Replicating the stunning success of early crypto investors is not easy, but not impossible. New coins enter the market almost daily, and some of them bring impressive profits. Cryptocurrencies, due to their youth, are classified as high-risk assets. When it comes to very young projects, they can perhaps be conditionally called ultra-high-risk. The probability of losing money greatly exceeds the probability of making money, since not every project will be able to survive in a highly competitive environment.
Despite the complex technical descriptions of cryptocurrencies, each of them is a product created with specific goals. For example, Bitcoin serves only as a means of payment, while Ethereum is nothing more than a utility token for performing actions on the blockchain. Of course, there are exceptions, like a few meme-coins that were created without any purpose, but somehow miraculously survived and are gradually gaining potential utility. Converting DOGE to BTC is quite possible so far.
Since the crypto market is still in its Wild West state, scammers are working tirelessly. Some assets are created solely to implement a well-known scheme known as “rugpull”. Developers actively promote their coin, sell it, and then withdraw funds from all platforms and failed investors are left with nothing. How to recognize them?
Use cases
Ether (ETH), an Ethereum token, is used as “gas” to pay for the energy costs required to confirm a transaction on the Ethereum blockchain. This makes ETH an example of a use case that could attract users to buy this cryptocurrency. Ethereum is built for scalability and future development. Many decentralized financial applications are already running on its blockchain, and many more are in development.
The use of Ethereum, the global virtual machine that powers DeFi and Web 3, continues to grow. New utility tokens are released daily to run on the Ethereum virtual machine (EVM).
Unlike Ethereum, Bitcoin was only created as an alternative means of payment. It became more valuable to investors when cryptocurrency prices began to rise on exchanges and gradually turned into an investment asset.
The more use cases a new cryptocurrency has and the blockchain it is backed by, the more likely it is to last long enough to grow. However, this is not always the case, as in the case of the Shiba Inu (SHIB). Its value skyrocketed in 2021 due to interest from retail investors, but it has no real use cases. It’s just a meme-cryptocurrency created to exist, but nevertheless, it is still in the top 20 cryptocurrencies by market capitalization.
The lack of clear use cases and a clearly articulated project goal is a serious reason to pass it by.
Liquidity
Cryptocurrency must have liquidity, that is, sufficient trading volume so that you can quickly sell it if necessary. If you spot a cryptocurrency with no trading volume, it’s worth waiting and seeing if it develops. If other investors are not interested in a new cryptocurrency, it is better not to mess with it.
Asset value
It is also important to determine the value of the coin that it has or may have. If a coin has value for you, then it is likely that it will have value for others. Such value may not be monetary, for example, it may be an NFT that will help you express your personality or preserve memories.
Some artists, musicians, and songwriters create NFTs from their creations. This is a convenient way to monetize your creativity. By purchasing such a token, fans directly support the author of the content and receive ownership of the coin or other rights stipulated in the smart contract.
Approach new coin projects with caution
Cryptocurrencies have matured and established themselves as a viable asset class for investment. However, despite the availability of operations like swap ETH to ADA, the universe of investment cryptocurrencies is still far behind the realm of traditional finance.
If you are interested in investing in a digital asset, you should do your own research. It will not be superfluous to consult with a specialist who will help you decide on the feasibility of investing and help you plan investments.