If you’re considering a crypto token investment, here are a few questions you should ask yourself to determine its worth and guide your decision.
Crypto investors are always told to diversify their portfolios and add promising new assets. This means that the average investor is constantly analyzing potential tokens to decide whether they are worth it or not. And given the fact that there are thousands of tokens in the industry at any given time, this can be a bit overwhelming.
If you’re having to consider a crypto token for investment, there are a few questions you should ask yourself to determine its worth and guide your decision-making.
Some of these questions are as follows:
What Type of Token Is It?
Crypto tokens are very varied and include every type you can imagine. There are traditional tokens whose value is based on trading activities, stablecoins, utility tokens, meme coins, and much more. Knowing what type of token you are dealing with helps you know its chances of turning a profit and the benefits you can get from it. Most times, the token type will be stated plainly on its website, whitepaper, and promotional materials. Look at these to get an idea and if you have any questions, don’t hesitate to reach out to the token team for help.
What Is It Used For?
Tokens gain their value from market demand and this demand is informed by its use cases. So, before you buy any token, find out its intended use cases. XRP is mainly used for cross-border transactions and sports tokens are used for engagement with fans. These have kept them profitable for years and if any token deserves your money, it should prove that it has viable use cases attached to it. Once again, look at the website, whitepaper, and promotional materials for this information, and be cautious of tokens that cannot plainly state their use cases. While there are cryptos that are able to thrive based on hype alone, they are not the norm.
Where Will It Be Listed?
One way to weed out shitcoins and be sure that a token has some merit is to find out where it will be listed. Before a token will be accepted for listing on a major exchange, it will be subject to a thorough review process and thus, is more likely to succeed.
This is on top of the fact that listing on a major exchange provides visibility for the token in question. As Valerie Reilly states, upcoming Binance listings have tokens of all types and this can be a way to discover new tokens. By doing this, you save yourself time and effort.
Who Is Behind it?
While the crypto industry has no shortage of tokens with anonymous or pseudonymous founders, you should do some research into the team behind it. If they are known and have worked on successful crypto projects a la Charles Hoskinson of Cardano, it could be a sign to get involved. This is also true if they are experts in the field in which their crypto operates. On the other hand, no publicly listed founders could be a sign to be cautious about the token. It would need to be strong in other areas to justify your buying tokens from complete unknowns.
What Do the Experts Say?
Crypto experts of all types are on hand to give their opinions on every token you can imagine. This includes traders on Twitter/X, analysts writing opinion pieces for news sites, and so on. If you are a non-expert or newbie, you should be especially interested in the industry verdict on potential tokens. Search the name of the token and find out what the market thinks of it. If the predictions are especially positive, it could be a sign to go ahead. However, if it is unanimously declared a shitcoin, you might want to steer clear.
What Does My Community Say?
As a crypto investor, it is important that you are in community with other crypto investors. This could be private trading groups on Telegram, group chats on WhatsApp, or even fellow traders in real life. Many heads are better than one to run your investment decisions by them and find out what they think of a token. In the best-case scenario, they endorse the token and support your decision. Worst case, they disagree and let you know why they do not endorse the token and this can further guide your investment journey.
Can I Risk It?
No matter how promising or fool-proof a crypto investment might seem, it is still an investment and thus, carries the risk of loss. The general consensus is that you should only invest money you are willing to lose and this applies to individual crypto assets as well. Before you buy a token, ask yourself, “Would I be okay if its value crashed to zero?”. If the answer is no, it means you’re either investing more than you’re willing to lose or are not confident in the token. Both should make you reconsider your decision.
Conclusion
Buying a crypto token can be an exciting step on your path to financial freedom. That being said, it should not be taken lightly and should only be done after much research. In this article, we’ve broken down the questions you should ask yourself before you proceed to buy a crypto asset. These should guide your decision-making and save you much trouble.
Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.
