The cryptocurrency market is volatile, and more crypto assets often appear every week. This is why research and study are so important when choosing to invest in crypto assets.
Unlike investing in fiat market stocks, investing in the cryptocurrency market does not have structured research reports that quantify profits, losses, revenues, and cash flows.
So cryptocurrency investors should tread carefully, do their research in other aspects, and be wary of what might move the market.
The most important steps to take before deciding to invest in cryptocurrency
1- Understand Tokenomics and Supply
Tokenomics means understanding the supply and demand characteristics of a cryptocurrency, which stands for the economics of tokens.
One of the reasons Bitcoin is so popular is the limited supply, with a maximum of 21 million bitcoins available, this limit means that with enough demand, the price should theoretically rise over time, so it's referred to as deflationary.
Looking at other crypto assets, we have to ask the question, does this cryptocurrency have a limited supply, or is its supply unlimited?
Some major crypto assets, such as Ethereum, Solana, Polkadot, and Dogecoin, have unlimited supply if demand lags behind supply, which will theoretically lower their prices in the long run, so they are considered inflationary.
Many cryptocurrencies are designed to have a controlled inflation rate, with Solana maintaining an inflation rate of 8%, and Polkadot by 10%.
Similarly, some cryptocurrencies - such as Ethereum - burn a portion of the fees paid to "miners", so although these cryptocurrencies are inflationary in theory, they can be non-inflationary or even deflationary in practice.
2- Look at what encryption does and who uses it?
Obviously, it is important to look at what cryptocurrency does and what platforms or applications are associated with it, are they trustworthy, and do they have the potential to succeed?
Cryptocurrencies that do not meet any of these three criteria can often rise in value, but supporting them is speculation rather than investment, and they can be highly volatile and collapse as quickly as they are rising.
It is also important to check if a crypto system or blockchain platform you belong to is actually being used. There are different ways to do this.
- Number of users
With crypto assets like Bitcoin, Litecoin, Dogecoin and Bitcoin Cash, one good indicator of usage is the number of active users, you can search for this at a site like BitInfoCharts.
Aside from users, some cryptocurrency groups are also connected to a platform - whether it's a blockchain-based video game or a crypto exchange - that has actual users, it is highly recommended to check data on the number of users, where available, to see how the platform is being used and if it is growing.
-Total reserved value
For crypto-assets containing general-purpose blockchains such as Ethereum and Solana, the “total confined value” provides key insight into their validity, and this figure measures the value of assets stored by applications running on a particular blockchain.
3- Learn more about crypto assets from trusted sources
It is not difficult to find people who have an opinion on investing and trading in cryptocurrencies, there are many competing voices, but who are those people that you can listen to and act on their opinions, and can they be trusted?
4- Follow up on technical indicators such as the RSI and moving averages
Due to the constantly changing indicator charts, relying on it too much can be risky,
however, some technical indicators may sometimes indicate a high possibility that the price of the cryptocurrency may move in a certain direction, either up or down.
One such indicator is the Relative Strength Index (RSI), which is calculated using the average price gain and loss over a specified period of time.
It is presented as a number between 0 and 100, with 0 indicating oversold and 100 indicating overbought.
Essentially, the RSI suggests a good time to buy or sell a cryptocurrency: if the number is above 70, it may not be a good time to buy.
Conversely, if the index is below 30, the asset in question will be underpriced and may be about to rise again, so it is a good time to buy.
The most watched moving average is the 200-day line, if the price of the asset is above it, the market is considered bullish, and if the price is below this line, it is considered bearish.
It may also be useful to compare the short-term average of the cryptocurrency to the long-term average.
Some investors consider it significant when the 50-day average of an asset rises above the 200-day average, this is known as a "golden cross", and may signal the start of a new rally.
5- Things to understand before buying and trading encrypted assets?
It is important to know where crypto assets are traded before you buy them, so that you have important insight into the depth and quality of the asset market.
If the cryptocurrency is traded on one of the less well-known exchanges, it may not be a safe investment with such a small market, and it is possible that one will be more susceptible to price manipulation by some traders.
Also, it is possible that the purchase of cryptocurrency through unrecognized places, it may be a fraud.
So it is better if the crypto assets are listed on a variety of well-known platforms, as this provides a greater chance of good trading in their markets as well as not being subjected to any kind of manipulation.
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