Basic Guide to Understanding Investments — Cryptocurrency 101 

By Mappo | Top Blockchain News | 5 Aug 2019


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I’ve had a few people ask me what I’ve invested in or what are good coins/tokens to put some money into and how much. I am not a financial advisor nor can I tell you what is best for your current situation, I can, however, give my opinion on certain coins. Please remember, all prices are quoted in USD


SO WHICH COINS DO I LOOK AT?

There are hundreds of coins/tokens already in the crypto world with numerous others being added every day. As such there will be many that I have not looked at or missed that may be great projects. I’ll list on here a number of coins I have looked at and I’ll classify them as high, medium or low risk — this is my own view, I’ve been wrong before and I could be wrong again. Take what I say with a grain of salt. I will also make a couple of notes regarding what I look for when I consider investing in a coin.

Until recently there have been two clear coins which seem to run the crypto world. These are also the two that you will need in order to buy almost all other alt coins:

Bitcoin — BTC

Ethereum — ETH

Bitcoin is the founding coin of the crypto world. It is the coin that everyone knows about, that the news discuss and supposedly what gave rise to all other coins. Surprisingly BTC ranks only 14th in the top most performing coins of 2017 with a gain of 1,318% This is a great ROI compared to fiat currencies, but still is arguably one of the low risk coins. It is important to look at % increase as well as price when trying to figure out potential returns (I’ll go into this later on in this article). BTC does have some issues moving forward, mainly scalability. Transactions take a long time (in crypto terms) to process and fees are enormous.

I have not personally invested in BTC due to the fact that although it is super expensive, if it was to go from $15,400 (current price) to $30,800 which is a massive jump, translates to only an increase of 100% — turns $100 into $200. Good returns but I believe there is more potential elsewhere.

Ethereum is another massively popular coin, rising over 9000% for the year. This became even more popular through the rise of ICO’s (Initial Coin Offerings). ICOs are essentially IPOs but with coins instead of shares/stock. The benefit of an ICO is that it can occur right at conception of a company rather than having to be up and running for a while first. ETH currently has much lower fees and faster transaction times than BTC. But it is not without its own problems. It has its own scaling problems, but it was somewhat planned at the creation of ETH.

I have invested in ETH as I believe it is also a safe investment similar to BTC but I believe it deals with its scaling issues a bit better than BTC. I also believe it is more likely to go from $930 to $2700 (increase of 200% than BTC is to go to $30,800. This will turn $100 into $300.

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Choosing a coin to buy can be overwhelming to say the least

Now that we have covered the two major coins, I’ll discuss a few of the other coins that are up there competing with ETH for market cap.

Litecoin — LTC

Dash — DASH

Ripple — XRP

Bitcoin Cash — BCH

These 4 listed above have been in the top for a while and appear to have a proven track record. BCH is the newest of these which was created as the result of a hard fork from BTC. This has gone up about 800% since its birth.

This is one to keep an eye on but I have not invested for the same reason as for BTC.

Ripple is an interesting one that has been around for quite a while, but only recently has it gone through a bull run of about 1000%, with a massive total of 36,000% for the year. Ripple is said to be backed by the banks, similar to their “foot in the door” of the crypto world. As such one might be led to believe that it has a degree of security — the banks won’t let it fail.

I invested a small amount into this because it was cheap at the time and I believed it had a good grounding. This has turned out to be a sound investment.

Dash has really come up in the world. It appears to be following the trend of ETH closely. It has gone up about 300% in a similar period that ETH went up 300%, and going up a total of over 9000% for the year ranking in the 5th top position for year performance. I won’t go into too much detail on this, I would suggest visiting the dash website to look into their projects.

I have purchased 2 miners for this product but have not invested directly into this coin.

Litecoin has also performed quite well this year ranking in 9th with an increase of 5000%. This is also one to keep an eye on even just because it has such a large market share and excellent performance.

Other coins that have ranked in the top 10 for performance are NEM 29,800%; ARDOR 16,800%; STELLAR 14,400%; Golem 8,400%; Binance Coin 8000%; OmiseGO 3,300%.

A list of other coins I have looked at/been keeping an eye on are:

SONM
TenX 
Salt
Propy
KICK
Atlant
OAX
WAVES 
Wings
QTUM 
Lisk
STEEM
CVC
RDD
NEO
BAT
IOTA
DGB
TRX
IXT
VTC
ZRX

I have invested in about half of these.


HOW MUCH DO I INVEST?

There are a number of aspects to look at when considering investing in a crypto project, as well as reasons to invest in each project. Ultimately, the majority of people will invest in project to make a good ROI.

The first thing to figure out is how you want to make your ROI, do you want to hold for a long time with low risk? or maybe you want to ride the massive highs and lows and sell on a high, or maybe you want to invest in a project that provides dividend payments or fees to token holders?

Generally speaking if you invest in a project that has been around for a while/has a reasonably high coin price, then you will most likely be looking at a slow but steady rise. If you invest in a project that is brand new/ has very low coin price, then you might not see any returns, but if you do then you will make many times your initial investment. As with any investment portfolio, advice will always say to spread out your investments according to your desired risk.

I have about half to two-thirds of my investment in old, proven and high priced coins, i.e. ETH, NEO, DASH, LTC, BTC etc. I then have spread the rest of my investment out among projects that I believe will succeed but also have very low coin price and most are near the start of their life. The idea of this is that you will only need one of these projects to succeed and go from $0.01 to $1 to cover all other investments.

EXAMPLE Let’s say you have $1000 you would like to put into Cryptos. You might want to set up like this:

ETH — $400
NEO — $150
LTC — $150
CVC — $50
IOTA — $50
TenX — $50
TRX   — $50
QTUM— $25
RDD — $25
DGB — $25
SONM— $25

I have found it easier to put the same amount in multiple coins as this makes it very simple to compare performance at a glance. You’ll notice as the coin’s current price gets cheaper, the less you invest. This is only one example, you can invest however it suits you.

