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Buying crypto tokens has become very easy. A simple credit card purchase can set you up with immediate exposure. But investing successfully remains difficult. Before you attempt to find your fortune through trading, read about the five things to look out for when investing in crypto tokens.
Cryptocurrencies are one of the most lucrative asset classes in the world at the moment. Big tokens like Bitcoin and Ethereum have been around for less than two decades and increased their value by more than 350,000%.
However, cryptocurrencies can be just as risky as they are profitable. Investors have lost their life savings speculating on blockchain tokens, and newcomers should proceed with caution when investing.
These are the top things you should consider before investing in crypto tokens:
- Is it a project?
- Tokens require community
- Past and current performance
- Be cautious but decisive
Always remember that not all tokens have the same function. Some are made for gaming and some are great for staking. Others are a relatively stable stores of value while a lot of them are just scams.
1. Is it a project?
When you’re exploring cryptocurrencies to invest in, always remember that the best ones are those that have utility beyond pure speculation. When you’re in your discovery phase, find tokens that are attached to sustainable projects with long-term goals.
Has the token project introduced new functions? Or is the development team using older tech in a better way, perhaps as the foundation for a new way of doing things? You also want to make sure the project’s applications are practical, achievable, and exhaustively explored in their whitepaper.
Ultimately, it’s important to invest in projects that aim to develop an actual project. Learn about the token economy and the creators’ background. Find out if seasoned cryptos whales are involved and if there’s funding in place so the team can fulfil its mission.
These are important factors you need to know about before diving headfirst into a new project and buying up their token.
2. Tokens require community
Consult the top online crypto communities and see what people think about the token you are interested in. Start with forums, like Reddit and Discord. And check social media as well. Both LinkedIn and Twitter can be good sources of information.
Use these resources to see what experienced traders, investors, and developers are saying about the coin. You should find answers to questions that whitepapers and press releases do not address.
It’s important to recognize that no project can thrive when it’s made up only of shillers. Within any community there needs to be developers, content creators, fan websites, and people providing perspective and analysis.
When these ingredients combine, there’s a potential for a token to succeed. No crypto token can find long-term success based on people asking ‘when moon?’
You want to make sure you investigate the developers before investing in a project. Research the people behind the developments, check for developer activity, and development roadmaps. Leave no stone unturned, and make sure to consult all their social media, Github and Codebase contributions, and past projects.
If the developers behind a token are anonymous, tread with extra caution. There are limited ways of tracking them and holding them to account. And there will be no way of getting your money back in the case of a rug pull.
This doesn’t mean that every anonymous project will fail, but when you’re investing serious money, you also need a minimum level of security.
4. Past and current performance
Most experienced traders don’t recommend buying into a coin dip for obvious reasons. The dip won’t matter as much in the long run if the asset is going to perform.
After researching the coin online, hop onto your preferred exchange and see how well it’s doing. Look at the market cap, trading volume, the overall trend, and market history, if the coin has been in circulation for a few years.
You want to look for a high market cap with more tokens to come, an uptrend, and decent volume to push activity. If you find all these, you could shortlist the coin for long-term investment.
5. Be cautious but decisive
Once you’ve done your due diligence, you should be set to invest. However, note that investing in cryptocurrencies carries a certain risk regardless of how impressive and unique it might look.
The crypto markets are strongly driven by market sentiment alongside fundamental analysis. We recommend not tying all of your assets up in a single token.
Keep a wide spread across multiple interesting coins, and buy to hold and not to swap all the time. Finally, if something is too good to be true, in the world of cryptocurrencies, it often is.
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