How do investors evaluate cryptocurrency?

For more than a decade, crypto has been integral to investing and currency discussions. Today, that conversation consists of much more than Bitcoin and Ethereum, the two earliest cryptos on the scene. There are more than 12,000 cryptocurrencies available today, from emerging altcoins and up.

The crypto market is swollen, and investors may be at a loss as to how to evaluate each unique asset. As with any new investment, investors should do their research before choosing crypto assets for their portfolio. Cryptocurrencies come with special considerations, so be sure to proceed carefully before putting any money into a specific coin.


  • As with any investment, investors should approach cryptocurrency with caution.
  • Like traditional investments, looking into a cryptocurrency’s leadership and origin story can be a helpful place to start.
  • Before investing in any cryptocurrency, do some research by checking out the cryptocurrency’s whitepaper to learn about its goals and how realistic they are.
  • Legality is a big concern with cryptocurrency, so check into whether a potential crypto investment is legal or illegal before investing.
  • Crypto valuations can swing hard and fast. Follow news and developments with all new cryptocurrency investments so you’re conscious of how your position is performing.

How can investors evaluate a cryptocurrency’s potential?

With any investment, the key goal is to acquire an asset and reap the gains as it increases in value. With thousands of cryptocurrencies on the market and new ones popping up all the time, investors should focus on the cryptocurrency tokens that have the greatest potential to grow in popularity and adoption.

Regardless of how popular a particular asset is, crypto is still an alternative investment. Even high chances for rewards are subject to enhanced volatility when compared to the general stock market. If you’re hoping for a certain rate of return on a crypto purchase, be sure you’re also okay with the alternative—possibly losing it all if things go wrong and the value decreases dramatically.

Traits of a quality cryptocurrency investment

Here are a few bits of information you’ll want to seek out before putting your money in any particular crypto asset:

  • The cryptocurrency’s whitepaper, which details its goals and technology
  • Leadership on the cryptocurrency
  • Relevant news and announcements
  • Legal regulations that could prohibit your participation or returns

To analyze a crypto asset, locate the crypto’s whitepaper and do some basic research. A whitepaper is a document in which the creators of a cryptocurrency explain their purpose.

In the whitepaper, you can look for statistics about the cryptocurrency and find out what its objectives are. Think about how realistic the stated objectives are, and consider whether they seem original or simply parrot the objectives of another, more established cryptocurrency.

(Note: If the whitepaper seems too confusing to decipher, think of that as a sign to find others to help you evaluate a cryptocurrency’s potential. Don’t be afraid to ask questions from an expert or two, and take your time.)

The leaders behind any new or established cryptocurrency can also provide some clarity on the project. You might check out the creators and find out what similar projects they’ve worked on in the past. Watch out for red flags, like if they have suddenly appeared without any prior knowledge of cryptocurrency.

Besides looking at the whitepaper and leadership for background on a new cryptocurrency, be sure to follow alerts for any announcements pertaining to it. You can find good information on trusted news sites and properly vetted social media forums and conversations. Pay attention to what people are saying about the cryptocurrency and its potential on the market. All the while, be careful about overly-hyped or celebrity-backed cryptocurrencies—these may prove to be higher risk for investors.

Of course, be aware of legal issues. Certain regions of the world may not permit you to invest in certain cryptocurrencies. For example, the U.S. recently blacklisted a Russian exchange called SUEX OTC, so any foreign tokens that only trade on that platform aren’t available to Americans. Before you get too excited about a cryptocurrency, check out whether it’s even available to you.

Follow trusted cryptocurrency experts

Just as it’s wise to learn about real estate from qualified experts before buying a few rental properties, you may want to spend time following trusted experts in the cryptocurrency space before buying Bitcoin or any other crypto tokens.

Find people you can trust who know more than you do about cryptocurrencies. You can follow their social media pages or websites to stay on top of noteworthy developments and cryptocurrency analyses. Keep in mind that people who are bullish on crypto may offer perspectives that align with their worldviews. As you research why cryptocurrency X might be a good investment, a good rule of thumb is to also look into what skeptics are saying. Get all the context and then make a decision for yourself.

Be mindful of security and scammers

With thousands of cryptocurrencies on the market, it can be easy for scammers to put up a fake new token in order to dupe people out of their money. This is a key reason to do your due diligence in researching your crypto investments before investing.

Staying alert to common scams and security issues will minimize the chance of you spontaneously sending money to a new initial coin offering, or ICO, that doesn’t have any real value behind it. ICO scams aren’t anything new, but the crypto realm makes them more commonplace.

Related: Check out our Blockchain Technology theme.

Should you invest in cryptocurrency at all?

These days, cryptocurrency can often be spotted above the fold. For many retail investors, crypto will remain a small portion of their total portfolio. Considering the risk profile of most cryptocurrencies, they’re still considered an alternative investment for a person with average risk tolerance.

As an alternative investment, you may want to think of cryptocurrency as something you invest in on top of other, more standard investments. A good rule of thumb may be to invest no more than you can afford to lose, in case your chosen coin suddenly tanks in value at a time when you need liquidity.

Bottom line

Cryptocurrency is a hot topic—and for good reason. Before you invest in a crypto asset, be sure to do some research to evaluate its growth potential. If you’re looking for a place to start, read the whitepaper and track recent news. See who’s supporting it, who’s skeptical of it, and then figure out how much risk the asset could carry to determine what percentage of your portfolio you’ll reserve for the investment.

Rachel Curry is Pennsylvania-based content writer and journalist talking all things finance. She likes to give meaning to numbers by humanizing them. You can connect with her on Twitter at @writingsofrach.

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