With thousands of digital coins being brought to market, figuring out how to invest in cryptocurrency or whether to do it at all can be quite challenging. Here are some tips from Bankless Times’ experts to get you started.
Look at where they hold the assets
Custodian banks for US securities tend to be big names like JPMorgan, which are well known and highly regulated. On the other hand, cryptocurrencies are built on different technology (not the same as securities), which doesn’t necessarily allow one to reverse transactions.
Still, you should look at who the custodian is. Reputable ones include BitGo, Anchorage, Fidelity, Bakkt Warehouse, and Coinbase Custody.
Don’t pay too much attention to the founders
Some of the names behind the biggest cryptos are college dropouts. Elon Musk himself dropped out of college in South Africa. Hunter Horsley, CEO of index fund manager Bitwise Asset Management, says:
“Crypto is pushing us all in how we think about what’s credible. A lot of the most compelling projects in crypto have just come out of nowhere. They have come from people who would be easy to dismiss.”
Is the exchange or coin regulated?
Options, bonds, stocks, and other securities have to be registered with the Securities and Exchange Commission in the US. In the UK, the Financial Services Register has authority over crypto exchanges. Being regulated is a sign of reliability, but that doesn’t necessarily mean the coin will increase in value or even that it’s safe.
Size of the community
Projects like initial coin offerings (ICO) tend to have a community of followers that you can track. Of course, you never know whether they are actual people or bots. One thing to look at is the type of discussions they have. If they are talking about engineering or other technical stuff, it’s a good sign. Only discussing the price? Speculation.
Look for a reliable source of liquidity information
A token’s liquidity indicates how easy it is to sell or buy. The higher, the easier. To figure out liquidity, look at trading volume figures. Big numbers are a good sign as long as the source is reliable. For example, it’s always good to get data from an established exchange.
Number of tokens
A common critique of Dogecoin was that there was too much of it, flooding the market and overwhelming demand for it. Also, one or two people owning the majority of tokens is not a good sign.
