Crypto investing: FOUR variables to watch when looking for a new cryptocurrency
Cryptocurrency: Expert discusses success of Bitcoin
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Investors have filed into the cryptocurrency market this year, lead by DOGE. The currency, which started the year barely in the periphery, has surged in value by more than 4,000 percent, allowing first-time buyers to dip their feet in the market pool. But DOGE’s beacon has drawn out a dizzying selection of new tokens, leaving people spoilt for choice when looking for a new investment.
What should you watch out for when finding a new crypto investment?
New and veteran investors have thousands of currencies to choose from, with new ones emerging every day.
While many have taken a “meme” angle like DOGE, others may have a unique enough angle to give investors significant returns.
Choosing a currency is ultimately a personal choice, with everyone looking for something different, but there are some variables to keep in mind.
Speaking to Express.co.uk, Paddy Osborn, Managing Director and Academic Dean at London Academy of Trading, had a few tips for investors.
He said: “First of all, investing in cryptocurrencies is high risk since the volatility of price movements can be extreme.
“It’s not uncommon to see moves of 20 to 30 percent in just a few hours and often the fastest moves are downwards, due to the effects of psychology on the (relatively inexperienced) crypto trading community.
“When looking for the ‘next big thing’ there are a few criteria to consider.”
Security
Mr Osborn said people should pay attention to the mechanics behind a given cryptocurrency.
Many will use varying technology in exchanges, storage and minting.
The most secure, including Bitcoin and Ethereum, use blockchain, a vital tool for dissuading market manipulation.
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Transaction speed
Another vital variable for pinpointing high-performing coins is its relative transaction speed.
Mr Osborn said networks should handle “a large volume of transactions at high speed”.
These will allow people to “buy or sell quickly and safely”, he added.
Technology
The intricacies of each currency will elude most people not well acquainted with the technology developers use.
Some currencies have multiple facets, providing both a token and service at the same time.
Mr Osborn explained: “Ethereum, for example, is not only a cryptocurrency; it is also a network which enables other developers to produce their own new cryptocurrencies.”
Rate of adoption
Some coins will attract the attention of seasoned investors as they debut, and Mr Osborn said this is a valuable metric for judging worthwhile investments.
He said: “When investors are quick to dive into a new crypto coin, this indicates that the investor community sees good value in the new coin, but also provides good liquidity for all investors to buy and sell quickly and easily.
“While this signals good potential significant future gains, it is no guarantee of profit, since there are several thousand cryptocurrencies in existence, and many have started life with a burst of excitement only to plummet back down to earth.”
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