Investing in cryptocurrencies: What you should do before putting your funds

A whitepaper provides information on the purpose of a cryptocurrency and how the project works.

Cryptocurrencies can be tokens or coins and have different use cases.

It is better to invest in cryptocurrencies which have high market capitalization.

The capability of a team determines the success of cryptocurrency and the related project.


Cryptocurrencies provide many opportunities for people to invest their funds. Oftentimes, people get high returns within short periods for investing in cryptocurrencies. Sadly, some investors lose much of their money from such investments as a result of scams and projects that fail. Although there is no sure way to avoid risks in the crypto sector, people can safeguard their investments through carrying out thorough research. This article covers the information which a potential investor should get before investing in any cryptocurrency.


Understand the whitepaper

---

A whitepaper is a document which investors should understand since it contains vital information on the purpose of the cryptocurrency and the technology of the project. Also, it is the whitepaper which helps to differentiate one cryptocurrency from other coins and tokens. Most whitepapers discuss the problems each crypto project aims to solve and how it works.

The whitepaper also contains information on the use cases of a specific cryptocurrency. In this regard, a cryptocurrency which helps to solve major problems creates value for the people, thereby getting support from many investors and the global community. As such, as an investor, analyze the whitepaper, noting the data, projections and the roadmap it contains.


Problem the cryptocurrency intends to solve

---

It is important to identify the problem which the cryptocurrency intends to solve. The type of a problem which a coin solves determines its value on the market. As an instance, a cryptocurrency which solves a unique and pressing problem which affects the world tends to have a more stable value and high return on investment. You can easily identify the problem the token aims to solve through reading its whitepaper and analyzing its website and other published material.

For example, you can get more information about the Gate Token (GT) by visiting the Gate.io website, where you find various articles explaining its function. As a fact, holders of the Gate Token get trading discounts which increases the profit of traders.


However, it is important to note that there are some valuable cryptocurrencies which do not have specific problems to solve. For example, bitcoin is not earmarked to solve a particular problem. Instead it was developed to become a medium of exchange.


Types of cryptocurrencies

---

Before you invest in any cryptocurrency understand what type of coin or token it is. The two broad types of cryptocurrencies are coins and tokens. Coins are cryptocurrencies which are native to blockchain networks and have monetary or transactional values. On the other hand, tokens are mainly linked to securities and utilities.

Normally, the return on investment depends on the type of cryptocurrency you invest in. For example, utility tokens often maintain high values and have high return on investment. Simply defined, a utility token is a cryptocurrency which is native to a blockchain and used to fund the development of the project as well as being a medium of exchange within the specific crypto ecosystem.
Once again, the whitepaper clearly tells the type of cryptocurrency it has. If it is a utility token the whitepaper or the website stipulates its uses and the investment opportunities it has.


Circulating supply and trading volume

---

It is important to know the circulating supply and trading volume of a cryptocurrency. Both give an indication of the potential of the token or coin. The circulating supply of a cryptocurrency is the quantity of the token or coin which is available to the public.
When a project mints some cryptocurrency it allows a certain percentage to circulate among investors and the users. Therefore, the circulating supply of a cryptocurrency is usually less than the total supply. Knowing the circulating supply and the price of the cryptocurrency helps the investor to evaluate the potential future value of the token or coin.

The investor should also identify the trading volume of a cryptocurrency he/she intends to invest in. The trading volume refers to the number of times a cryptocurrency changes hands within a given period. A high trading volume denotes that many people have confidence in the cryptocurrency. Therefore, it is wise to invest in a coin or token which has a high trading volume.

There are several sites where investors check the trading volume and circulating supply of a cryptocurrency. CoinGecko and CoinMarketCap are two well-known sites where a potential investor should check the trading volume of a certain cryptocurrency. An individual investor can also check these statistics on leading cryptocurrency exchanges such as Gate.io.


Market capitalization

---

The market capitalization of a cryptocurrency is a good metric to gauge its investment potential. We obtain the market capitalization by multiplying the circulating tokens by the price. People often prefer to invest in a cryptocurrency with a higher market capitalization than the one with a lower capitalization.

It is not difficult to find the market capitalization of the mainstream cryptocurrencies. You simply go to CoinMarketCap or CoinGecko and search for the value of the cryptocurrency of your choice. On such sites the cryptocurrencies are ranked according to the market capitalization. For example, you can find the market cap of Gate Token by visiting CoinMarketCap. Notably, the value of the market capitalization fluctuates in relation to changes in its price.

Therefore, a big market capitalization shows that a cryptocurrency is more established than others. For that reason; an investor would better invest in a cryptocurrency with a higher market capitalization than a token or coin with a smaller one.


Team

---

The other important thing to check is the team behind the project. You have to establish the people who own or run the project or the cryptocurrency. The rule is to choose a cryptocurrency which has a reliable team, composed of individuals with traceable records in the crypto space. You can check the social media profiles of the team members. By doing this, you can tell their qualifications, reputation and previous projects, among others.

The major aim of this assessment is to ensure that you invest in a project backed by a team with the potential to deliver what they promise.


Exchanges the cryptocurrency is listed on

---

It is best to invest in a cryptocurrency listed on top exchanges such as Gate.io. This is because the leading exchanges do not just list coins without assessing their potential, security and the integrity of the projects that develop them. It is also important to note that centralized exchanges like Gate.io are more secure and dependable than decentralized ones.

However, you cannot choose to invest in a cryptocurrency because it is listed on a centralized exchange. You need to carry out your own research to prove that it meets different standards, some of which we have discussed above.


How to research

---

The different aspects we have discussed above show the need for an individual investor to carry out a thorough research before investing in a cryptocurrency. Carrying out research is essential as it enables you to find out the different opinions and facts pertaining to a cryptocurrency.
Social media platforms such as YouTube, Twitter, Facebook and Reddit contain much information on trending cryptocurrencies. You can also get more information about certain cryptocurrencies on specialized forums such as Bitcointalk and Subreddits. Every investor should visit these platforms and get detailed information on the best cryptocurrencies to invest in.

Apart from these, you can also talk to crypto analysts and experts to get their opinions on the cryptocurrencies you wish to invest in.


Conclusion

---

In a nutshell, there are over 8 000 cryptocurrencies which offer different investment opportunities. Despite the fact that some of these opportunities are genuine there are some scammers who lure people to invest in their fake projects. Therefore, before investing in a cryptocurrency an individual should carry out diligent research through reading the whitepapers, analyzing the website and getting additional information from data aggregators and analysts. Social media platforms such as Facebook and Twitter are valuable sources of information. Only after thorough research should someone invest in a cryptocurrency.




Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.