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January 12, 2018, 05:45:32 AM |
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The forums are flooded with new investors looking to find that next undervalued coin that's going 'moon' sometime soon. While this isn't itself 'wrong' it's important to understand what actually gives a coin value as opposed to perceived value such as being cheap enough to buy a million with just pocket change.
When you break it down there are three factors that determine the long term value and potential of a coin.
Factor 1: Market Cap
The Market Cap of a coin represents the total fiat value of a coin or project. The bigger following a coin receives, the more coins get bought, the higher the market cap. Obviously this is key to making significant gains in cryptocurrency but market cap is only half the equation.
Factor 2: Available/Circulating Supply
New investors often overlook the obvious pitfalls of popular coins with billions or even trillions of circulating tokens. The basic calculation for coin value is Market Cap divided by Circulating supply. When we do the math it quickly becomes clear coins like BitCoin with less than 21 million coins in circulation are vastly more valuable with less market cap than say Ripple with trillions of coins and the ability to create more on command further saturating the market.
These two considerations alone will go a long way towards informing better trade decisions but there's one more thing that new investors tend to overlook more than anything else.
Factor 3: Viability
What the hell does this coin do? It may seem simple but investing in a coin just because it's cheap and might double one day isn't a very effective long term strategy. The cryptoverse is filled with projects that have the potential to make huge advancements in virtually every walk of life and some others with no discernible purpose. Power Ledger focuses on creating and maintaining sustainable power grids prompting a huge investment form the Australian government, Substratum aims to defeat censorship through decentralized web servers, BitJobs seeks to provide experience and opportunities to the next generation of workers.
Finding a project that you believe in with a clear mission statement should be the first step in selecting your next investment. Like the dot com bubble that saw 95% of tech stocks disappear almost overnight, we're looking for the next Amazons and Ebays in a world filled with half baked projects and non-starters. At the very least READ THE WHITE PAPER! (The basic concept of each project that should be on the coin's website. If it isn't, walk away)
There are plenty of other considerations when determining the value of a coin but in general, low cap coins, with small circulating supplies and solid technologies or innovative ideas are consistent and large gainers time and again. It doesn't hurt to check out the development team either, visit Reddit channels, Twitter, find out how often the Dev team interacts with their holders. Are they reaching goals on time? These things matter to the long term health of your investments.
Those are my thoughts anyway. Thanks for reading and happy investing!
Stay tuned. I'll be doing regular close ups of projects that have unique potential.
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