Introduction

There are over 2,000 crypto-assets that currently available trade on exchanges. Researching all of them, to find one that suits your needs, is both tedious and impractical. By prioritising certain criteria, the process can be streamlined, saving you time and finding projects to invest and/or trade that fit into your investment ethos. It is important to understand that “quick flips” are generally unadvised. When looking for an investment, a long term perspective must be adopted and a vision for the project must be in sight.

 

Risk Tolerance

The most important criteria for any investment, cryptocurrency or otherwise, is the investor’s personal risk tolerance and appetite. An investor must keep in mind that investing in crypto-assets, in general, comes with greater risk than many other asset classes. This is primarily due to their immaturity, therefore any risk level would be relative to the cryptocurrency market and not to other asset classes in general.

A secondary factor of great importance is disposable income. It is not advisable to invest capital one cannot afford to lose (i.e. mortgage money), the amount of disposable income an individual has will contribute greatly to their risk tolerance, the two tend to be proportional. Although investments are very important for wealth-creation, other outgoings must also be taken into consideration in this equation, as some disposable income may already be dedicated towards other daily outgoings.

Personality also plays a large role, as some are naturally higher risk takers than others, this certainly becomes an additional factor to take into consideration.

Last but not least, the time-span of the investment is essential to take into consideration, a shorter time period (1-2  years) will usually call for higher-risk assets than longer-term investments (5-10 years).

Risk Classes

In the cryptocurrency market assets can be divided into two separate groups: medium-risk and high-risk.

Medium-risk assets include the large-cap assets, $500 million and over, as well as the projects that have developed partnerships with reputable companies and institutions that are known worldwide. The reason these have a lower risk than others is simply due to the fact that some credibility has been established and the chances of their sudden disappearance or failure are much less likely.

High-risk assets include all other crypto-assets. Many of them are being, or have been, developed by hard-working teams with a great vision leading them. Of course, the lack of adoption, proven by their small-cap, is a concern as acceptance from the public is yet to be confirmed. Partnerships with reputable companies and institutions that already have deep roots, parties that can give a project the exposure it needs, tend to be a good indication towards a project’s future success.

Use-Case

Following risk-tolerance, another important facet of choosing a coin that suits you is the use-case. “Ambitious” is an adjective that can be attributed to most projects in this space, most are looking to solve problems that currently have an inefficient solution or none at all. Remaining rational and realistic as to which problems require a solution, is very important. For example, if a project is looking to solve problems related to Mars’ colonisation, their adoption is unlikely to happen soon. This is not to say it will not be used in the future, it is only to say that an investor will be tying up money for a problem that may not need solving for another decade and ultimately, time is money.

It can also be important to choose the solution to a problem that the investor can relate to, as this will allow them to have a vision for it

Small Caps & Research

Many do not take into consideration the small-caps and only look at the majors (BTC, ETH, XRP, LTC). As appealing as these may be, and as much potential as they may have, completely ignoring the small-caps’ potential would be unreasonable as most have not had their “big break” yet.

Of course, any project chosen by an investor must be personally vetted and researched thoroughly. This is where the Fundamentals of the project are of the utmost importance. Who is behind the team? Do they have a roadmap that is regularly updated? Are they constantly posting updates to investors? Investing in assets with little knowledge and research into them can have disastrous results that an investor will not be able to anticipate due to their lack of knowledge.

Addressing all of these factors does not guarantee that you will strike gold by any means. What it does do, however, is save you a lot of time. and be much more at ease with any potential investments that you may make. Having carried out due diligence, and complimenting your investments to your own personal circumstances and personality delivers much greater comfort and confidence into where you are placing your capital.

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