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Evaluating Cryptocurrency: A Beginner’s Guide

Evaluating Cryptocurrency is crucial before making an investment. Do you study a cryptocurrency first before investing in it, or do you just listen to the hype or jump in on what is new?

I have seen many crypto enthusiasts do that, especially when it comes to NFT games, but I’ll discuss NFT games in other posts.

In this post, I will discuss the factors I use to evaluate cryptocurrencies and the deciding factor that makes me invest in specific crypto.

We all know that cryptocurrency is very volatile, and every now and then, new cryptos appear. So, how do you distinguish a good crypto from a bad one?

If you do your research, there are a lot of factors you need to consider when evaluating a cryptocurrency.

These are the basic factors you need to consider:

  • Understand the Purpose and Use Case
  • Examine the Technology
  • Review the Team
  • Assess the Community and Adoption
  • Analyze the Tokenomics
  • Review the Roadmap and Development Progress
  • Consider Market Competition
  • Evaluate Regulatory and Legal Considerations
  • Assess Security Measures
  • Consider Risks and Challenges

These are the basic steps, and it may seem like a lot. That’s why I mentioned in my previous post that investing in crypto is not easy money because there are a lot of things you need to consider.

The question is, am I doing all of this? Of course not. I’d be a hypocrite if I said that I know everything about the cryptocurrency that I hold.

You see, I only hold specific cryptos for a long time, and these are $LTC, $USDT, $BUSD, and $BNB. I also hold a little $HIVE, and sometimes $HBD, but those mostly come from the little rewards I get from blogging. The gaming tokens that I get don’t stay for long in my wallet, I always swap them for other coins that I usually hold.

As for other cryptos in my wallet, they are just there temporarily until it’s time to sell.

So, what are the things that I consider before investing in a currency?

The following are the factors that I consider the most before investing or buying.

Factors in Evaluating Cryptocurrency

Historical Chart

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Photo by Behnam Norouzi on Unsplash

The first thing I really check is the history of a crypto, how long it has been on the market, and its historical ups and downs in value. I don’t go for cryptos that are new in the market. I stay away from those coins/tokens to play it safe.

There are so many coins/tokens out there with a long history, so why pick something new and unreliable right?

The historical data tells you about the crypto’s upward and downward trends. You can easily notice if there was a manipulation in those charts, and I avoid those types of coins/tokens.

Market Exchanges

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Photo by Kanchanara on Unsplash

The next thing that is important to me is the exchanges where these coins/tokens are traded. If they are not traded on the top 5 exchanges, I mark them as X.

Using top crypto exchanges can offer several advantages, including:

  • Wide Range of Cryptocurrencies
  • Liquidity
  • Security Measures
  • User-Friendly Interfaces
  • Trading Tools and Features
  • Regulatory Compliance
  • Customer Support
  • Integration with Other Services
  • Market Information and Research
  • Trust and Reputation

Although I still use the Hive Engine Exchange which does not belong to top exchanges, I don’t trade that much on that platform. I only trade there the crypto that I use in my NFT games like Splinterlands, Dcrops, and Rising Star and the little rewards that I get from blogging.

Choosing a reputable exchange can help mitigate the risks associated with using lesser-known or untested platforms. Many unpopular platforms have useless tokens on their list.

Good exchanges like Binance have earning tools that you can use to maximize your crypto earnings, unlike unpopular exchanges that don’t have any of these tools.

Use Case

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Photo by Mark Fletcher-Brown on Unsplash

Studying the use case of a crypto is essential. Knowing its purpose can give you a hint if the crypto will be seen as valuable by people or not.

There are several types of use cases for cryptocurrencies, each serving different purposes. Here are some common types of crypto use cases along with examples of cryptocurrencies within each category:

  • Payment Systems and Digital Currencies

    • Bitcoin (BTC)
    • Litecoin (LTC)
  • Smart Contracts and Decentralized Applications (DApps)

    • Ethereum (ETH)
    • Cardano (ADA)
  • Privacy and Anonymity

    • Monero (XMR)
    • Zcash (ZEC)
  • Stablecoins

    • Tether (USDT)
    • USD Coin (USDC)
  • Supply Chain and Logistics

    • VeChain (VET)
    • Waltonchain (WTC)
  • Decentralized Finance (DeFi)

    • Compound (COMP)
    • Uniswap (UNI)
  • Gaming and Virtual Assets

    • Enjin (ENJ)
    • Axie Infinity (AXS)

These are just a few examples, and there are many other cryptocurrencies with different use cases.

Some cryptocurrencies may lack a clear or practical use case.

These cryptocurrencies are often referred to as “utility-less” or “speculative” tokens. They may have been created without a well-defined purpose, or their use case may be limited or unclear.

Examples of cryptocurrencies that have been criticized for having limited or unclear use cases or utility include:

  • Dogecoin (DOGE)
  • Shiba Inu (SHIB)
  • SafeMoon (SAFEMOON)
  • Bitconnect (BCC)

It doesn’t mean that you can’t earn from these coins. If your timing is right, you might get lucky. But always remember to take profit if you hit the jackpot.

I always pick crypto that falls under the “payment” and “stable” categories. I believe that payment crypto will be more popular in the future and widely used as a form of payment. As a matter of fact, it is gaining more recognition from businesses today.

I also like stablecoins. If you use Binance, I think it’s better to use BUSD rather than USDT because BUSD is Binance’s own stablecoin.

The last category that I always trade but with caution is gaming tokens. If you can hit the right timing, you can earn a big yield in trading these types of tokens.

Earning Mechanism

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Photo by micheile henderson on Unsplash

I don’t know what I should call this factor; I just named it that way. What I mean by earning mechanism are other factors that the crypto can earn aside from growing in value, such as staking and airdrops.

I don’t like cryptos that I can’t stake. Staking your crypto can at least give you back some yield in case the value of the crypto is dropping. And you can do this while waiting for its value to increase.

Airdrops are also good. They provide you with free crypto when you hold a specific crypto in your account.

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So, those are the factors I consider when evaluating cryptocurrency. I don’t dwell too much on teams, roadmaps, and regulatory compliance.

The truth is, even if I read them, it would be hard for me to understand because I’m just an average trader.

For my future topics, I will discuss the platforms I use when researching specific cryptos. Follow me to get updates as I try to explain crypto technology in the easiest way possible for an ordinary person to understand.

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