If you want to invest in a privacy coin like Monero, for example, all you need to do is open an XMR wallet account and purchase coins from a trusted cryptocurrency exchange. You can then hold onto your coins if you prefer a more passive way of growing your wealth, but it’s also an option to get into cryptocurrency trading and play a more active role in reaching your financial goals. Regardless, you need to select your crypto assets well so that you can maximize this investment avenue’s potential for growth.
Given the volatility of this asset type and the tens of thousands of different digital coins in the market today, how can you assess and keep track of the growth potential of the coins that you’re planning to invest in? Here are a few tips for doing just that:
Read about the Community Behind It
A digital coin’s longevity is largely dependent on the community rallying behind it. If there’s a strong community of users who find the coin’s inherent qualities and direction of development useful and aligned with their needs and goals, then there’s a good chance that it will continue to be used in the coming years.
If not, then it’s highly likely that the currency will slowly fade away and your investment in it will be for nothing in the long run. Many long-lasting cryptocurrencies like Ethereum and Monero are backed by large groups of active developers, but newcomers such as Polkadot can also have a great deal of support from users and developers alike.
Check and Track the Price of the Coin
The current market price of the currency you’re planning to invest in can also give you important clues about its continued use. If a coin has enjoyed a long period of somewhat stable price ranges, then it’s a possible sign that people are keen on owning the said currency for investment or using it as a means of purchasing goods and services.
This, in turn, can indicate that the coin has a good chance of growing in value for some time. However, don’t be quick to dismiss coins with lower value, as these can still help if you aim to diversify your portfolio and perhaps even get a decent amount of profits in the long run.
See If There Are Adoption Prospects
A digital currency that’s slated to be adopted by a country, a cryptocurrency exchange, or a group of businesses that are expanding the payment options they offer their customers is also deemed to be a good investment.
Being adopted by a community can significantly increase the number of users who participate in the exchange of the said digital coin, and this can drive up its price as a result. If you add an up-and-coming cryptocurrency to your portfolio before the news about its adoption blows up, then you have a good chance of making a decent profit from your initial investment.
Research the Coin’s Maximum Supply
Many cryptocurrencies have a predetermined maximum number of units. Bitcoin, for example, has a fixed maximum supply of 21 million, a number that it’s expected to reach by 2140. Once this happens, no new coins will be minted again.
This means that the people who mine the said coin will only be able to get rewards by processing transactions. Once a currency reaches this point, there’s a chance that its price will rise significantly. As such, it’s worth looking at whether or not the coin you are interested in is nearing its predetermined maximum number of units. This can help you time your purchase and quickly maximize the profits from your investment.
Determine the Currency’s Trading Volume
A cryptocurrency’s trading volume indicates the level of ease one can enjoy when buying or selling a coin. A consistently high trading volume can indicate that users of the coin enjoy better liquidity and can easily exchange the units they own for another cryptocurrency or even fiat money.
On the other hand, a low trading volume can indicate that a coin has a small number of users or offers very little real-world use case. It wouldn’t make sense to put money on a dead or dying coin. At the same time, though, remember that trading volume can be spoofed in unregulated or decentralized markets.
Some people can create artificial demand by buying and selling orders to make it seem like a currency is being actively used by many. Be wary of this type of market manipulation before you make any commitments toward a particular coin.
Despite its inherent volatility, cryptocurrency is now considered to be a sound addition to a diversified asset portfolio. According to experts, it’s safe to allocate between 2 and 6 percent of your portfolio to cryptocurrencies.
This portion is enough to shield the value of your portfolio from possible digital coin crashes while giving you a good chance to earn a decent profit in case you plan to hold onto your cryptocurrencies for a few months or years.
Regardless, it’s still a good idea to carefully study the coins that you’ll add to your portfolio. This way, you can maximize your chances of growing your wealth while dabbling in volatile assets.