Volatility, both up and down, is an integral part of the crypto markets, and the last few weeks have been no exception. Despite a sudden drop in the price of Bitcoin and Ethereum, many altcoins are still holding strong as new investors continue to join the crypto universe. Should the price of Bitcoin and Ethereum rebound upwards, investor interest in the space could grow even further. When evaluating which cryptocurrencies to buy, it’s vital to adhere to a strict strategy and concentrate on studying the key drivers of a coin’s value. In this article, we segment the various altcoin options and present a framework for doing your own research into which cryptocurrency to invest in 2021.
Finding the Next Big Cryptocurrency
While many people confuse cryptocurrencies with stocks or bonds, they are two entirely different creatures. Most experienced investors are familiar with metrics such as the price-to-earnings ratio, debt-to-equity ratio, and beta.
Tokens are different. Unlike stocks, which represent an ownership stake in a company, tokens come in many shapes and sizes, each with its unique use case. The first step to deciding which cryptocurrency to buy in 2021 is to segment the various token offerings. Some example of token segments include:
- Cryptocurrency: The original use-case of blockchain tokens, cryptocurrencies can be sent and received like any other form of money. Tokens like Bitcoin, Litecoin, Ripple, and Dash serve the purpose of peer-to-peer transactions, although they are limited in functionality compared to tokens like Ether.
- Utility token: Ethereum expanded upon the idea of blockchain by extending its utility beyond simple send-and-receive transactions. Thanks to the smart contract technology introduced by Ethereum and later adapted by Binance, Polkadot, Solana, Cosmos, and other projects, developers can now build a whole new universe of decentralized applications. Each blockchain has its own utility token, used to pay for resources on the blockchain, such as gas.
- Governance token: A relatively new category, governance tokens are popular amongst DeFi projects like Uniswap and MakerDAO. Essentially, governance tokens allow their holders to participate in maintaining and growing the blockchain. Token holders can make proposals and vote on them in the form of democracy growing across the crypto space.
- Cryptocommodity: Tokens known as cryptocommodities are used to apportion scarce digital resources such as file storage or processing power. For example, tokens like Filecoin and Storj incentivize ordinary users to store files on their peers’ behalf and then serve those files quickly upon request.
- Reward token: New, creative ways of incentivizing certain behaviors are emerging thanks to crypto tokens. For example, Brave browser uses the Basic Attention Token (BAT) to incentivize users, publishers, and content creators. Invasive trackers and ‘malvertisements’ are replaced by a blockchain system that rewards both readers and publishers while respecting user privacy.
The next big cryptocurrency could likely be classified under one of these categories, or perhaps even pioneer an altogether new category.
Five Major Factors To Consider When Evaluating Cryptocurrency
Each of the categories mentioned above has unique criteria seasoned crypto investors use to make decisions. Some of these factors include: :
- Developer activity: High developer activity is a sign of a strong project. It’s a cause for concern if the activity is lacking or declining. The simplest way to do so is to look at the project on GitHub. All work completed on GitHub is open to the public, as are the project’s activity metrics. Metrics such as the number of updates made to a project on Github and the number of stars it has received are just some valuable indicators of the project’s activity.
- Strength of the community: A strong community is just as critical as a lot of developer activity on a project. The size of a project’s community typically shows how well the cryptocurrency’s ideas and functions are embraced and how widely it will spread. Looking at how active a project’s fan base is on Twitter, Facebook, or Telegram is helpful when assessing a token’s community. Another good area to check is Reddit. Reddit has become a hub for cryptocurrency news, announcements, and general discussion.
- Token Supply and Inflation: The fact that blockchain is built upon open-source software means that all the relevant statistics regarding a token’s economics are available for all to analyze. As the token progresses, it’s essential to keep an eye on the token’s overall supply and the rate at which new tokens are added to the supply. The higher the inflation rate of a token, the higher the eventual supply, the more buying is needed to keep the token at its given price or push it higher. For example, one of Bitcoin’s major selling points is its low rate of inflation, which is currently 1.7%.
- Distribution of tokens between holders: The more even the distribution of a token is, the less impact any single entity can have on the token price. When a token’s supply is heavily concentrated in the hands of a few whales, one person selling can spell doom for the token.
- Transaction costs and block times: The time it takes to generate a new block or file in a cryptocurrency chain is called the block time. Block times and transaction costs can be helpful when prioritizing cryptocurrencies. On the one hand, lower transaction costs make the network easier to use. Yet, on the other hand, if people are paying high transaction fees to use a blockchain, it is a sign of great demand. Additionally, transaction costs tend to skyrocket during times of network congestion, which generally occurs during periods of heavy buying or selling.
Cryptocurrencies To Watch on Coinmama
Coinmama offers a range of cryptocurrencies from which to choose. In addition to Bitcoin, Coinmama customers can purchase utility tokens like Ethereum and Cadano, cryptocurrencies such as Litecoin and Ripple and even the meme-coin, Dogecoin. Before purchasing any cryptocurrency, buyers should be aware of the risks involved in and be advised that Coinmama cannot offer advice on any particular product.