With almost 1600 altcoins currently advertised on CoinMarketCap, picking the best coins for your portfolio is challenging. There should be a tremendous amount of thought that goes into the process. While this article doesn’t aim to tell you which coins to choose, it does show you what you need to look for before investing in altcoins.

We all know knowledge is power, but it’s often easy to skip this step and simply start buying altcoins. This is even more tempting once you start reading into cryptocurrencies. There are many acronyms, many terms, and many coins in general that make it overwhelming. These are the areas you need to focus on when choosing your altcoins.

Check the Market Cap

Pay attention to the total market cap. The market cap gives you an idea of how much value the system stores. The higher the market cap, the more money invested in that system. This works in two ways. The larger a market cap is, the tendency for it is to be more stable, but the potential ROI (return on investment) might be lower than a coin with a smaller market cap.

Think about it this way: It’s easier for a coin to go from 25 million to 250 million than it is for a coin to go from 2.5 billion to 25 billion. If you’re looking for an untapped large percentage gain on your investment, then you may want to pay attention to coins with smaller market caps. However, these are substantially riskier and there is no guarantee they will take off. You can make equal or greater ROIs on established coins as well, such as Bitcoin.

You also need to look at trade volume. Trade volume lets you know how active the coin is in the market.

Finally, look at the total coin cap and the coins in circulation. This will show you its scarcity and whether or not it’s worth investing. Dogecoin has 113 Billion with the ability to mint an infinite amount. Bitcoin has a total of 17 million with a maximum of 21 million. Scarcity drives value.

Viable Solutions

It’s also important to ask, “What does your coin offer that other coins don’t already?” Merely rehashing Bitcoin or Ethereum doesn’t make a coin an attractive prospect. It needs to provide a solution to a problem. This is no different than real-world investments.

When you’re on the coin’s website, you need to feel that what their coin provides will make a difference. You need to be “Wow’d.” Not only will this make you more confident in your investment, but it will help you hold onto it during those bearish markets.

White Paper

A project’s white paper is the layout for its development. In this document, you will find out the foundation for their growth, the reasoning behind it, and their proposed solution. It will then provide technical aspects on how to make these ideas into realities.

These papers tend to be lengthy and complicated. That’s not a bad thing. The more information in them, the more credible it is. You don’t need to be a programmer to understand all the concepts involved. Know what to look for. A key strategy in understanding white papers is to read several of them. The more familiar you are with their structure and breadth, the more you’ll know what to look for when investing. Start with the more trusted coins first to get a general idea.

If you don’t see a white paper or it seems copied and pasted or it’s not thoroughly flushed out, then that’s a major red flag. A successful project will have clear goals as well as a means to go about accomplishing those. Scams and rushed concepts won’t have the development backing for clear design in most cases.

Development Team

Any reputable coin will have a solid development team behind it. Finding this information is simple. On the “About Us” portion of this website, you can locate what developers are behind the project.

Roadmap

Great ideas and a solid team can only get you so far. You need to understand what the developments for the coin look like down the road. This is what the roadmap does. It shows a clear outline of the coin’s future and it gives you something to use for accountability. A coin that regularly fails to meet its mapped-out objectives is probably not a solid investment decision.

Community

Community involvement is vital. You can save yourself a lot of time and money going through Facebook, Reddit, and Twitter and reading what people are saying about that coin. Look at how developers interact with the community as well. Do they post regularly? What are they saying? The more susceptible a community is to a potential project, the more support it will have, and the higher the chance that people will buy into it.

Don’t Reinvent the Wheel

There are successful altcoins on the market. And there are ones that have failed. Look into coins like Bitcoin, Ethereum, Zdash, Cardano, Litecoin, etc. and apply these standards. Then look at failed coins. This will provide insight into both sides of the spectrum, giving you a guideline of what to look for before you make your investment.

Understand the Risks

Investing in altcoins is risky. And with that risk comes the potential for rewards. It is entirely possible, and very likely, that you follow on all the steps here and still manage to invest in a coin that fails. That’s the nature of investing.

There are no sure bets. If a project’s development team can’t come up with a solution, if it fails to follow through on their promises, or if it falls victim to regulation, the coin can fail. Being prepared helps remove the unnecessary risks, but it doesn’t eliminate all the risks.

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About the Author

Daren is a cryptocurrency investor, miner, and blockchain developer. He researches the latest trends and technology in decentralized products and services.

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