After the success of Bitcoin, many different virtual coins appeared on the market. Nowadays there are not hundreds but thousands of them. How do we determine whether the coin we have chosen really has any value? Here are some valuable tips for those just entering the world of cryptocurrencies!
Price is not the most important thing!
Before we move on to the substance of this article, we have to start from the absolute basics. Who has never felt lost - throw a stone first! Suppose you've heard of Bitcoin, but some time ago you found out that it's not the only one cryptocurrency. All the coins that came after him are called altcoins.
If you've ever setted two cryptocurrencies together, just looking at how much one coin costs - don't ever do that again! In the world of cryptoassets, the price alone is not an indicator of value. All you need to do is take a look at the CoinMarketCap ranking at this point. How is it? You have probably noticed that some cheaper cryptocurrencies are higher than the more expensive ones. All because they're ordered in terms of market capitalisation - but what is it? Simply put, it's the sum of shares in the market, multiplied by the current price.
Crypto market capitalization = number of coins available in circulation * current price per coin
A few hundred percent increase? You better watch out!
Cryptocurrencies with low market capitalization are subject to more frequent and stronger price fluctuations. Sometimes they can increase by several hundred percent over a day, and very quick go down. Coins of this type are burdened with high investment risk!
If you believe in potential of a project, its concept is interesting for you, buying a cryptocurrency belonging to it becomes understandable. Everything looks completely different when you belong to the group of people who only look at the potential profit, not the technology or plans of a given startup - then without proper knowledge you can slip a lot...
Read also: Is Bitcoin a financial pyramid?
Is crypto, which you are interested in worth something?
It all depends on the assumptions of the project, the team that leads it and the demand. If it is useful, provides unique value to the market, the chances of other investors being interested in it are higher. The cryptocurrency itself must perform a specific function in his own ecosystem, so that users want to buy it.
For example, Ether (ETH) functions within the Ethereum platform. It is not only a coin used for speculation, but also a clearing unit. Crypto enthusiasts often call it a fuel for applications built on the Ethereum network.
Not every coin will become a second Bitcoin
Some people entering cryptocurrency market think that every next crypto can become a second Bitcoin, all you have to do is buy it cheaply and wait for it to grow - nothing could be more wrong!
The truth is that some projects will never develop wings because they don't provide any particular value to their users. Few people will buy a cryptocurrency that will resemble Bitcoin without making any improvements - of course only the unaware will do so.
Read also: How and Where To Buy Bitcoin?
Good design, poor design vs SCAM and financial pyramid
Crypto projects can be divided into better and worse ones, while on the margins there are SCAMs and pyramids - these in turn have little to do with the virtual asset market.
A good project is one that realizes its assumptions and makes progress. The weaker one has some delays, not everything is perfect in it, but it strives to meet the expectations of its investors and to meet the challenges it has set itself.
Next to it there are also financial pyramids and SCAMs - projects that are profit-oriented in advance. They do not provide any value, use ready-made templates, and marketing activities becomes their main strength.
Okay... but which cryptocurrencies can be called shitcoins? First of all, the completely useless ones, created without a specific purpose. It often happens, that investors call them coins, which they simply did not manage to make money on - this is obviously a bit ridiculous, because some of them can play an important role in the project itself and at the same time do not necessarily undergo strong price fluctuations.
So it's worthwhile to do some research before you start any investment. Track how price of a given cryptocurrency at the turn of the last days, months, years looked like. Find out more about the project itself: who is behind it - do they have the right experience, how they have fulfilled their obligations so far - have the goals been achieved, and finally, what are the chances that success will also result in a cryptocurrency price - does it play any important role in the ecosystem?
What's typical shitcoin?
- It has no significant function within its own project
- It is a copy of an existing project, but it does not bring anything new to the market, does not develop
- There is no utility
- It is PUMP and DUMP type cryptocurrency - it has such a low market capitalization that its price can be manipulated by other investors (we are talking about increases and decreases of several hundred percent).