The possibility of stupendous gains attracts both retail and institutional investors to crypto, and this influx of capital fuels swift price appreciation, creating a feedback loop of rising valuations and maximum investor interest.
Investing in crypto means buying digital assets or setting aside funds for crypto-related investment vehicles that generate returns in the decentralized finance (DeFi) sector. Basically, you buy crypto at today’s market price, hoping that its worth will rise in the future. If you’re wondering how to purchase crypto, it all comes down to signing up on a crypto exchange, verifying your identity, and funding your account with fiat currency.
Identifying the right opportunities can be hard in an increasingly busy crypto ecosystem. New cryptos are introduced each year, so Bitcoin and Ethereum aren’t the only reasonable ones. Before jumping into crypto and chasing new chances, you’ve got a couple of key points to think about.
Market Cap
Market cap weighs the popularity of a crypto and its place in the market, and you can calculate it by multiplying the current price by the overall number of coins in circulation. It’s important to monitor the circulating supply, not the total supply.
Bitcoin’s market cap forever changes due to price fluctuations and new BTC being continuously mined and added to circulation. Bitcoin is strong compared to other cryptos, called altcoins. New up-and-coming coins are likely to have a lower market cap, which means they can offer more room for growth. They haven’t yet proven themselves in the long run.
Crypto can be grouped by market cap into different tiers. Here’s a breakdown:
- Large-cap: Well-established coins like Bitcoin and Ethereum are considered more stable and widely adopted. Their market cap is over $10 billion.
- Mid-cap: Chain link, Avalanche, and Stellar have bullish traction but more volatility than large-cap coins. Their market cap ranges from $1 billion to $10 billion.
- Small-cap: These are upcoming cryptos from groundbreaking blockchains with potential for growth but higher risk.
- Micro-cap: Micro-caps are highly speculative and often very volatile, so it’s difficult for you to sell your investment if you want to. These coins have a market cap under $50 million.
Liquidity
Liquidity guarantees smooth trading and fair prices, not to mention that it eliminates unnecessary risks. The more liquidity available in a crypto, the easier it is to enter and exit positions and take profit from a trading opportunity. Coins with active investors and steady trading activity reduce the chance of getting caught in an illiquid market, which means your crypto investments won’t fall prey to market manipulation.
Another thing to consider is how easy it actually is to find and buy the asset on different crypto platforms. If it’s listed only in a few places or hard to access, it might be more of a hassle to trade at a favorable price since there are fewer buyers and sellers actively participating in the market.
During volatile times, liquidity can dry up surprisingly fast. If you’re investing, it’s recommended to check trading volume and exchange depth before jumping in to get a sense of how easily you can buy/sell without causing big price swings. The last thing you want is to get stuck with an asset you can’t offload or, worse, be forced to sell at a sharp discount. Do thorough research and avoid cryptos that appear too good to be true.
Tokenomics
Tokenomics are the set of rules and principles that guide the creation, distribution, and utility of a token within its ecosystem. It’s one of the most important things to bear in mind – next to community, roadmap, team, and whitepaper -when making investment decisions. Tokenomics is the blueprint for how a crypto works, from how it’s created and managed to how it can be phased out and removed from the system. Token supply, burn mechanisms, and staking can take their toll on market value and investor confidence.
Fully Diluted Market Cap
The fully diluted market represents a crypto’s true value, and it’s calculated by multiplying the current price by the total supply specified in the project’s tokenomics. It’s not a faultless estimate of a coin’s future worth because it brushes aside any potential price decreases and counts on the fact that the future market cap will rise in proportion to the circulating supply.
The idea is that a tech-driven project is already gaining serious momentum and heading towards explosive growth. That may be the case, but the token distribution model and other factors support this progression, and any missteps can derail growth, leaving fears in their wake. For example, if more tokens enter the market but demand stays the same, their value can drop. The new supply spreads out the total market cap and dilutes each token’s worth.
Onchain Activity
Any transaction, data, or interaction is recorded and verified directly on the blockchain’s main ledger. Onchain analysis helps you understand what people are using the blockchain for – in other words, you can track where money is flowing, which coins are bought or sold, and how active a project’s community is. Bitcoin, Ethereum, Solana, and so on, are transparent and auditable by anyone and everyone.
Several indicators can help you make informed crypto investment decisions. Here’s a breakdown:
- Wallet distribution: Look at top holder balances and distribution to gain insights into potential market shifts. If the addresses holding substantial amounts of crypto are linked to reputable investors or entities, this could be a sign you’re making a smart investment decision.
- Transaction volume: High volume suggests potential for a sustained trend, while low volume indicates weakness. Seek other indicators to confirm or refute a price signal, like the Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD).
- Staking and liquidity pools: If large amounts of crypto are staked or pooled, investors aren’t rushing to sell their coins. They’re selective, strategic, and convinced crypto still has room to grow. They believe in crypto, but with a healthy dose of caution.
Wrap-Up
Watch out for any project that claims you’ll get guaranteed returns or sky-high profits. In the world of crypto investing, if something sounds too good to be true, it most likely is.
