What are the characteristics of a profitable crypto project

What are the characteristics of a profitable crypto project? 

It’s no secret that investors chase performance, looking for the next big thing in the market that could add more value to their portfolio. When Bitcoin was the only digital asset available, many investors saw no real value in cryptocurrencies, deeming them speculative. However, this has significantly changed over the years as the potential of cryptocurrencies has become increasingly noticeable. And although the industry has experienced a lot of ups and downs, digital assets still appeal to many. That’s because of their robust features, such as decentralization, security, speed of innovation, and complete control. 

But when it comes to choosing the best project, many investors have difficulty in making a decision. More than 23,000 cryptocurrencies are available on the market, and among these, some projects are indeed noteworthy. But how can you tell them apart from the ones that aren’t a good investment? In this blog, we will break down 5 essential characteristics of a good crypto investment, so stick with us to discover them. 

Market capitalization 

This is a simple yet critical indicator of a cryptocurrency’s value, helping investors determine how many tokens are in circulation and how much a digital asset is worth. Following Bitcoin, Ethereum is the second crypto with the highest market cap (USD 195.82B at the moment of writing). Its large cap makes it a safe investment and a preferred choice for investors who are excited about a new rally in ethereum price

However, it’s worth noting that market capitalization shouldn’t be considered alone to determine the value of a cryptocurrency. As the FTX’s collapse has demonstrated, it is also essential to ensure the ecosystem in which a crypto operates functions properly. Due diligence remains a critical aspect in determining a digital asset’s present and future value. 

Real-world utility 

Many cryptocurrencies have emerged in the past years, so the feature that first made them popular among the masses (a P2P network for digital money) is no longer relevant. Now, nearly all digital assets provide this use, so it can’t be considered a differentiator anymore. Due to this reason, it becomes imperative to identify those crypto projects that have real-world utility and can potentially disrupt a particular industry. One such example is Ethereum, which stands out through its smart contract capabilities. 

Simply put, a smart contract is nothing but code written inside the digital ledger using a programming language such as Solidity. Smart contracts are self-verifying, self-enforcing, and tamper-proof, having many remarkable capabilities, such as automating manual processes and managing users’ agreements, among other things. Taking Ethereum as a reference point, it only makes sense to understand the utility of a project in real life before investing in it. 

Supply and demand 

In economics, demand and supply are good indicators of a commodity’s value. Many cryptocurrencies have a limited supply, so in this case, the demand is the one to help determine whether a digital asset is worth investing in. When thinking of the traits that make a good crypto investment, adhering to economic principles is vital, along with an appeal to consumer ease of use. Bitcoin’s most significant selling point is the fact that only 21 million tokens will be in circulation. Due to this finite supply, some believe Bitcoin has the potential to be a strong hedge against inflation, calling it” digital gold”. 

In contrast, many tokens in the market have a limitless supply of tokens, such as Dogecoin. Of course, this isn’t a sign that the token is doomed to fail – after all, Dogecoin has performed pretty well for an asset with no technical advantage or utility. This is because it has succeeded in building an enthusiastic community around it. But, since not all cryptocurrencies can do so, this shouldn’t be a strong characteristic when evaluating a specific investment

Number of users 

Adoption is an indicator of trust in the crypto world. While it’s normal for a digital asset to have only a few users in the first stages after its inception, it needs to experience growth over time – that’s what makes it reliable. Bitcoin is a great example to this end. While in the beginning, the digital asset only had a few hundred users contributing to its development and code, it has built a large and active community throughout time, with each new user contributing to the network in different ways, whether for investment purposes, payment, and so on. 

Following Bitcoin, Ethereum also has a community of faithful members that have driven the popularity of the cryptocurrency. Dogecoin also won users’ hearts, and even if, at the beginning, no one believed in its potential to bring significant profits, its strong community has kept the cryptocurrency relevant to date. Crypto communities play a crucial role in the growth of any new project, contributing to its awareness and mainstream adoption. The more people engage with a specific asset, the greater its chances of achieving long-term success. So, this factor shouldn’t be overlooked when considering the profitability of a specific crypto investment. 

Ongoing improvement 

A good crypto project focuses on continuous improvement. While the foundation brings solutions to a specific issue, the future enhances upon it. Ethereum is probably the best example when it comes to this, as its developers have set on a path towards addressing existing drawbacks through different upgrades. The first outstanding improvement was the transition from PoW to PoW, known as The Merge, which aimed to reduce Ethereum’s energy consumption and boost security. More upcoming upgrades are set to make Ethereum’s network more scalable, secure and sustainable, making it ideal for real-world applications. 

Despite the perks it has, cryptocurrency is far from perfect. Many still raise concerns among investors, and there is undoubtedly much room for growth in the industry. So, in order to identify a noteworthy crypto project, consider if it strives to make improvements that deliver game-changing results – if it doesn’t, this is likely an indicator that you shouldn’t invest in it. 

The bottom line

Many cryptocurrencies are out there, but not all make a great investment. Since crypto is volatile, it is hard to say there’s any ‘safe bet’ – you can expect losses just as much as gains. However, a project with solid fundamentals is more likely to succeed than the others. So, before choosing a project to invest in, you should run through the characteristics discussed above to ensure it ticks all the boxes.

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