How to choose your first cryptocurrency for investment?

So, you've decided to start investing in cryptocurrency but aren't sure where to start or what to do? The basics are simple: understand what blockchain is, choose an exchange that suits you, register, and... that's where the most difficult and interesting part begins. In this article, we have put together a guide for you with tips on choosing cryptocurrencies to invest in, including analysis of market capitalization, liquidity, price history, and future prospects. Here are the key factors to consider when choosing a top cryptocurrency for investment

Market Capitalization

Market capitalization represents the total value of all coins in circulation, calculated by multiplying the current price of one coin by the total supply. It is an indicator of a cryptocurrency's popularity and potential. In the world of cryptocurrencies, there are three categories of market capitalization: small-cap, mid-cap, and large-cap. Small caps can yield high returns but carry huge risks, as tokens with small capitalization can "soar" sharply and just as quickly "fall". Mid-caps are volatile but have more growth potential. Large caps are considered the safest, as they are associated with less risk, so it is recommended for beginners to start with cryptocurrencies that have a high market capitalization.

Liquidity

Liquidity is not just about numbers; it's the key to the stability and health of the cryptocurrency market. High liquidity allows for easy trading while maintaining fair and stable prices. The higher the liquidity, the easier and faster it is to buy and sell crypto, which is better for everyone. Factors affecting a coin's liquidity include its popularity, availability on various platforms, trading volume, and regulatory environment. Low liquidity can lead to sharp price fluctuations and make it difficult to sell or buy without significantly impacting the asset's price. Liquidity assessment includes analysis of spreads, trading volumes, order execution speed, and price stability after large transactions.

Price Dynamics

Another way to choose a cryptocurrency is to analyze past price changes. You might select a coin that has performed better than others in terms of growth over a certain period. The longer a coin maintains good growth metrics, the better. However, past successes do not guarantee future results. You need to consider many aspects, read up-to-date news about the project, and conduct technical analysis to understand whether the price can rise. Nevertheless, analyzing historical data can be very useful for short-term trading of cryptocurrencies. With it, you can attempt to predict future prices using statistics and historical data.

Project Team and Utility

Check the fundamentals of the project. Study the team of creators, their history and purpose, and find out how their token fits into all this. Projects with a clear mission, a transparent team, and real achievements often become long-term players in the market. The real application of a token or coin is proof of its necessity in the world of cryptocurrencies. This can be DeFi, NFTs, payments, or something unique that sets the project apart from the rest. Without practical use, a cryptocurrency can easily become a mere shell, unlikely to withstand the test of time.

Tokenomics

It's important to understand the tokenomics of a project before investing your money. Be cautious with projects where there is an endless issuance of new coins, as a continuous stream of tokens can lead to inflation and, consequently, a drop in their value. It is also important to monitor who controls the bulk of the tokens. When a significant share is concentrated among a limited group of people, such as early investors or the project team, it can be risky because if they decide to sell all their assets at once, the price of the coin could plummet instantly.

Technology

Technology is the heart of each cryptocurrency. Prefer projects that not only mint new coins but also bring something new to existing technologies, look for unique solutions, or strive for improvements: scalability, speed, privacy. These innovations can significantly increase the coin's value and attract new users' attention.

Security

Security cannot be overlooked. Your cryptocurrency must be protected from attacks, and the team must constantly work on enhancing protection and securing users' assets. Study the project's security history: how they have dealt with potential attacks and what steps they take to strengthen their security.

Community and Ecosystem

An active community is not just a group of people; it is the heart and soul of the project. It not only promotes popularity but also serves as a source of feedback, with ideas and criticism, helping the project develop. If you see that life is buzzing around the project, discussions are hot, and users are sharing impressions and suggestions, it's a good sign.

Ecosystem growth, including various partnerships and integrations, also affects the coin. If the project is actively developing, creating new collaborations, and finding real-world applications, it's a good signal, giving reason to be confident in its successful future.

Market Niche

Another way to choose a starting level cryptocurrency is to explore various market niches and make a decision based on your opinion about the growth potential of that direction. The choice here is vast: DeFi coins, NFTs, stablecoins, memecoins, Move-to-earn (M2E), Play-to-earn (P2E), cryptocurrencies with limited supply, etc.

Regulatory Environment

It's important to understand how legislation in different countries can affect your investment. Any news about cryptocurrency regulation can impact the price of a particular coin, for better or worse.

Analysts' Opinion

Remember, analysts' predictions can be wrong, and they should not be used as the sole source when making decisions. Always conduct your own research and analysis before investing or trading. And never risk money that you cannot afford to lose.

Conclusion

Choosing the best cryptocurrency to buy requires deep analysis and attention to detail: from capitalization to regulations. Weighing all these aspects, you can make an informed choice and identify the most promising cryptocurrencies for long-term investments. And remember, investments are always associated with risks. It is necessary to conduct your own research, and the DYOR platform can be your main assistant.