Choosing a CryptoCurrency
- Mar 18, 2022
- 7 min read
Updated: Mar 20, 2022
Learning Outcomes
How to decide which coin out of the thousands available to buy. This is not a question I can answer. It is your choice what you buy. I cannot be giving financial advice, in-fact no one can so I must make it very clear this is NOT Financial advice and you should do your own research before buying. However, what I can do is give some tips on what to check for when a coin has caught your eye or someone has mentioned it to you.
How do you research a coin?
What should I be checking before I buy something?
If you have seen something on the internet or a friend has mentioned to you a new coin or token, before you rush out and buy some you should do some due diligence before as a lot of new coins turn out to be scams with lots of wild claims of high returns.
Firstly try and find the coin on the website https://coinmarketcap.com
CoinMarketCap is a great source of information that lists all the popular currencies and tokens that are available on many exchanges worldwide.
Search for the coin / token to see if it is listed, if not then it's not popular enough to have made it on this list, maybe one to avoid, it's your choice.
If the currency does exist, look into its past market history and the exchanges that support the coin / token.
Is there much liquidity in the market?
What's the market cap which is the total value of all coins in existence?
Does the coin have any wallets that support it for storage?
To learn more about the coin and its purpose you can find the coins website and read the white paper. This is a document that all coin producers have to prepare to give potential investors insight into what the coin is about and what problem it is solving.
You should get in the habit of finding the white paper and read it a few times, at first you won't understand it but read it a few times anyway to try and get used to the language used in the paper.
As an example let's look at bitcoin, which is probably why your here. You can find bitcoin by clicking this link: https://coinmarketcap.com/currencies/bitcoin/
At the time this post was created bitcoin is doing much better than a previous post of mine that I wrote a few years ago.
We have a section that will display the white paper, which is a great start. However that particular document is a little elusive as it was written in 2008, I will find a link and post it for future reference.
You also have the website for bitcoin, the explorers for checking wallet balances and incoming transactions. You can even take a look at the source code in github which you may do in the future.
The main interest is the price, and what the market cap is. The price is high which is great if you bought when it was low. Also the market cap value is over 800 trillion dollars which is also very high.
When I look at a new coin, I check the price, the market cap and then I took at the historic performance of the coin, see below.
This is the last 24 hour performance, not much to see as it is only 24 hours. The price on the left is about $1k difference. The looks worse than it actually is, so check the price on the left to get the scale of the chart before make any decisions.
Using the buttons at the top right, we look at a longer period of time to see what has been going on.
Past 7 Days:
Low of $37600k and a High of around $42k
The constant increase in price suggest we are in a bull market, if the price was going down we would call that a bear market.
The bull symbolizes an animal, a bull running wild charging upward knocking the bears out the park increasing the price as it charges forward.
The bears also symbolizes an animal, a bear rising up and stomping down with all its weight on the bulls slowing them down and stopping the price increasing causing it drop.
Hence the term bulls and bears.
The last month paints a different picture:
We see a mixture of bearish, sideways action when neither bullish or bearing is taking hold and bullish in the middle but is short lived.
The three month chart
With a high of $52k and low of around $34k this a bearish chart during that time frame.
Next we will look at the past year
This is a mixture of bearish for many months then bullish and the bearish again.
As a trader you would have wanted to buy as low as possible and sell as high as possible, that is as much I am going to say on that. It is your choice when to buy and when to sell.
I will teach you want to need to do when you decide at what price to execute the order. But that's for another day, this is about deciding if a coin or token is worth investing in.
Now we have the year to date chart
And finally the All chart
Back in the 2014 bitcoin was around $145, for many years it did very little, then spiked in 2018 to $20k, again in 2021 to $60k and $65k later in the year settling at $42k in 2022.
It has come a long way from its humble beginnings back in 2009 when the first genesis block was mined releasing 50 bitcoins to the miner who solved the block puzzle.
Some trivia for you, back in the early days of bitcoin when a coin was worth less than a cent. A chap posted on a forum saying he would pay someone 10,000 bitcoin in exchange for two pizza. Someone took him up on the offer and ordered two pizza that cost around $34 in exchange he was paid 10,000 bitcoin. That was first recorded time bitcoin was used to purchase something.
Looking at the price, market cap and price history on the charts you get a sense of how the coin is doing and if you personally think it will do better. What price should you wait for to be comfortable to buy, how long you expect to wait to get a good return on what you have bought.
As the price is so high buying a single coin is out of reach of many people, instead you can by a fraction of a bitcoin, they are called Satoshi. Named after to founder of bitcoin Satoshi Nakamoto.
A bitcoin is made up of 1,0000,0000 satoshi like a pound or dollar is made up from 100 pennies or cents.
If you wanted to buy $100 of bitcoin the calculation would be
100 / 41338 (Your funds / Price of bitcoin)
The amount of bitcoin is written to eight decimal places as is all crypto-currency.
BTC 0.00241908 * $41338 = $99.99
When you have decided to buy, you want to know which exchanges support the coin, to find out click the Markets button.
This will list the many exchanges that support the coin, along with the currency pair. This is the currency you use to buy bitcoin with.
Our example above calculated the purchase in dollars but, you could buy bitcoin with another cryto-currency.
In the list above you have ETH and KRW so your not limited to buying with dollars you can use your cryptocurrency to buy other cryptocurrency.
When looking at the Markets page, you're looking for a high volume value, and a high Confidence rating against the exchange this is listing the same pair that you want to trade with.
Typically you will trade with dollars and then progress to crypto.
It's really your choice what you want to do and when you do it.
Finally, the other screen you want to look at is wallets
This tells you were you can store the cryptocurrency you’re planning to buy, here we see the popular hardward wallets Ledger and Trezor and Trust Wallet for mobile devices and many others.
If you don't already have an account with the exchange, go ahead and register, use the check list below.
New gmail account
Secure 15 character password for gmail account
Register exchange with gmail account
Secure 15 character password for exchange account
KYC know your customer. Passport, Driving license and utility bill
2FA mobile device
SMS Security
Email confirmation
KYC
Know Your Customer, by law exchanges have to collect information about who is using their services. This is common practice now and should not be a concern. Some exchanges require this to get access, others require when you want to go over a certain threshold
2FA
This means 2 factor authentication, which means the second line of defense to secure your account. The first is the account password, the 2nd is the six digit number that is produced on the authentication application.
SMS Security
The exchange will send your mobile phone a code which you need to enter into the site when performing certain operations on your account such as withdrawal of funds.
Email Confirmation
The exchange will send your email a code which you need to enter into the site when performing certain operations on your account such as withdrawal of funds.
This will give you four layers of protection for your accounts to help prevent unauthorized access.
Summary
I have tried to give you a feel for how I review a coin and which steps I take to put my trust in a project and invest in their token. What I don't say is give any guidance on what price to buy and sell at you need to decide that for yourself.
Pick a coin you're interested in
Check if it is on CoinMarketCap
Look at the current price and market cap of the coin
Check the many time periods to check how the coin has performed historically
Download and read the white paper to understand the project and the problem the coin tries to solve, are you in support of that.
Does the coin have a supported wallet to store them
I am planning some detailed blogs on the practical side so please look out for those in the future.
If you can't wait please get in touch with any questions you may have.
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