Cryptocurrency trading can be very difficult due to unexpected fluctuations happening in this market. Therefore, the formation of a crypto portfolio must be approached with extreme caution.
By learning to professionally expand your assets, you can avoid big losses during market shocks. Strong cryptocurrencies are less exposed to risks than little-known altcoins. Therefore, choosing new tokens for long-term storage, it is necessary to carefully analyze them.
Bitcoin vs altcoins
Many crypto traders prefer to invest only in Bitcoin (BTC) . Bitcoin has many unique qualities. This is the first successful cryptocurrency in the world, and its market share is an impressive 68%. Because of this, market volatility is often associated precisely with fluctuations in the rate of BTC. Due to its place in the cryptocurrency market, Bitcoin is one of the most reliable digital currencies. Most analysts agree that the likelihood of a Bitcoin crash is less than that of altcoins.
When used properly, altcoins can become powerful investment tools. The exponential growth of the cryptocurrency market is largely due to the success of the largest altcoins such as ether, XRP and lightcoin. Now there are thousands of different altcoins. On the one hand, this gives the investor unlimited freedom of action in the market, on the other hand, it forces the most responsible approach to choosing the right asset.
Poorly managed cryptocurrencies can collapse and depreciate in the blink of an eye, which happened with Bitconnect . That is why, before stopping on something, you need to carefully study everything. Let's get acquainted with the most basic concepts of the cryptocurrency market, without the knowledge of which it is impossible to start building your portfolio.
Compare the total issue volume and the number of tokens in circulation.
If you want to professionally approach the formation of your cryptocurrency portfolio, you need to understand how the ratio of the total issue and the number of tokens currently in circulation will affect the market value of the asset you are interested in. It is simply a matter of supply and demand. The greater the demand, the higher the price. If demand exceeds supply, price will always rise.
For example, the total amount of Bitcoin emissions is 21,000,000 BTC. After the 21 millionth bitcoin is mined, their release will cease. Now in circulation are 17 867 887 BTC. This means that miners have to get less than 4 million bitcoins. As the number of tokens in circulation approaches the total issue volume, it is logical to assume that as the deficit develops, the BTC rate will increase.
The same principle applies to investments in altcoins. Even with high demand, the price of cryptocurrency is unlikely to increase significantly if the supply is large. It's like in an old saying about the sale of snow to the Eskimos. If miners have to get billions of tokens, then in the long term, the growth in demand will be easily satisfied without a sharp increase in the rate of this cryptocurrency.
Explore Decentralized Platforms
Should be taken into account and certain differences related to the field of management. Decentralized projects do not have a president, and the community controls everything. These are open source projects, and most of them can be verified using the Github service.
Decentralized platforms are the basis of the cryptocurrency market, and many believe that the whole ideology of crypto space is based on the idea of decentralization. BTC does not have its own office. Bitcoin is just a mathematical formula that exists in the crypto space. This is what makes BTC “a genuine peer-to-peer payment system,” as stated in an article by Satoshi Nakamoto.
Decentralization has its drawbacks that you need to consider when creating a reliable crypto portfolio. The main disadvantage is that you have no one to demand compensation for losses if you are deceived by scammers or you accidentally sent your money there. There is no office where you could send a complaint, and no return is provided either. If you are dealing with decentralized cryptocurrencies such as bitcoin, errors in working with the blockchain can be expensive.
Explore centralized platforms
Centralized cryptocurrencies are managed like regular companies. Such projects usually have a president and head office where you can apply. Centralized cryptocurrencies try to comply with the requirements of supervisory authorities. Examples of such cryptocurrencies are Neo and Ripple , which are created taking into account the likely future requirements of regulators.
Centralized cryptocurrencies also have their drawbacks. And here is the main one: developers fully control the creation and use of these tokens. There were cases when networks were hacked by hackers, and instead of incurring large losses, developers preferred to do hard fork and create a new currency, depreciating the old one. This is exactly what happened with the broadcast in June 2016. As a result, ether (ETH) and Ethereum Classic (ETC) appeared separately.
Rate the project
Read the White Paper of the project you want to invest in. Never invest in a project whose goals are not clearly and thoroughly explained in White Paper. This is a very bad signal and the most risky way to build your portfolio.
White Paper provides a brief overview of the market situation, and it should also say why there is a need for such a platform. In addition, there will be a technical section containing information on the internal structure of the platform. Experienced investors prefer to invest in open source projects. This means that the community can evaluate the work of developers and help them, making the code more efficient and reliable.
A good White Paper also includes a roadmap showing how the company plans to grow at various stages. There will also be a section "Team", which will contain information on leadership skills and experience of developers. Contact the team representatives on social networks and ask them your questions. If they answer you, this will be a good sign showing that the project is actively developing.
Stay tuned for the latest news.
The cost of cryptocurrency can greatly depend on what is written about it in the cryptocurrency media. The best cryptocurrencies are constantly featured in the news, their teams are actively talking about how these projects are developing.
Always check the reliability of news that can increase the rate of a particular cryptocurrency, for example, if it is a question of the fact that this cryptocurrency has begun to be traded on a large exchange .
Responsibly approach the formation of a cryptocurrency portfolio
Blockchain made a technical revolution in a wide variety of fields. In the coming months, cryptocurrencies will continue to gain popularity and further growth of this market can be expected.
Follow the tips from this article and responsibly approach the formation of your cryptocurrency portfolio by choosing the most promising options.
Publication date 08/10/2019
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