Cryptocurrency investment: how to get started?

Cryptocurrency investment: how to get started?

This article will help you understand cryptocurrencies. If you are an altcoin investor (an altcoin is a cryptocurrency other than bitcoin), fundamental analysis will help you choose the altcoins that have long-term potential.
How to invest in and research cryptocurrency, altcoins and bitcoin?

All investments have advantages and disadvantages. A cryptocurrency investor must look at the cons first, as some are absolute dealbreakers. If they exist, it is not worth spending more time researching cryptocurrency.

Finding the right information about cryptocurrencies is difficult because:

    Concrete info is hard to find or does not exist.
    Verifying the reliability of the source of the information is difficult
    Understanding the information itself may be beyond the investor's technical understanding. Some layers of technology in new altcoins are quietly in a whitepaper phase and not yet proven.
    Reading, understanding, questioning and processing takes time.

Cryptocurrency investment basics

What are the main reasons to invest in an altcoin?

    What problem does cryptocurrency want to solve - What is its benefit?
    How big is the problem that the solution wants to solve?
    Have others already tried to solve that problem?
    If they no longer exist, why did they fail?
    If it is an ICO, what does the whitepaper address and what does it leave out?
    Is the altcoin structured with centralized control or decentralized governance?
    Is the reason for the coin's existence clear? (In March 2017, Bitcoin has an identity crisis, should Bitcoin be used to secure value or as a mainstream currency?)
    How much of the cryptocurrency price is based on the value delivered today and how much on the future promise of development?

The fundamental reason for a cryptocurrency like bitcoin or an altcoin is to serve its users, the only reason users will use an altcoin is if it solves a problem they have. Some altcoins promise to solve problems we didn't know we had before. LBRY, for example, creates a pay-to-view content system, while others, like Crown Coin, Dash are bitcoin variants. They solve the same main problem in different ways. An investor has to predict which one will be the best.

Others like EDC and iEx.ec bring blockchain or decentralization to problems previously solved by centralized solutions. For an altcoin to become successful, it needs to get both the function, context, and timing right for its main function.

Cryptocurrency marketing and branding - An important benchmark for investors.

    What is the altcoin's marketing strategy?
    How sophisticated is the marketing?
    Does the coin have branding that is appropriate for the problem it solves?
    How many times has the altcoin been rebranded and why?
    Does the altcoin use MLM tactics?
    Is the altcoin only known among cryptocurrency users?

    If they don't know about you, you don't exist.

Marketing is everything. How can a solution be applied to a user's problems if it is not known? Marketing is about letting the market know about the solution.

Branding is all about trust between the cryocurrency and its potential investors; actual users will come later. Hyperinflation ultimately occurs because users of a currency lose confidence in it, but the opposite is also true. Hyperrevaluations (manias?) happen when many new investors want to buy in the belief that users will come later.

Rebranding is nothing unusual in the crypto space as an altcoin goes through periods of maturation, causing the brand image to do the same. Frequent rebrandings are a sign of frequent changes in strategy (or that something is trying to be hidden). Frequent and recent rebrandings in the life of an altcoin are not a good sign of future strategic decisions.
Media coverage

Positive mentions in crypto media outlets make an altcoin more trustworthy.

When media coverage occurs outside the crypto universe, such as in Forbes, Bloomberg, Basdaq, and others, it is a sign of mass interest.

How many other investors/users believe in the project?

    Who are the whales in Altcoin and what is their goal? (Not easy to figure out!)
    How many Twitter followers does the coin have?
    What is the activity of the # or $ tag of the coin?
    How long is the bitcointal thread? (Quality and quantity are important)
    How many visits does the coin's website get?
    What is the level of Slack activity?

This is one of the most important metrics to estimate a cryptocurrency, as it is the result of all other metrics combined.

Market capitalization of the coin or the total value of a cryptocurrency is also a form of social proof. The total value of a coin is the result of all investors voting with their wallets for or against the coin.
Cult factor

Cryptocurrency developers and spokespeople give a face to the project, they can be the champions and evangelists. Spreading the idea and solution to the masses. Any U-turn from these can have serious effects on the value of a coin. These spokespersons become keyinfluencers as naïve investors focus their thinking on them.

