOL to USD here.
Each cryptocurrency has a white paper which contains key details about the coin. Much like a business plan, it outlines the project’s goals, technology, functionality, and vision. Some of the details contained in a professional cryptocurrency whitepaper include:
- Vision: What the project should achieve and how will its users be helped.
- Team: Profiles of important team members are listed along with their track record and relevant industry experience.
- Partnerships and advisors: Details of early-stage investors and key advisors including their track record, qualifications and experience.
- Technology: Detailed explanations of the underlying blockchain technology, consensus mechanisms, and any technical innovations or improvement.
- Token economy: Details about the cryptocurrency’s token, including its supply, distribution, and how it will be used within the ecosystem.
- Use cases: Information on the practical applications and real-world scenarios where the cryptocurrency or blockchain can be employed.
In this way, the information contained in a white paper provides legitimacy to the coin.
By taking these factors into consideration, you can make an informed and wise decision when choosing which cryptocurrency to invest in.