Bitcoin inspired the creation of a plethora of altcoins, most of which use its blockchain technology. Some of these altcoins have pretty powerful technologies with real-life applications in the financial industry. There are also others that are not well laid out and, therefore, have a small user base with no hopes of ever seeing mainstream adoption.
So, given the wide selection of altcoins to choose from, it can get overwhelming if you are looking for a digital asset to invest in but don’t know exactly what to look for. The cryptocurrency market is also laden with scammers, and it can be easy to put your money in the wrong coin.
Investors dream of owning Cryptocurrencies that will make them rich—Altcoins with game-changing technology. But choosing and holding on to those Altcoins is no easy feat.
For that reason, we prepared this guide to help you learn how to choose winning altcoins by looking at distinct factors that define profitable coins.
Let’s dive right in.
How to Choose Winning Altcoins
All altcoins are not the same. If you are looking to invest but don’t know where to put your money, we are going to show you how to separate winners from losers.
Choosing the right altcoin might seem like a daunting task, but when you know the factors to look out for, it gets easy. These factors include:
- Underlying technology
- Provider of the altcoin
- Daily trade volumes
1. Conduct Independent Research
There are many consultants you can talk with, including the company itself. Some of these consultants will lure you with their marketing tactics but do not really have groundbreaking research or data.
So, instead of wasting your money on flimsy or biased company research, why not do it independently? A good place to start would be the historical charts. By looking at the history of the coin, you get a good idea of how it has performed over time. A troubled past might be a recipe for a tidal future, especially if the coin takes long to recover.
While looking at these charts, pay close attention to the market cap and circulation. The price is also important, but it is not a deal-breaker in most cases. In particular, stay clear of altcoins that have had huge drops in market caps because it means demand is waning.
There is a lot you need to do during the research phase. We discuss some things to focus on during your research in the following sections.
2. Consider the Underlying Technology
Most of the coins that came after Bitcoin lack originality. Instead of bringing a different or better solution to the table, these coins merely replicated what Bitcoin was already doing. As a result, they end up being mostly unnoticed by a small community.
However, there were altcoins that looked at things from a different perspective and saw a few things that Bitcoin was not doing. They then capitalized on these caps and created different cryptocurrencies that solved problems that Bitcoin was not solving.
For instance, instead of merely being another coin trying to supplant fiat money and put banks out of business, Ethereum founders decided to do things differently. They created a technology that would make existing financial resources stronger and better instead of replacing them. Unlike Bitcoin, Ethereum also allowed other coins to be built on its core technology.
This makes it not only makes it an alluring altcoin but also an important enabler of decentralized finance.
So, when choosing a winning altcoin, you need to focus more on the real-life practicability of its underlying technology. What existing financial problems is it trying to solve? How likely will this technology be assimilated into the financial market?
If you don’t think an altcoin has the potential to disrupt the financial industry, stay clear of it. Most of these weak coins can’t survive crashes, and it is very risky to invest them. For instance, the early 2018 market crash drowned a lot of wannabe coins because they were not underpinned by strong technologies.
3. Consider the Team Behind the Altcoin
A team can build or destroy any business. No matter how superior the idea or technology is, if the cryptocurrency doesn’t have a visionary team backing it, it might fail. This is because if the cryptocurrency has a strong technical team, it will be able to have a more robust solution than one that doesn’t have a clear strategy.
When looking at the team, you might want to start with the whitepaper. How impressive is it? Does it drive a hard bargain? Do you relate to the vision or what the cryptocurrency is trying to achieve?
The white part should provide a blueprint of what the crypto is trying to achieve and how it plans to do so. So, if you are really serious about choosing an altcoin, you wouldn’t want to skip the whitepaper.
After the whitepaper, you will also want to look at the founders of the altcoin of interest. These are, essentially, the backbone of altcoin and will largely inform its direction. Try to understand their individual mindsets and whether they are the right people to create a winning altcoin.
The community also is a big part of the team. Even if the executive team is strong, but the community is weak, it reflects badly on the altcoin. So, you should also consider how active the community is, especially on social media. Check media platforms such as Reddit, Facebook and GitHub and try to see how they generally feel towards the altcoin you are eyeing.
Don't Miss: 7 Altcoins To Watch This Month
4. Check Daily Trade Volumes
If only a few people are transacting with the potential altcoin, the trade volumes will be low. This means that the altcoin is either not well-known or doesn’t address a clear solution. Checking trade volumes is very easy, especially on sites such as CoinMarketCap or CoinDesk.
They represent how much has been transacted within the last 24 hours and subsequently helps you to gauge the demand for that altcoin. This should also help you understand whether an altcoin has a bright future or will merely waddle under the radar for years.
Most new traders or investors mostly mistake popularity for high trade volumes. We have seen smaller coins that have higher trade volumes than large ones. So, you will want to confirm first by monitoring trade volumes for a few days before making your decision. Don’t just bet on the coin’s popularity.
Higher trade volumes give you the assurance that there will be people to buy your coins when you need to sell them. This is because low trade volumes mean that few people are buying or selling.
5. Look out for Possible ICO Offerings
Sometimes, ICOs can present a great opportunity when looking to pick a winning altcoin. Initial Coins Offerings are a way for new cryptocurrencies to raise working capital from potential investors.
It is like the Initial Public Offering (IPO) for the stock market. In the case of an ICO, you simply bet on a cryptocurrency you think has the best chance at high usability and ROI. So, looking at the current ICOs will give you a good idea of which coins are more likely to see the light of the day.
Focus on altcoins that stand out in the market and attract a higher number of investors. These are likely the best, and while they don’t have any historical charts to look at, you can still add them to your portfolio.
You can also decide if a coin is good enough by looking at the team behind the ICO. If it is credible with a lot of experience in the crypto market, they might be up to something. Finally, you might want to actually invest in these ICOs.
Why? Well, if you are starting from the ground, an ICO would present the perfect opportunity to achieve better gains.
6. Check Lesser-known Crypto Exchanges
If you want to find new and promising coins that no one is looking at, you might want to look at lesser-known exchanges. This is because major exchanges might not list certain coins, especially if they are new.
So, if you miss out on an ICO, you can find pretty good investments from these exchanges. However, to avoid risks, ensure that the exchanges you buy from are credible and not merely scammers looking to steal your hard-earned money.
You can do this by conducting some research and also looking at the team behind the exchange to see how credible and experienced they are.
7. Spread Your Risks
When looking to invest in promising cryptocurrencies, we usually recommend that you try and spread your risks. This means investing in more than one cryptocurrency. This will not only help strengthen your portfolio but also ensure that you have something to fall back on if one or a few of the coins fail.
In particular, we recommend investing in stable currencies, which are a bit similar to fiat currencies with minimum price fluctuations.
How to Choose Winning Altcoins - Conclusion
With thousands of cryptocurrencies flooding the market, it can be difficult choosing one that is a profitable fit for your portfolio. However, if you follow the recommendations outlined in this guide, you might just get yourself a winner.
In a nutshell, we recommend that you do your own research, study both the team and the technology behind the altcoin, go through the whitepaper and make sure you understand what solution the coin in question is trying to solve, then spread your risks by investing in different stable currencies.
eToro – Best Cryptocurrency Platform
eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.