Altcoin development team and technology

The main value of a project is the functionality of the coin (and how many people know about it and trust it).

    What new technology is the altcoin developing?
    Is the technology one of computer science or another such as a conduction model?
    How is the new technology applied to find a more efficient solution to the problem that is being solved?
    Can the solution be easily copied?
    What is unique about the team behind this altcoin?
    What are the weaknesses of the development team?
    Is the development team reachable?
    Are their identities public?

Bitcoin has proven itself time and time again. Most altcoins have either modified Bitcoin's blockchain code or developed completely new blockchain technology.

New technologies bring new risks. For example, the well-known DAO hack was the product of a bug in a new smart contract technology. Such bugs in technology can have many consequences. The DAO was destroyed, but in other cases there may be permanent problems.

Basically, if something "breaks" in a cryptocurrency ecosystem, it doesn't help the investor because mainstream usage is affected.
Price, market and exchanges

    Does the price pump and dump cycle make sense?
    Does it have to do with actual events in cryptocurrency that positively affect the price?
    Is the market growing or just the cryptocurrency?
    What was the magnitude of the price change?
    Which exchanges accept the altcoin?
    Is the coin being used by real users or investors?
    How many companies accept the altcoin directly? How many accept it through shapeshift?

Pumping and dumping of altcoins

Altcoins usually have main followers who really believe in the project. These people are a mix of founders, developers, and people who want to see the altcoin flourish. These groups will spread the pros and try to find solutions to the coins.
There will be other groups that will promote the cons of a particular coin rather than the pros. This group will consist of people who believe in competing coins and who missed the ICO.
Some pumps are oriented to a new feature and others may be more necessary (for example, changes to regulations, a collapse, or more competition).
Following the pumps and dumps is the job of market makers and tag traders. Other investors choose not to ride the roller coaster and focus on long-term investing.
Malicious market makers pump and dump coins while pocketing money from greedy and fearful investors.

Some pumps are Phenomenal, for example, the price of Dash increased by 100% between January and February 2017. Such a price increase has to be SUSTAINABLE to have any value to a buy and hold investor. If the price goes up and then goes down, the investor's confidence goes down every time.

Can the price of a cryptocurrency be easily manipulated by an outsider looking to do harm? This question is more important in the future than it is now, when investors will be able to invest in cryptocurrency ETFs. If approved by the SEC, these ETFs can be used to prevent short selling. This system allows speculators to bet on the bad side of a coin, which happens without owning actual coins.

Altcoineconomy

    What is the altcoin inflation and deflation rate?
    How much altcoin currency is generated over time?
    When is the last cryo currency generated?
    Is the altcoin a PoS (proof of stake) or PoW (proof of work)?
    If it is a PoS, what is the distribution model?

The economics of an altcoin determine the supply side of the coin. Coin founders count towards the FED of that particular coin, their behavior must be scrutinized as much as that of a central banker!
Altcoin history

    Is the coin making progress towards its goal?
    How much progress has it made in the past?
    Was the coin insta- or pre-mined?
    Was the money well spent?
    Did the creators provide an accurate release time and date?
    Was the coin's specification published before or after the release?
    What were the most prominent backers and what is their history with the altcoin?
    Who are the most influential critics and what have they said about the altcoin in the past?
    How has the altcoin changed over time?

In the history of an altcoin, investors may be able to find the virtues and roots of greatness.

To me, an altcoin reflects the thoughts of the founders, the whitepaper, the connection and interaction between the market and altcoin developers.

Some altcoins are scamcoins from the beginning, others have good background thoughts but are poorly implemented, too weak or the competition is too strong. The past is no guarantee of the future, but the future is determined by the past.
Difficulties with regulations

Regulators have the power to destroy the viability of a cryptocurrency, at least within its own borders, overnight. In fact, cryptocurrencies are vulnerable to these attacks due to their decentralized design. However, these are not the owners of the cryptocurrency. Probably 99% of cryptocurrency owners are good, law-abiding citizens.

