What (else) can I buy?
There’s more than just Bitcoin out there!
Bitcoin is by far the most well-known cryptocurrency in the world today, but it isn’t alone. An estimated 5,098 alternative cryptocurrencies or ‘altcoins’ now exist, seeking to follow in the wake of bitcoin’s success.
Some altcoin projects claim to offer better anonymity and some coins aim to tackle a specific industry like entertainment. There are digital assets that provide people with the ability to create their own tokens and develop smart contracts as well.
While this does mean you have more options to diversify your investment with, it becomes crucial to ensure you make informed choices. Typically speaking Bitcoin, Ethereum and Ripple make up the top three coins by market capitalization. The fourth place (and beyond!) becomes significantly more volatile.
Altcoins now are comparable to dot com era penny stocks. It’s possible to see astronomical returns as an early adopter of a successful altcoin. However, a considerable number of altcoins will not survive, and instead will eventually fail and disappear.
Read the whitepapers for every coin you are thinking of investing in.
A project whitepaper is the most information-rich document you are likely to find for a project, covering the project’s goals and objectives, as well as how it intends to achieve them.
As you read, ask yourself
What does the project aim to accomplish?
Does it do anything substantial other than replicate an existing coin?
Does their application seem both useful and attainable in the near future?
Reading whitepapers is great, but don’t stop there!
In our experience, three more criteria mark out a project with potential:
A well-reputed development team is important, but in addition to who they are, it’s important to consider the role they play in the ongoing development process of altcoin. A project with an active development team is one that is more likely to deliver on their vision.
Development activity is evident via updates and patches added to the project on a regular basis. Is the team actively improving the coin, and communicating those improvements to their investors?
A Strong Community
A coin without a community holds no value, because there’s no one to use it.
The decentralized nature of cryptocurrency makes it difficult to actively quantify a community. However, you can always estimate size by looking at the number of Facebook likes, Twitter followers or Reddit subscribers.
More than the raw numbers though – keep an eye on the conversations being held on these forums. Is morale high, or are people frustrated at the user experience? Is there someone from the dev team engaging with the community directly?
Trading Volume and Liquidity
An active and vocal community is nice to have, but the benefit is limited if they don’t actually invest in the project. There’s no point holding thousands of dollars worth of altcoin if no one’s trading it.
When evaluating when to buy, keep an eye out for the circulating supply. Coins that are locked, reserved, or not able to be sold on the public market are coins that can’t affect the price, and shouldn’t affect its market cap.
Similarly, you can evaluate the operations of an exchange’s trading pairs by its liquidity score. Liquidity scores grades all crypto markets with a score from 0 – 1,000, with 1,000. You can expect less slippage on pairs with higher Liquidity Scores, thereby incurring less unexpected transaction costs.