Cryptocurrencies have proven beyond doubt that they can be great investment options. Since the boom of bitcoin back in 2017, cryptocurrencies have become better than stocks and gold. But there is a problem, with over 1,500 digital assets listed on the market, how do you sort the best? How do you tell the good from the bad? This is fundamental since even though some cryptocurrencies have been performing well, some have started high and gone right to the floor.
Sorting out the over 1,000 coins is no easy task. An investor cannot possibly go through all of them, following through on their projects, the development team, and the likes.
Luckily, there are four indicators that always help determine where a cryptocurrency is heading. These indicators are; Total supply, Circulating supply, Coin price, and Market capitalization. These four indicators will help you better understand a cryptocurrency and better you as a trader.
Total Supply Of A Coin
So, why is knowing the total supply of a coin important? The supply of a coin, which is simply the number of coins circulating, the coins that will be released (through mining or held by founders) and the coins held by investors. The rule has always been, the higher the supply, the lower the price. If the developers of the coin have released, or at least intend to release a huge supply, then prices will drag down due to low demand. However, although this is the norm, some outside factors will sometimes affect the price regardless of the supply of the coin.
Some factors that usually affect the total supply of a coin include; coins withheld by the founders, mining rate (faster mining means more cryptocurrency on the market) and company lock up (cryptocurrency held by the company rather than individuals).
This is the number of coins that are being traded right now. This information is usually on the crypto market Coinmarket.com and is easy to source. Why is this relevant? This will help you determine the demand for a particular coin because the circulating supply is the value that’s used to calculate the price of a coin. The rule here is; the lower the circulating supply, the higher the price. A great example here is Ripple, the supply for this coin is in billions and in turn, the coin price goes for cents. Zcash, on the other hand, has just a supply of a million but goes for hundreds in price.
The only way the circulating supply changes is if new coins are mined or founders release coins or company lock up coins are released. Coins like Binance coin are usually every quarter burnt by the founders which also affects the price, as the supply keeps on going lower.
This is the value the coin holds on the market currently. This is also a great indicator and it is mostly because the price is determined by circulating supply and demand. This means if the circulating supply decreases, prices will rise. If the supply goes higher, for example, if founders release coins (luckily these coins are locked up on a smart contract and are scheduled when to be released), the price goes down.
Market demand is hard to grasp since it is often a result of outside factors. This may include; regulations, new projects, and partnerships. Demand is as a result of people wanting to pay higher for a coin but the supply is low. This usually leads to a price hike because everyone wants the coin but the supply isn’t there. The rule here is; the higher the demand, the higher the prices.
To understand the price, you also have to understand factors such as price corrections and the psychology of coin price. For example, with price corrections, after an ICO, if investors who bought a huge supply of tokens are likely to flood the market with the coins once prices go up.
Market Cap; The Best For Last
This is the easiest and most important factor in understanding a coin and predicting its price change. Market Cap is simply the value of all altcoins in the market right now. Although the data is already documented, it can be easily calculated by multiplying the circulating supply by the price. The answer here directs speaks to your ROI (Return On Investment). The rule is; the higher the market capitalization, the less likely for prices to go higher and the lower the market capitalization the higher the likely hood for prices to increase.
Market capitalizations can also help you gauge ICOs to invest into. For this, it is always advisable to invest in an ICO with a low market cap than with a high market cap. However, a certain low is not good at all. Sometimes the market cap is so low that it indicates that no investor wants anything to do with it regardless of the price.
A Little More Research Wouldn’t Hurt.
All these indicators will always point you in the right directions but before making a final decision it always helps to learn a little bit more about the coin. You can look at the history of the coin, the project behind it and the team leading the coin.