If a cryptocurrency is declared, investors will likely dump it. The risk to them and their families becomes too great and impossible for them to avert. There are some variables that increase the likelihood of this being targeted:

Does an altcoin do the following:

    Target a single market that is highly controversial?
    Target a specific region?
    Allow anonymous transactions?
    Be popular on the darknet?
    Be classified as a scamcoin?
    Have a mechanism which can be quickly disrupted by regulators (e.g. a centralized website)?
    Is an altcoin's infrastructure (such as nodes or mining) within the boundaries of a particular jurisdiction?

Regulation can also make an altcoin stronger

Regulators of certain jurisdictions that openly accept BlockChain bring cryptocurrencies further into the general public domain.

Private forms of public blockchain monitoring, such as companies that monitor blockchains for illegal activity, help regulators and discourage the illegal use of cryptos. Other firms evaluate ICOs and this helps private investors make informed decisions.

Another school of thought considers all forms of obstacles thrown at a cryptocurrency only to make it stronger. Cryptocurrencies will evolve and change their form to either avoid or turn to regulators. Regulations will act like natural forces, upsetting the weak and making the stronger more resilient to outside influences.

Regulators have issues with anonymity and not privacy, blockchains provide privacy by default and some cryptography layers layers of anonymity on top, that is where regulators will most likely clash with altcoins. If Altcoins are the new Panama, governments will do everything in their power to stop their use as illegal tax avoidance methods.
Fraud alerts from regulators and rating agencies.

Some governments have issued notices about certain cryptocurrencies; this is a sign to investors that such coins need to be scrutinized more closely, especially when such announcements target a specific altcoin rather than the entire crypto space.

Investors should look much more closely at this Altcoin, both because of the regulatory threat itself and the possibility that the Altcoin is a pure scam or has MLM (multi-level marketing) or fraud like tactics / mechanics.
Centralized / decentralized network and governance

Is the coin management and network centralized or decentralized?

Centralized / Decentralized are attributes, not adjectives. Some write centralized, too bad, and decentralized, too good. Given the spirit of freedom and autonomy in the crypto space, this is a common misconception.

These two characteristics have their advantages and disadvantages.

Centralization brings the dangers of cultists and centralized points of attack, but it also brings the advantages of better coordination, provision of resources, and centralized points of contact for support and media.

Centralization of development could be a danger to the currency. For example, Monero an anonymous cryptocurrency has a public spokesperson. In a recent podcast, he explained that he sometimes worries about being in the spotlight too much. If anyone are against a particular cryptocurrency, the people who are the face of that crypto are prime targets.

Most of Crown Coin's developers are anonymous; this gives potential entities that want to disrupt the coin network much less of a clear target. However, it also brings a question mark over the reputation and expertise of the developers. That being said, their slack channel makes them very accessible.
Centralized / decentralized infrastructure

A lot of bitcoin mining power is located in China. Miners swarm cheap power sources. These mining clusters can create weak links in the blockchain as they open up hashing power to attack. Especially in countries vulnerable to government intervention and infrastructure point failure.

Other failure points include service nodes, master nodes, super nodes, exchanges, and other critical infrastructure points that preserve the value of the coin and the ability of users to change or use the coin.
The future of Bitcoin or Altcoin.

    How many resources are available to sustain the development and marketing of the coin?
    How long will these resources last?
    Do the development team and marketing team have "skin in the game"?
    Is it short-term or long-term?
    Are there competing technologies that threaten blockchain as we know it?
    Are there events like a decline in mining premiums on the horizon?
    How much is tied to maternity or crypto bonds?
    Will their release flood the market?

Conclusion

Investing in cryptocurrency can be done by following the momentum and technical analysis of the charts. Does it work? Different people have different levels of success with such strategies, the fundamental approach to investing worked for Warren Buffet and there is no reason why it should not work for cryptocurrency investors. In addition to fundamental analysis, dollar-cost averaging is also an important investment strategy. Buy low and sell high!