Cryptocurrency investments are worthwhile. In fact, some people are now billionaires because they invested in virtual money and the systems that support it. Some of them include Chris Larsen, Changpeng Zhao, Joseph Lubin, and Winklevoss Twins, and they worth $8 billion, $2 billion, $1.5 billion, and $1.1 billion respectively.
Their success stories have encouraged many people to invest in cryptocurrencies. Some of these people have failed while others have succeeded. Failures arose out of flawed analyses. For example, people make mistakes when it comes to analyzing market capitalization, diversification portfolios, product development, and investment patterns. Another problem is following the market hype instead of market dynamics. Various reasons for success exist as well. In fact, here are practical tips for creating an incredible cryptocurrency portfolio.
The Supply of the Coin Matters
The supply of a cryptocurrency refers to the number of coins that are present in the market. Examining this quantity helps you determine if there is an adequate supply of the digital currency. Remember, the relative unavailability of the coin relative to the demand for it means the price for each coin will increase. The reverse happens when an oversupply of the digital currency exists relative to people who want it.
Coins Added to the Market
New coins entering the market affect the supply of virtual currency as well. For instance, there will be an oversupply of the coin if additional coins come into the market at a high rate. A drop in the price of the cryptocurrency results from this oversupply. The reverse scenario occurs when new coins enter the market at a low rate. More specifically, the cost of the cryptocurrency will drop.
Therefore, a prudent investor scrutinizes the supply of the coin and the rate at which new coins are entering the market. Avoid it if there is an oversupply of the digital currency relative to its demand. Give it a wide berth as well, if new coins are entering the market at a high rate.
Diversification Based on Market Capitalization and Target Market
Market Capitalization refers to the total value of a cryptocurrency. Multiplying the number of coins a cryptocurrency has in circulation by the market price of the currency gives you this value. Prudent investors divide cryptocurrencies into high, medium, and low market capitalization categories. Then they invest 50%, 30%, and 20% of their investment money into these categories respectively.
Unlike fiat currencies that seek to address any issue, some cryptocurrencies focus on specific needs. For example, some are specific to publishing, lending, and storage. Others include micropayments, advertising, social media, and computing. Unfortunately, many cryptocurrency investors focus on one digital currency addressing one issue in a particular market.
The top 30 cryptocurrencies are high market capitalization currencies. The 150 digital currencies that follow them are medium capitalization, and any cryptocurrency after that is a low capitalization one Invest 50% in a few of the top 30, 30% in some of the next 150, and only 20% in low category currencies. Diversify your portfolio according to the target market of the coin as well
Analyze Investors and Funding
An ICO may be worthwhile if renowned venture capital firms are investing in it. Remember, these firms have an adequate number of researchers. Therefore, spending your money on a particular ICO means that they have evaluated it thoroughly. More importantly, they have determined that it is a sensible investment.
A cryptocurrency whose ICO suffered from inadequate funding is likely to experience massive failure in the future. Avoiding it is an excellent idea as is selling it if you already bought it. Examine the team as well. Remember, an ICO takes time, effort, and a lot of skill. A small staff is an indication of limited funding. In fact, it is likely that some members of the team are developing the code free.
According to the leadest affiliate crypto platform Stepium, investors should avoid highly valued currencies that have a small team. Similarly, avoid a lowly valued cryptocurrency that has a large staff behind it. Moreover, go for digital currencies that have highly respectable firms investing in them as well.
Look at Product Development and Activity
Products are as good as the effort the developers put into them. The same case applies to cryptocurrencies. They are as good as the people behind it. Look at the cryptocurrencies public code repositories to determine the worth of the individuals who are pushing it. Examine the organization of these repositories and the number of contributors who had pushed commits to them.
Level of Activity
The level of activity behind a cryptocurrency tells you whether it will withstand emerging challenges in the industry. Determining their level of activity is possible by looking at public code depositories to see how often they commit code. You can scrutinize their social media as well watch out for details such as appearances in technical conferences or discussions.
Go for cryptocurrencies that have committed developers behind them. Uninvolved developers could be an indication of a coin that is failing or might fail sometime soon. Moreover, the developers might be inexperienced or inadequately knowledgeable if their level of activity in the industry is low.
The Marketing and the Future
Peter Drucker, an organizational management guru, once said that marketing and innovation are the only two things that help businesses grow. The same principle applies in the cryptocurrency market, i.e., effective marketing leads to the growth of the digital currency and vice versa. Examine the marketing campaign across various platforms including social media and cryptocurrency forums.
The Future Cryptocurrencies are facing multiple challenges including government regulation, hacking attempts, and common misconceptions. Overcoming these challenges is difficult. Fortunately, developers can prevail over them if they have a viable plan to do so. Examine the strategies that the cryptocurrency developers have when it comes to overcoming these hurdles. Are they feasible?
Invest in a cryptocurrency after you determine that the people behind it have a plan to market it. A strategy for overcoming challenges that it might face is necessary as well.