Crypto news is usually dominated by the “big boys” of cryptocurrency, Bitcoin and Ethereum. But the real thrill and risk lies in the altcoin markets for investors and traders.
Finding undervalued altcoins can be like looking for a diamond in a mine. It takes a lot of patience, market insight and a good understanding of the crypto space and what you are looking for. There are thousands of crypto projects out there trying to get peoples attention, the key is learning how to find the “real deal” from the over-hyped, noisy projects that are going nowhere.
In todays blog we are going to look over the steps you should take when looking for the next big thing.
Look at market cap, not current price.
Investors are often caught up looking for the newest, lowest priced coins, believing that a £0.01 token has more upside than one that is currently priced at £100. Market capitalisation is the total value of a cryptocurrency. This is determined by circulating supply x price and offers a more accurate picture of the value of a token.
An altcoin with a low market cap (under £100 million) but backed by some strong fundamentals may be significantly more undervalued compared to other coins. Such low-cap coins tend to be a higher risk, but offer significantly higher rewards if they gain adoption or community support.
Look for real-world utility.
How long a token is likely to survive in the crypto space, or how well it is likely to perform is often tied directly to its real-world use. Tokens with little or no real-world use might experience a small “boom” but are likely to be left behind once the hype has died down.
When looking for a new altcoin project, ask yourself the following questions:
– What real-world problem does the crypto project solve?
– Is there a needed, real-world application for the project?
– Can the solution to the problem be scaled?
– Does it improve on already existing solutions for the problem?
Projects that are focused on high-demand sectors, such as decentralised finance (DeFi), artificial intelligence (A.I.), gaming (GameFi) tend to attract more interest from potential investors. Chainlink (LINK) grew massively because it was able to solve a key issue in DeFi. It found a way to get real-world data onto the blockchain, causing Chainlink to gain a massive boost in investors.
Look into the team and community.
There are always teams and communities behind every successful altcoin. Finding them usually only takes a few minutes and can give you a good insight into the project, the support it has and where it is likely to head in the future.
You need to look for a token with a team that has experience in the crypto space, a team that has been involved in successful projects before and that are open and transparent on their social media. A team that provides little or no updates to their development process, or constantly ignores the community is a project that should be ignored.
The community behind the project is also important. A strong, active community on Discord, Telegram, Twitter or Reddit can be a sign of strong, grassroot support. A coin with a strong community behind it can weather market turbulence and grow organically over time.
Tokenomics and supply.
Tokenomics are a cryptos version of economics and are not something that should be ignored and breezed over without proper, close inspection.
– Total and circulating supply: A coin with a massive maximum supply might struggle to increase in price unless there is a huge demand for the token.
– Inflation rate: Is the coin inflationary or deflationary? High inflation can suppress prices over time and lead to the death of a project.
– Token distribution: Are the majority of the tokens head by the founders or early investors? If this is the case, this could point to a project to avoid.
Potentially successful and undervalue projects with have well thought-out tokenomics that attempt to offer incentives to token holders and long-term investors.
Check trading volumes and exchange listings.
Most undervalue altcoins have low trading volume. While this is the case, always be on the look out for tokens with zero liquidity, these are hard to sell should the time come. If a coin is only listed on exchanges that you haven’t heard of or only on decentralised platforms such as Uniswap or Pancakeswap, it could point to it being undervalued due to a lack of exposure.
When a token is listed on a major exchange, such as Binance, Coinbase or Crypto.com is can start significant rally. Keeping an eye on exchange lists or rumours from communities tied to the project can give you a heads up before it becomes common knowledge.
Crypto Analyst’s Final Thoughts.
Finding undervalued altcoins is almost as much luck as it is judgement. It requires a lot of time, research and an open mind. More often than not, the best projects are ones that no one is talking about. At least, not yet anyway.
There is always risk involved when it comes to altcoins. It is easy to be taken back by false promises, good advertising and “pretty” looking websites. You always need to do your own research on any token and don’t take a news article or endorsements from people at face value. Undervalued doesn’t mean there is no risk involved, it just means that the market hasn’t seen the potential yet.
Always remember, Bitcoin and Ethereum started as projects that no one had heard of once.