Cryptocurrencies have completely changed the way we think about money and verify transactions, as well as providing relatively new investment opportunities.

But it can be intimidating to enter this industry without a well-thought-out strategy. Therefore, mastering the fundamentals is essential.

What are Crypto Assets

Crypto-assets, frequently referred to as crypto, are virtual currencies that record transactions using distributed ledger technology and use encryption to secure digital data. They enable decentralisation, immutability, and safe peer-to-peer cryptocurrency transactions.

These virtual currencies, in contrast to conventional fiat currencies, are not governed by financial institutions or other centralised bodies. They are hosted on a decentralised system, frequently built on blockchain technology, and provide distinctive characteristics that set them apart from standard financial services.

Major Crypto Categories

Bitcoin:

Bitcoin started the current wave of cryptocurrency. It was made in 2009 by an individual or group of individuals who chose to remain unknown and went by the pseudonym Satoshi Nakamoto.

Bitcoin functions as a decentralised digital currency and wealth depository. It is seen as an inflation hedge and a long-term investment as well. With just 21 million coins in circulation, Bitcoin is a deflationary commodity that is gaining popularity among investors and is now the best-performing asset of the past ten years. Due to its performance, adoption has increased and long-term holders have retained shares for longer periods of time, indicating that investors have a strong belief in the product’s long-term success.

Altcoins and Tokens:

Any other cryptocurrency other than Bitcoin is referred to as an altcoin. A large number of these are employed in privacy features, smart contracts, and utility tokens for specific platforms or services. Litecoin (LTC), Ethereum (ETH), and Ripple (XRP) are a few examples of well-known altcoins.

Conversely, tokens are digital assets generated on established blockchains such as Ethereum. They may stand for a variety of real or virtual items. Though a variety of other factors can also influence their value, which, like corporate stocks, is frequently based on speculation, the success of the project to which they are attached is frequently a determining factor.

Tokens include things like Chainlink (LINK), which enables smart contracts, and Uniswap (UNI), which is used for decentralised exchanges.

Stablecoins:

The purpose of stablecoins is to lessen the excessive volatility that frequently typifies the cryptocurrency market. These coins are linked to reliable assets like gold or the US dollar. One well-known stablecoin is Tether (USDT), which is now leading the market. Others are DAI and USD Coin (USDC).

In times of market turbulence, stablecoins provide traders with a quick means to move money while protecting the value of their cryptocurrency holdings.

Fundamental Analysis

The first step to take when deciding which coin/token you want to trade with is fundamental analysis.

The technique of investigating the underlying variables that affect a cryptocurrency’s value is known as fundamental analysis. Taking a number of elements into account might assist determine whether a certain digital asset is overvalued or undervalued.

Reviewing the White Paper:

A whitepaper is the cornerstone of any cryptocurrency initiative. The authors of the cryptocurrency released this technical report to highlight its objectives, technology, and use cases. When assessing a cryptocurrency, begin by reading its whitepaper in its entirety. When performing this, keep the following in mind:

• Determine the goals and vision of the project, what problem is the project addressing and how does it intend to solve the problem.
• Analyse the technological aspects of the encryption. Is it built on a robust, modern blockchain? Does it modify or add any new functionality to the already-existing cryptos?
• Investigate the prior qualifications, backgrounds and success of the projects team members.
• Determine the frequency in which the team addresses the communities questions and concerns
• Examine the token distribution: how much is given to the team, and how long does it take them to vest? Advise care while working on any project where the team or the team’s early-stage investors own more than 25% of the coin. The rationale is that if, for instance, they hold more than 40% collectively and have a short vesting period, they might all sell if the token’s price spikes, which would result in a sharp decline in value and leave the investors who invested later with nothing. It’s commonly referred to as a rug pull. Because it demonstrates that the core team is confident in the token’s long-term viability, projects with longer vesting periods are consequently viewed as more secure. Additionally, if they haven’t reached the vesting stage, they are unable to sell their shares in the event that the token pumps.

Evaluate Market Trends:

Follow the latest developments and market trends in the cryptocurrency industry. Analyse how well the crypto fits in with these advances. Is it utilising, for example, the trends in artificial intelligence (AI) or non-fungible tokens (NFTs)?

Examine news, social sentiment, and following and engagement on social media:

The cryptocurrency market is greatly impacted by news and societal mood. Follow any significant announcements, partnerships, or legislative adjustments concerning the cryptocurrency you are thinking about. To ascertain the sentiment of the community, investigate forums and other media websites.

Investigate their social media accounts carefully. If the project has a large following, are the likes, comments, and interactions on their posts appropriate for the volume of followers they have? If not, they might be using bots or phoney followers to give the impression that they have a larger following and that the project is more well-known than it actually is. This is a serious warning sign to be aware of! It’s also important to see if their fan base is the same across all platforms because, unless they’ve recently created a new account, this can be another cause for concern.

Technical Analysis:

After you have conducted your fundamental analysis, the next step is to perform technical analysis.

Technical analysis is the process of forecasting future price movements by looking at volume data and past prices. Technical analysis aids traders in identifying patterns, trends, and possible entry and exit points in the cryptocurrency market, even though it cannot completely forecast the future.

Support and Resistance Levels:

The price ranges known as an asset’s support levels are where it usually draws purchasing interest and stops further declines. However, selling interest frequently appears at resistance levels, which prevents the price from advancing. Establishing entry and departure locations can be aided by these levels.

Moving Averages:

Moving averages increase the consistency of price data over a certain time period, which facilitates the identification of trends. Simple moving averages (SMA) and exponential moving averages (EMA) are the two primary varieties. Crossovers between several moving averages are typically used by traders to determine when to buy and sell.

Disclaimer: This material is for informational purposes only, and is not intended to provide legal, tax, financial, or investment advice. Past performance is not necessarily indicative of the future nor a reliable indicator of the likely performance of any investment. Recipients should consult their own advisors before making these types of decisions. AFRIDAX has no responsibility or liability for any decision made or any other acts or omissions in connection with Recipient’s use of this material.