One more thing just to note, is that not every coin is listed on every exchange. Visit www.coinmarketcap.com and look at the market tab under each coin to find out which exchange lists the coin. Ensure you look at exchanges that actually have trading volume (I’ll touch on this soon).


LOOKING AT PROJECTS

When a coin/token is at inception there will always be an announcement. This will occur on the Bitcointalk website:

https://bitcointalk.org/index.php?board=159.0

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Bitcointalk.org is a great website to find new crypto projects

This is a great way to try and catch a project before everyone else gets on board. Another way to find a coin at conception is to look for a website that lists ICO’s (Initial Coin Offerings). The benefit of ICO’s is that you may get a bonus by investing at the start and you don’t need to wait until the coin is listed on one of the exchanges you hold coin in. Beware that ICO’s hold potentially the highest risk of all the crypto world. I, personally, have not found that the benefits outweigh the risks, but it will mean you miss out on some good deals. I have invested in a number of ICOs but I don’t think I will much more.

When you go to the coin’s announcement are a few things to look at. Firstly how professional, transparent and informative is the announcement. Compare it to other announcement from well known coins or massively popular ones.

How much of the coin is going to be held by the developers (often called pre-mine). This is important on both sides of the scale. One the one hand, if too much of the coin is held then the developers might be too focused on getting rich quick and it may create a pump and dump scenario or where decisions are not in the best interest of the project but only in the developers. But on the other hand, if the developers hold too little coin then what incentive do they have to continue the work and improve on future aspects.

Next thing to look at is what does this project do that is not already out there? What need is met? How is this unique? This part may be difficult to answer if you have not delved too much into the crypto world. Often you can find a partial answer to this in the comments of this announcement as others will ask this question. If you find that there are similar projects, then which project looks the best? Often I’ve found one I like the look of, but then by researching it I’ve found an even better one that I would never have considered.

How much interest is there in the project? how many people are commenting? This is not a big indicator but can tip you one way or another.

READ THE WHITEPAPER — or at least browse through it. If the announcement is to sell the project to the masses, the whitepaper is to sell the project to the serious investors who want to know EVERYTHING about the project. The whitepaper should look technical, it should use words you don’t understand and it should explain everything from start to finish. Be wary if the whitepaper is too brief or looks like a marketing magazine. Reading the whitepaper is ABSOLUTELY CRUCIAL if you plan on investing in the ICO. But I would strongly recommend reading it regardless.

Who is the team behind this project? Where are they from? What other projects or experience do they have?

If the project is not brand new, then it can have partners or companies that use its product or service. These can indicate how successful a project is as they have been able to sell themselves to large investors who may be inputting thousands or millions of dollars.

Does the project have a website? How professional is it? Are there many spelling errors — this may be the case as a lot of the new projects are coming out of Asia and Eastern Europe, but isn’t necessarily a deal breaker.

After having a looked at a number of the aspects above you should be able to formulate a reasonable sound opinion of a specific project. This is not a fool proof project but it will hopefully stop you from wasting some of your money on nonsense projects, scams or pump and dump schemes. Remember, at the moment there are NO RULES in the crypto world. ANYONE can create a project and they can do WHATEVER THEY WANT with your investment. This is more so for ICOs.


UNDERSTANDING A COINS STATS

Another thing to look at once you have been satisfied a coin is worth investing in is to look at www.coinmarketcap.com. Generally speaking, unless you are investing in an ICO then the coin should be listed on this website. It will show up the market cap, trading price, trading volume, circulating supply and total supply.

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Coinmarketcap.com is the go to site for crypto prices

MARKET CAP

This is saying how much all the coins currently in circuit are worth. For example if the trading price is $1 and there are 1,000,000 coins, then the market cap will be $1,000,000.

TRADING PRICE

This is the average price a coin is going for. This is the average of all the exchanges that list the coin multiplied by their respective trading %.

TRADING VOLUME

This is how much of the coin was trading in the last 24 hours. This can indicate 2 things, firstly, how much interest a coin has; and secondly, how easy it will be to buy and sell. When looking at a coin, under the market tab, this will break down the trading volume to each coin pair on each exchange. You want to make sure there is enough trading volume for the particular coin pair you require and on the exchange you have your money.

Let’s say you have 1 ETH on your Bittrex account you want to invest in Ripple. You will go to the market tab under ripple and make sure there is a sufficient trading volume for the Bittrex source with the XRP/ETH pair. Currently that is only 0.33% of the total trading volume, but this is still almost $28m which is plenty.


COINS PAYING DIVIDENDS?

The last thing I will touch on is regular payouts from some projects. There are some projects which list in their whitepaper and on their website that token holders will receive regular payouts. Sometimes you are required to hold your coins in a certain way, other times you just have to own them. There are 2 main ways this occurs. The first is called PoS (Proof of Stake) which I will not go into detail here but essentially the more coins you hold the more of an asset you are to the network for security and reliability. This results in you getting paid a percentage of the fees that are generating by people transacting on that network. The second main way you get payouts is with specific contracts. For example, a project might be to develop an exchange, and they say that any of the token holders will receive a percentage of the fees generated by the exchange. Beware, some projects will offer unreasonably large payouts. Do not be fooled.

Hopefully some of this has helped in your understanding of choosing coins to invest in. I know some of this you may disagree with or may become incorrect over time, or I may have left some important information out. I welcome feedback. This is just what I have discovered from my own research and experience in the crypto world. Have fun!

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Mappo
Mappo

aelf Head of Content - Cointelegraph Featured Author - Blockchain advocate


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