What things cryptocurrency investors need to know before investing in cryptocurrency?
Cryptocurrency is an internet-based digital currency that is used as a medium of exchange. The transaction record of each coin/token is recorded in an electronic database ledger using cryptography, a highly mathematical proven technique used to secure transaction records and keeping transparency.
The Crypto market has become a billion-dollar industry. The total market capitalization of all cryptocurrencies reached over $800 billion in January 2018 that has halved to around $445 on Nov. 10, 2020. However, daily crypto market trading volume is fluctuating between $100 billion to $200 billion.
The total market value of cryptocurrencies highlighting a keen interest of crypto enthusiasts is crazy to invest in digital assets. The promising feature of cryptocurrency is giving astronautic returns on investment. Contrary to this inspiring aspect, crypto investment is highly susceptible to volatility leading to loss of invested amount.
In this article, we should discuss the first most important thing for all crypto traders or investors (Novice or expert) to consider before they start to invest money into a virtual asset.
Constant review Coinmarket cap:
Coinmarket cap is a premier source of cryptocurrency data in the world. It gives insight into cryptocurrency prices, ranks, market capitalization, trading volumes, crypto trading pairs, and exchanges where it trades, tracking the history of digital assets and current market position.
Let’s review how cryptocurrency market data becomes helpful to determine the performance of the virtual currencies.
Data Accountability:
Coinmarket cap is the most visited website in the crypto space. It aggregates data from exchanges & crypto networks and brings more transparency and data accountability to the cryptocurrency market. It provides accurate information to all crypto geeks and explores the investment risks by depicting the price movement of cryptocurrencies.
The basic indicators of Coinmarket cap are listed below that cryptocurrency investors need to know before investing in cryptocurrency
Ranking of cryptocurrency:
There are almost 7629 cryptocurrencies that have been trading in 32,503 on the coinmarket cap with its ranking in accordance with its market capitalization and the daily trading volume of each coin/token in different exchanges determines the ranking of coins.
For instance, Bitcoin price hovering around $15,244 & has secured the first position with a market capitalization above $282 billion out of $445.15 billion where Bitcoin market dominance accounted for 64% of total market cap as of November 10, 2020.
Cryptocurrency with the top ranking for a long duration is considered more reliable, tested coins, and a sign of profitability.
Market Capitalization of cryptocurrency:
The cryptocurrency with the largest market capitalization is less vulnerable to volatility as compared to the coin with a small market cap, often observed high fluctuation in price swings.
A careful selection of coins is imperative to make a profit in the cryptocurrency market. Investors need to choose crypto coins with Considerable market capitalization.
Marketcap of each currency can be determined by multiplying the circulating supply of coins by its price.
Bitcoin’s circulating supply x price of the Bitcoin = Market Capitalization
18,538,368 x $15,439.31 = $286,219,662,646
Cryptocurrency Charts:
Cryptocurrency charts are a helpful indicator to quickly review the market cap, price and trading volume, and overall performance of the coin since its inception to date. The graphic movement of the digital currency reflects the usual trend of price fluctuation of the specified currency.
Charts represent the recent and previous currency market bullish as well as bearish trend.
Trading volume:Trading volume is another stick yard to select the coin/token. It shows to what extent the particular coin is being traded out of available circulating crypto assets.
A coin with high trading volume has attributes of high liquidity indicates, the mark of most accepting coins for trading, buying, and selling in various exchanges.
Most of the cryptocurrency exchanges have delisted the coins with low trading volume.
Historical Data:
Historical data on the website of Coinmarketcap give insight about price trend analysis of coin on a weekly, monthly, quarterly, and yearly basis. The investor can track the record of the price movement of the coin and can guess how well it would perform in the future.
For daily traders, it provides day opening and day ending price shifts with high and low-price variations between them. This data helps investors to have a plan for daily trading for a specific coin.
Cryptocurrency Market pairs:
Coinmarket cap website shows a list of specific cryptocurrency pairs with crypto assets and fiat currency available in various decentralized exchanges. A coin with more trading pairs on more exchanges should have more liquidity and are high in demand.
Basic understanding of the use of Crypto wallet:
Crypto enthusiasts must have a basic understanding of hot wallets which are online wallets & are usually offered by most of the crypto exchanges. Alternatively, cold wallets are offline wallets.
It is recommended to use the hot wallet to store coins having a small value in amount so the investors can take the immediate step to lock the trading opportunity by making instant transactions through the hot wallet.
However, a hot wallet is preferable to store a sufficient number of cryptocurrencies having more value. It offers an extra security layer & is highly recommended to investors who are interested in long term investment
How to invest in cryptocurrencies?
Eagle-eyed investors should not pour all their investments in a single cryptocurrency. There is a significant risk of loss of funds revolves around digital currencies due to some identified reasons such as price swings, fear of missing out (FOMO), and the entrance of Whales, etc.
It is recommended to invest between 5 to 10% of their total income in a diverse crypto portfolio. Similarly, crypto geeks need to cap the stop-loss order for any cryptocurrency at 2 to 4% below its purchasing price.
REFERENCES:
https://cointelegraph.com/tags/coinmarketcap
https://coinmarketcap.com/currencies/bitcoin/
https://cointelegraph.com/news/4-things-you-must-know-before-trading-bitcoin-and-cryptocurrency
https://www.investopedia.com/tech/what-you-must-know-investing-crypto/
https://kryptomoney.com/7-things-to-consider-before-investing-in-cryptocurrencies/
https://www.fintechnews.org/what-you-should-know-before-investing-in-cryptocurrency-2/
