5 Must-Know Concepts while Investing in Crypto
Crypto and confusion go hand-in-hand but not at Moving. We aim to make crypto simple and accessible to all. While the rumors’ around crypto persist, Indians are actively investing the crypto projects and tokens. We witnessed the emergence of Indian DEXs, cryptocurrency exchanges, and even India’s first NFT Marketplace. With all this happening around us, people might experience FOMO and may jump into the crypto space with an expectation of high profits(not the best practice). Crypto space is vast and new to many, jumping in with unrealistic expectations may bite you.
Before you start your research, here are five things you need to understand before diving into the crypto world.
The Business Proposition
Crypto projects are much similar to startups. The business proposition is a major factor that defines any crypto project. The problem that the project would solve and whether it would be feasible in the long run or not. Understanding the business proposition would give you a better perspective and lets you make a calculated decision. Buying a token of a crypto project is like investing in the project; your money might rise or fall depending on how that project comes out to be. Similarly for an existing and running crypto project, you might wish to emphasize on the fact that what is the potential of the project in the future; consider 5–10 years down the line.
Total and Circulating Supply
Total supply refers to the number of coins irrespective of mined or unmined. Circulating supply typically refers to the number of coins that are mined and are in the market. The demand-supply rule applies to the crypto market as well — the value of the coin increase when more people buy. Rather it is one of the major factors that determine the value of a coin.
People buy bitcoin for two main reasons: To mediate the fiat currency and as an investment. Coins held as a purpose of investment are considered out of circulation and coins that are mined and being used in transactions are considered as Circulating Supply. This is one aspect of the demand-supply chain in Crypto — as more people tend to invest, the circulating supply would decrease and if more people want to buy the coin, the price would increase. This may sound tricky, try reading again.
For a cryptocurrency like Bitcoin, market capitalization (or market cap) is the total value of all the coins that have been mined. It’s calculated by multiplying the number of coins in circulation by the current market price of a single coin.
Trends and history in the graph can be hard to identify for a beginner but are fruitful to know about. Each coin conveys a story that a smart investor can interpret. For instance, the DogeCoin was created as a joke and got an overnight hike when Elon Musk tweeted. Such coins lack a purpose and are termed as “Pump and Dump Coins”. Likewise, the price history plays an important role in making a rough prediction about what may happen next. The value of many coins is highly influenced by the whale(individuals who hold large amounts of coins of a certain cryptocurrency), this might create dips and surges time-to-time.
Quite like a startup, as an investor, you may want to see what progress has been made in the project. Since most blockchain projects can be seen on GitHub, you can keep an eye on the trends and how the work is being done. Developer Activity for big projects is consistent and this is a good sign. If a project is launched and running, you may read the whitepaper format of the project. A whitepaper format is written by the individual or group stating the working mechanism of the project. You may find it on the official website of the project or on Coinbase.
A community for a crypto project or a crypto token includes people who have invested in it. Checking the social presence of the project on Twitter would help you understand a lot about the coin. You may join communities to stay updated with the happenings around the project or coin. Make sure you stay away from the noise that may confuse you!