All too often people say that the best way to make money in cryptocurrencies is to simply invest in altcoins when a pattern is seen and hope for the best. The issue with this approach, however, comes in due to manipulation that is often seen in altcoins, and especially the smaller ones. As a result, it’s important to pay attention to the fundamentals, rather than a temporary pattern.
A Mostly Unregulated Industry
One of the best parts – and worst parts – about cryptocurrencies is that they are mostly unregulated at the moment. Whereas there’s no insider trading with stocks due to federal laws and harsh punishments, cryptocurrencies can still be openly manipulated for personal gain. This has led to things like pump and dump schemes, as well as fake news and FUD campaigns. The important takeaway here is that just because a coin is going up or down doesn’t mean it’s doing so organically – larger players will often dump or buy a lot of coins very quickly to try inciting a buying or selling spree.
This is largely countered by getting involved with bigger coins that have a lot of volume, as they cost much more to manipulate and bring a lot more risk in the process. For example, Litecoin would be a lot harder to run schemes on than some no-name coin that just came out. Some smaller coins have such small volumes that even a couple thousand dollars can sway them up or down by a great percentage, luring unsuspecting people into them in the process.
Follow the Fundamentals and Team
Because of how things work out and all the risks associated with coins, they should be looked at as being like penny stocks, such that due diligence is an absolute must if investing a sizable amount. This often comes with two separate parts: the fundamentals and the team.
Fundamentals include things like the actual business that backs the coin, what separates it from other coins, and the marketability and chance of it returning an actual profit, as opposed to staying dormant – or worse, losing money.
When it comes to the team, you want to focus on known and reliable people. A lot of new coins are started from new accounts. Even if one of the coins looks like it has solid fundamentals, this is usually a sign to stay away – there have been amazing projects that just had unreliable teams or had teams that ran with the funds or were hacked. Most reputable projects are fairly transparent in who is running them and they usually have known and trusted advisors that bring expertise from previous coins and businesses.
Never Rush In
Ignore the FOMO (fear of missing out). All too often, people will get into a coin because they are scared that if they don’t get in, they will lose out on potential gains. And most of the time, these projects end up failing. Always keep a level head when it comes to investing, and if something doesn’t seem right or you aren’t entirely sure it’s a good idea, go ahead and steer clear. More often than not, your gut will be right. A lot of people that have a negative view of cryptocurrencies are because they were burned in the past, and it’s usually avoidable by being diligent in research and critically thinking.