How to find an Altcoin’s Investment Potential

With the cryptocurrency world growing at lightning speed, everyone is looking for altcoins to invest in. But, it’s no easy business. Analysing and evaluating a crypto’s value can prove to be quite tiresome especially with the absolutely new terminologies that the ecosystem brings with itself. It’s difficult, true. But it’s not impossible. As is the case with any industry, knowing some things better than others gives you the edge to know which investment to go forward with.

For anyone participating in the altcoin ecosystem, in whatever way, it is imperative to be familiar with 4 concepts with respect to a coin/token.

The total supply of an altcoin is the absolute total number of existent altcoins which are either currently circulating and/or will be released sometime in the future.

Some companies use the nomenclature of the fully distributed market cap to refer to the total supply. The total supply is inclusive of the circulating supply and the supply being held by investors, spectators, and the crowd involved in the ICO of the coin.

The size of the total supply can determine the potential value of the coin. A common tendency is for the price to vary inversely with supply. But it is a tendency and not an absolute and can be affected by factors such as legal restrictions and investors’ opinions etc.

3 things:

  • Founder’s Coins: the number of coins the ICO team reserves for itself. Whether or not this reserve will be distributed is witnessed over the years. Usually, a company allocates between 5 and 30 percent of the total supply as Founder’s Coins. Information regarding this is mostly available on the ICO website or the whitepaper.
  • Mining Rate: the pace at which new altcoins are created from the blockchain. The mining rate impacts the supply of the currency since faster mining can account for more supply, therefore, leading to a lower price. The mining rate is often estimated by tracking the rate of change in the currency’s circulating supply.
  • Company Lockup: the number of altcoins purposely kept away from the market by the ICO team. The difference between Company Lockup and Founder’s Coin is that the Company Lockup is held by the company and not an individual. The information relating to this too can be found on the ICO’s website.

One important distinction to make is between the Total Supply and the Maximum Supply. The latter is the maximum number of altcoins that can be mined on the blockchain. Once this number is achieved, no new coins will be mined. Currencies like Bitcoin work with a maximum supply whereas companies like Ethereum have no maximum supply.

The number of altcoins that are up for sale in the market at a given time. Determining this number is easy on websites that compare the performance of different currencies. One such website is coinmarketcap.com.

Circulating Supply aids in calculating the demand for an altcoin and directly affects the coin price. Like mentioned above, the fewer the coins, the higher will be the price.

Coins with small circulating supplies are likely to increase rapidly in price as compared to the coins entertaining large circulating supplies. More often than not, a change in the circulating supply (either because of newly-mined coins of the release of lockup coins) will precede a change in the price.

The amount that one unit of a specific altcoin is selling at in the market at a given point in time.

What affects the coin price?

The coin price fluctuates with respect to the

  • Market Demand: a high market demand, under usual circumstances, will lead to a high coin price given a limited circulating supply.

It is hard to measure the market demand of a cofor because it is often affected by outside factors especially investors’ opinions.

Monitoring the coin price of a coin mostly involves decoding the price map of the coin in terms different than money. A coin passing a certain price tends to create high market demand for itself since it has proven its value. This price then becomes the new gravitating point of a coin as people begin to adjust to this.

Another thing to notice when considering coin price is the lowest price that the investors paid for the coin initially. This applies more to the coins that have come out recently than to the coins that have been in the market for a long time. For coins with incredible returns, investors who paid presale prices are in for huge profits.

This means that the more the number of investors holding a big supply of coins they purchased for cheap in the presale, the harder it will be for the coin price to increase without a serious correction.

Short for Market Capitalization, the market cap is the most imperative factor for analysing the investment value of a coin. In addition to that, it is also the easiest factor to be measured.

Market Cap is the value of all the units of an altcoin on the market presently. To calculate, all one needs to do is multiply the Circulating Supply with the Coin Price.

This factor is important in evaluating the potential Return On Investment that an investor can achieve. A high market cap value implies fewer opportunities for the coin price to increase whereas a low market cap value implies the opposite.

Behavioural and Value investors pay extra attention to market cap since it is capable of indicating an investor’s attitudes towards altcoins. High market cap value means that the investors are fond of a particular coin and are willing to pay more for it. Note that this tendency is completely dependent on the market sentiment at the time.

The behavioural factors come into play when people begin to make decisions based on partial knowledge. For instance, many believe that Bitcoin is the sole altcoins in the ecosystem which is majorly responsible for its high market cap value.

Though these are some factors that aid in analysing the potential of an altcoin, it always pays better to put in more research before making a decision. There are other factors that equally dictate the price fluctuations such as technology, economics, crime, reputation, regulation, politics, market sentiment etc.

The best advice for investors is to invest their time in researching before investing their money in an altcoin. The more you know about the altcoin, the better.

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