Coinmarketcap currently lists over 2,000 coins. That's a lot of coins!
So you may wonder, how do you decide which ones to invest in?
For starters, at least 95% percent of the coins will turn out to be failures, or even outright scams.
You may remember what happened when the dot com bubble burst in the early 2000's. Many companies were sitting on domains with no real world usability and no revenue, yet people were investing thousands, even millions, of dollars in them. So unsurprisingly, "companies" like Pets Dot Com totally flopped.
So the important thing to do when you decide to invest is perform an analysis before you invest.
There are two types of analysis that you should know:
- Fundamental analysis
This is where you look at the fundamentals of a company, including its revenue, usability, leadership, etc.
- Technical analysis
This is where you look at how the company is trading, and determine how to buy and sell it in the future based on what certain trading patterns tell you.
So let's take a brief look at how to apply fundamental analysis to cryptocurrency:
First, revenue...
We determine if the coin have real world traction or not. So far, two of six coins in my portfolio, Basic Attention token and Dent token, have millions of users -- that's more than any other cryptocurrency! I've already started using some of the features associated with Basic Attention token myself.
Second, leadership...
We look at who is behind the projects we are investing in.
Basic Attention token, which I just mentioned, was founded by the guy who invested Java Script, the computer coding language that allows websites to appear the way the do. Additionally, he founded Firefox, the most popular internet browser, behind Google Chrome. There's simply no more credibility than this.
And how about Elastos. This project was founded by Rong Chen 18 years ago after he left his job at Microsoft to begin working on it. Bitcoin itself is only 10 years old.
And third, perhaps most importantly, we look at the usability of the coin...
In order for a blockchain project project to be truly successful in the long run and actually gain large adoption as a global currency, it needs to fulfill these six criteria:
Near infinite scalability
Near infinite decentralization
Low energy usage
Near instant transactions
Permissionlessness and trustlessness
Zero Fees
I would have to go into this in a little more detail later, but suffice to say, we should only focus on blockchain projects that adhere to that.
I'll talk more about technical analysis another time.