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6 Factors Affecting Cryptocurrencies

By Finserv MARKETS - Aug 12,2021
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Factors Affecting Cryptocurrencies

Introduction

If you have some basic knowledge about the cryptocurrency market, you will know that Bitcoin is not the only cryptocurrency that you can purchase. There are a variety of “altcoins” that have come up after the introduction of Bitcoin. Some of these cryptocurrencies are now established ones with high market capitalization and some are new projects with a lower market capitalization.

There are also cases of cryptocurrencies being nothing short of Ponzi schemes. In such cases, the original holders pump the price up, only to sell everything off to inexperienced retail investors. So how does one weed out the bad projects from the good ones? Interestingly, the process of picking a promising cryptocurrency is like the process of selecting a good quality stock.

Here are some factors to keep in mind when judging one of these cryptocurrencies:

1. Project Potential

Does this project solve a real-world problem? Does this have the potential to generate substantial revenue in the long run? This is important because the cryptocurrency must have some real world use-case. Keeping this in mind would help filter out cryptocurrencies that have no market viability.

2. Team Experience and Potential

The team behind the project should have strong ethics, relevant experience and a high pedigree.

3. Current Project Status

How far has the project come? Does it have any functional products and streams of revenue? These factors will give you greater clarity on how viable or profitable the cryptocurrency may be.

4. Token’s Price Link to the Project

Is the cryptocurrency’s token price linked to the project’s income? If not, it is nothing but speculation and must be avoided.

5. Number of Tokens in Circulation:

How many Tokens of the cryptocurrency are currently in circulation? Is there an unlimited supply of this Token? This helps us understand the supply of this cryptocurrency. If the supply is limited and the demand for a cryptocurrency goes up, we would see a natural increase in price.

6. Valuation and Market Cycle

Are the markets currently in a bull cycle (increasing prices) or a bear cycle (reducing prices)? Is your targeted cryptocurrency overbought or oversold? These areas help you understand if a market correction may occur in the near future, driving the price of the cryptocurrency downward or upward, respectively.

Examples of Established Large Market Cap Cryptocurrencies

1. Bitcoin (BTC)

Founded by an elusive figure known as Satoshi Nakamoto, Bitcoin is the original cryptocurrency that utilized blockchain technology. Bitcoin’s aim is to act as a decentralized currency for the world, reducing the possibility of centralized authorities’ decisions causing economic and financial crises.

Total Circulation: ~18.78 Million out of a maximum of 21 Million.

Current Price: ~ $45,456 (As of 10th August, 2021)

2. Ethereum (ETH)

Ethereum has the second-largest market capitalization after Bitcoin. Founded by Vitalik Buterin and team, Ethereum has smart contract functionality and aims to help decentralize finance, entertainment and various other sectors.

Total Circulation: ~117 Million (Unlimited Maximum Supply with a cap of 18 Million Per Year)

Current Price: ~$3,157 (As of 10th August, 2021)

Examples of Newer, Mid to Small-Cap Cryptocurrencies:

1. Polygon (MATIC)

Polygon is a protocol that was founded by Indians Jaynti Kanani, Sandeep Nailwal and Anurag Arjun. It is a framework that helps build and connect blockchain networks that are compatible with Ethereum.

Total Circulation: ~6.45 Billion out of a Maximum supply of 10 Billion.

Current Price: ~$1.14 (As of 10th August, 2021)

2. Telcoin (TEL)

Formed by telecom industry expert Paul Neuner, Telcoin aims to transform the remittance and financial services space for the unbanked population of the world. They are doing this by tying up with telecom companies around the globe and offering affordable remittance and financial services to telecom users through blockchain technology.

Total Circulation: ~54.16 Billion out of a Maximum supply of 10 Billion.

Current Price: ~$0.018 (As of 10th August, 2021)

What Is the Ideal Time to Purchase Cryptocurrency?

Apart from fundamental knowledge, it is helpful to learn a bit of technical analysis. Indicators like Relative Strength Index, Moving Average Convergence Divergence, EMAs crosses will help determine a good entry point. It is also helpful to keep an eye on how the established cryptocurrencies, such as Bitcoin and Etherium, are performing. This is because the crypto market is in its nascent stages and market sentiment tends to get pulled in the direction of these established cryptocurrencies.

The Status of Cryptocurrencies in India

While the government and the central bank were both leaning towards bringing about a ban on digital currencies earlier, cryptocurrencies are currently not banned in the country. In 2018 and 2019, the government took some steps to introduce legislative bills regarding this. But they did not amount to much.

In fact, many banks recently cited an earlier RBI order to dissuade their customers from dealing in cryptocurrencies. But the central bank stepped in and stated that since the apex court set aside the RBI’s circular, it was no longer valid. So, as of now, there is no law preventing Indians from dealing and investing in cryptocurrencies.

Now that you know more about how to judge a cryptocurrency and what some of the large, mid and small cap cryptocurrencies are, you can make use of these details to choose the right digital currencies for your portfolio. It is also important to balance those investments with other trusted options like Fixed Deposits, Mutual Funds, Digital Gold, National Pension Scheme (NPS) and the like. The Finserv MARKETS app and website makes it easier for you to invest in these financial instruments, so you can diversify your portfolio and reduce your exposure to risk.

Caution

It is important to only invest what you can afford to lose because the cryptocurrency space is still evolving and still has a lot of hurdles to deal with. It is vital to have long term investments and security in place (MFs, Insurance, Emergency Fund, etc.) before thinking of investing in cryptocurrencies.

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