How to Evaluate Cryptocurrency? 10 simple ways to analyze
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How to Evaluate Cryptocurrency? 10 simple ways to analyze

written by John Murphy | November 25, 2022

Crypto-curious investors have changed the face of traditional financial systems and the cryptocurrency market over the past few years. For many investors, Bitcoin and Ethereum are the starting points, but the crypto metaverse has expended thousands of coins, thus posing queries such as how to evaluate Cryptocurrency?

Investors who plan to diversify their portfolio want to know that is Cryptocurrency, the future of finance? Furthermore, the deeper you enter the crypto foray, the higher the risk—thanks to tools that help investors make intelligent decisions about their investments.

Additionally, understanding market trends through qualitative and quantitative factors will lead to higher returns instead of investing blindfold. 

Although there is no universal method for evaluating cryptocurrency, one should not turn the face away from doing thorough homework.

Here is a rundown of how to evaluate cryptocurrency for short and long-term returns

  • Check the project’s website. 

Any cryptocurrency with the potential to seek your attention and time should have a website. Having a website is an easy task nowadays, and any business that is serious about its business will have a compelling, updated, informative, and engaging website.

Furthermore, you can check for the below details on a cryptocurrency’s website.

  • User-friendly and updated
  • Clean and error-free information
  • Discloses partnerships and team members
  • Clearly defines the coin’s objective
  • Offers a white paper
  • Read the White Paper

A white paper outlines the project’s objective and is an essential tool for evaluating a cryptocurrency’s worth. Further, it is a document that outlines the strategies and goals of Cryptocurrency. Moreover, it outlines the future roadmap, which generally becomes one of the earliest things prospective investors must read.

In addition, white paper contains tokenmics of a coin that include below information:

  • Distribution methodology of the coins
  • Supply limits
  • Token burning details
  • Minting details
  • Goals of the coin

However, a few white papers may seem too technical; you need to worry about those details and only focus on the points mentioned earlier.

Contrarily, not having a white paper is a major red flag, and a trustworthy white paper bear correct spelling and grammar.

  • Analyze the project’s team

The success of any project, including cryptocurrency, depends on the people behind the idea. Many crypto coins have experienced team members who have already launched other similar projects.

Further, you need to check the team’s experience with similar ventures, reputation, leadership, and technical knowledge about the crypto ecosystem. A team with prior successful launches is a positive sign; however, a new group may need help to achieve its goals.

In addition to the team’s profile, look at the partnership details. Such information is generally available on the landing page of the project’s website. If the project has partnered with giant fintech companies like Google, Amazon, IBM, or Vis, it will likely reach its potential.

  • Scrutinize social media channels

Social media platforms provide keen insights into the crypto project. A serious project will have Facebook, Twitter, Instagram, or Reddit channels, usually live and regularly updated.

You can grab a sense of the seriousness of the founders by taking note of the below details from their social channels:

  • The number of followers
  • Promotions activities and news 
  • Moderators are actively responding to queries 
  • Read the moderator’s replies to check their knowledge about the project
  • Look for potential scamming pages and posts 

Second, run a general search on social media platforms about the project; you will get to know from a number of mentions and discussions how popular the project is among the masses. Similarly, positive statements mean the project is in safe hands; however, on the flip side, avoid investing if people have negative feelings.

  • Study price history

You should always seek the historical price of a cryptocurrency, as it is a good indicator of the stability of a coin. Since the crypto market is highly volatile, it is somewhat normal to see fluctuations in price; however, examine the gradual price increase.

Additionally, observing prices over different times can provide a calculated answer to the query of how to evaluate cryptocurrency. Moreover, price trends can depict a crypto’s short-term and long-term return potential.

Avoid investing in coins that have highs followed by sudden drops as it depicts either a pump-and-dump scenario.

  • Determine utility

The utility is another critical element for evaluating a cryptocurrency. Many objectives develop to solve an existing problem in the crypto ecosystem and are usually destined for success.  

Others include objective purpose coins, for instance, BAT, used by advertisers to pay for running ads on the Brave browser. Conversely, few coins only exist for a joke, like the meme coins which get hype from social media

  • Evaluate market metrics

There are three central market metrics pillars, and studying these sets apart a novice investor from a seasoned one.

  • Market Capitalization

Market capitalization is the price of cryptocurrency multiply the number of coins in circulation. Generally, a cryptocurrency with a higher market cap is safe for investment. However, this is only one of the factors, as even high market-capitalized coins can become risky. 

  • Trading volume

It shows how much the cryptocurrency has traded in a particular time frame. A high trading volume is usually a good sign because investors buy and sell cryptocurrency. In contrast, low trading volume signifies low faith, which can lead you poor liquidity and frequent price swings.

  • Supply metrics

Most cryptos have max supply, which means the maximum number of tokens that will ever exist. A few cryptos, like ETH, have an unlimited supply, but the majority have a limited supply. 

Supply suggests the circulation of coins; supply metric indicates whether there are chances of scarcity. Understanding the difference between maximum, circulating, and total supply will help with better buying decisions.

Frequently Asked Questions

How do I value cryptocurrency?

Multiple factors determine the actual evaluation of a cryptocurrency; however, the best indicator is market capitalization. You can get it by multiplying the price by the number of coins in circulation. A currency with high capitalization is better than a lower one.

Is it essential to evaluate cryptocurrency before investing?

For better long-term returns, considering cryptocurrency is a crucial element. As otherwise, you may end up losing your entire investment.

What are the critical factors of cryptocurrency evaluation?

The following are points for evaluation with cryptocurrency:

  • Market cap
  • The team behind the project
  • The Community
  • Utility
  • White paper and website
  • Competition 

Parting Thoughts

If your shortlisted project ticks all the points discussed in this article, you are good to move further with your investment. In addition, you now know how to evaluate cryptocurrency.

Try to avoid hearing what the social media platforms say about a particular crypto project; instead, run your evaluation to see the reality. Further, it is an added advantage to talk to some friends who are experts in the crypto ecosystem.

Understanding crypto-economics and acting accordingly will lead to better results because the sixth sense is sometimes correct. So, run a thorough qualitative and quantitative evaluation before investing in any crypto project. 

We hope this was helpful; let us know what key points you weigh the most for a crypto investment decision. Good luck!