The meteoric rise of bitcoin has left investors hungry for more cryptocurrency opportunities. Technology companies have responded by creating altcoins, which are any cryptocurrency other than bitcoin. Some big name altcoins, such as Ethereum and Ripple, have proven that they are up to the standards smart cryptocurrency investors seek. They provide a real, unique value proposition.
If Ethereum offered nothing better than bitcoin, it wouldn’t be an investment. It would be speculation in a bitcoin knockoff. But Ethereum offers revolutionary smart contract technology that promises to change how businesses exchange goods and money overseas, something bitcoin does not offer. There is a reason to be in Ethereum, which brings us to our first cryptocurrency investing tip.
Evaluate the Coin’s Value Proposition
What does the coin provide that makes it distinctive in the crypto marketplace? To qualify as an investment, there needs to be a real value proposition, and not every altcoin out there has one of these. In fact, many altcoins are little more than fly-by-night projects created by scammers wanting to cash in on the cryptocurrency frenzy. You can identify these shady operators by their lack of a real value proposition. When you evaluate the proposition, you need to see that the technology has an application, a market, finances, and a future. You also need to see that it has the wherewithal and a plan for profitability.
For example, Ethereum has a great value proposition. The smart contract technology is new. It provides cost savings to businesses that employ it. It’s safe, it’s well-developed, and it is gaining in popularity and recognition. Though all that is true, Ethereum is still a bet on the future. It’s a real investment, but the question we all must ask is whether we believe it will thrive in the longer term.
Ripple also has new technology. Its design allows banks to use it for enhanced and more cost-effective, cross-border payments. Banks are interested. Ripple is a successful technology company with the finances it needs. If you agree this technology has staying power, Ripple could be a good bet.
Analyze the Whitepaper
Each altcoin produces a whitepaper. The white paper tells you the value proposition. Its purpose is to explain what problem the altcoin technology solves. From the whitepaper, you gain a good idea of what the project does and how it works. In many cases, it will be easy to understand. In other cases, you may not have enough understanding of the subject to comprehend it from the whitepaper alone. In that case, additional research will be necessary.
Use bitcoin’s white paper and a model
For an example of what to look for in a white paper, review bitcoin’s. The author (s) make their case for bitcoin’s value in concise, understandable language. The value and future of the project are clear. A white paper that drowns the reader in jargon and is unnecessarily long and cumbersome is a red flag. Superficial complications and conflated language often disguise the lack of a solid value proposition and business plan.
Beware of the Pump and Dump
Scammers have freshened up this old stock market trick for the cryptocurrency world. In a pump-and-dump ploy, the owners of a particular cryptocurrency to work together to promote it and artificially drive up the price. Once they get enough buyers invested to raise the price, they dump their holdings. The price falls, and, in essence, the new buyers paid for their excess profits. Make certain your research comes from reliable, unbiased sources.
Invest Within Your Means
Big reward means big risk. Despite all the press around people who have amassed fortunes in cryptocurrency, there are countless others who have lost money or fallen victim to a pump and dump. When you play with money you can afford to lose entirely, you won’t feel bad if the market turns against you. Indebting yourself or using the money you need to finance cryptocurrency investing is dangerous and foolhardy.