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10 Key Indicators for Identifying Profitable Cryptocurrencies

In recent years, the excitement surrounding cryptocurrencies has extended widely, and it shows no signs of stopping. Many people’s lives have been revolutionized by investing in digital coins. There are also others who have lost all of their savings in virtual currency. Successful digital currency trading demands a thorough grasp of the market, just like any other investment. Before holding positions in any asset, wise investors keep an eye out for a few critical signs.

The top 10 key indicators for profitable crypto trading are covered in the article you’re reading right now. The opinions presented here are informed by our knowledge and experience but do not constitute investment advice. Join us as we embark on this journey.

Bitcoin token with up and down arrows to signify cryptocurrencies
Bitcoin token with up and down arrows to signify cryptocurrencies

Positive Indicators for Cryptocurrencies

Thorough market research is usually the first step to profitable cryptocurrency investing. Examining data about a digital coin to determine its trends, price movement, and overall sentiments is all that is required.

Additionally, traders evaluate a number of “positive indicators,” or elements that signal if a blockchain project has a high potential for growth and success. They include statistics on adoption, market capitalization, development, and more.

Through these factors, you can extract valuable information, like how established crypto is in the market, and be able to make informed decisions on which coins to buy and for how long. It’s, however, important to remember that there is no single indicator that can give you a complete picture of the future.

The Ten Key Indicators Listed and Explained

Market Capitalization

Market cap is the total value of all the coins that have been mined at any one time. So, it’s simply calculated by multiplying the entire number of circulating coins by the prevailing market price. Virtual money projects with high market caps indicate huge demand and usability. It is said that it’s safer to invest in such projects than alternatives with a low market capitalization of less than $1 billion.

Take note of situations where a few significant investors make an initiative extremely valuable. This is risky because if these few stakeholders decide to leave, the price could fall. So couple this analysis with other factors when making your investment decision.

Trading Volume

A high trading volume is a good indication as it signifies high investor interest. Higher volumes lead to increased demand and ultimately rising prices. You should look for the pattern in trading volume over the previous few days or weeks while examining this metric.

If you detect a fall in the trend over a few days, you might want to put off making a purchase, even when the volume over the previous 24 hours appears enormous. Trading volume cannot be utilized in isolation because it simply reflects investor interests, which could be influenced by false information or a market panic rather than by real causes.

Liquidity

Liquidity is the rate at which virtual coins can be traded (bought or sold). High liquidity simply means you can sell an asset at its market value easily. The reverse is low liquidity which indicates difficulty in swapping coins. The most liquid digital currencies usually have a small difference in their bid and ask price, while illiquid ones have a high spread.

As a speculator, you would want to purchase your coins at the lowest price possible and have a clear exit plan. Therefore, you would want to stake most of your funds in highly liquid projects as they tend to be more stable. High liquidity also means the coin in question is safe from manipulative price swings from big investors.

Price Performance

Technical analysts believe the market forms certain trends that tend to recur. It helps to identify key market reaction sections such as supply and demand zones and areas of strong resistance. The same behavior is likely to repeat when the price gets to those zones in the future.

Price spikes that are accompanied by sharp drops could be a sign of pump-and-dump or rug-pull tactics. It is common knowledge that it is best to invest in cryptocurrencies with steady price patterns. For better chances of success, it would be ideal to base your analysis on several time frames. This provides you with a wider view of the market and may enable you to corroborate your premises or spot red flags when there is dissent.

Development Activity

Understanding the development activities of a crypto project before investing your hard-earned cash may also be necessary. The project’s whitepaper will tell you everything you need to know about why it was created and its roadmap.

White Papers might be boring but they lay out risks and opportunities that may be of interest to you. For increased accuracy, you may combine this with digital coins community platforms like Reddit and BitcoinTalk where like-minded traders discuss technicals, fundamentals, and developments around their favorite projects.

An inactive venture may be a signal that you’re dealing with a fraud or discontinued venture. It would be best to approach overly optimistic projects with caution especially if they are already struggling to meet the deadlines outlined in the whitepaper.

Adoption Rate

The adoption rate of a coin directly reflects whether or not the market for which it was designed finds it useful. Some digital coins have a practical use, whereas others do not. Of course, there are many, such as Dogecoin, that have achieved popularity and a large market cap while having no actual use case, but this is uncommon.

Investing in projects with real-world use cases in the blockchain ecosystem is a better bet. We are not dismissing projects like Doge and Shiba Inu, but we think following the widely-known advice of investing in them sparingly as they carry a higher risk of failure.

Community Engagement

An engaged community indicates that a project has widespread support. Social media is the simplest approach to assess the extent of community engagement in a virtual currency initiative.

Most blockchains have channels on Twitter, Telegram, Reddit, Discord, or all of them. A large number of members and the availability of active dialogues are both considered positive indicators. You also want to see the group admins engaging users in different discussions and answering their questions.

We treat groups that are too spammy in their sales approach as a red flag. Also, running a general social media search for mentions and discussions about the coin of interest could help. It is up to you and your common sense to assess which are trustworthy and which ones are not.

Project Team

The success of blockchain enterprises, like any other project, is dependent on the team behind them. Apart from Bitcoin, whose founder(s) stayed anonymous, the majority of successful crypto ventures were founded by experienced entrepreneurs. A team entirely new in the virtual money space may struggle to achieve its expectations. The website should, preferably, state the names of the people involved in the venture and also display their pictures.

You may consider googling each name to learn as much about them as possible. Reverse searching their images to rule out the possibility of fake pictures being used on the website might also be essential. We like to exercise caution while dealing with coins whose founders are anonymous, especially in the case of startups.

Token Economics

Aside from looking at elements such as the founding team, developer activity, and adoption rate, token economics, also called tokenomics, is among key indicators we like to evaluate while conducting fundamental analysis.

Crypto owners also create rules that might influence access and the value of their coins. When analyzing token economics, you may want to check the total supply to know whether you are dealing with a deflationary or inflationary token, utility, incentive mechanism, and token burns.

Distribution is also important as it tells you which organizations and individuals are invested in a project. A coin that’s significantly held by a few huge investors might be risky.

Regulatory Environment

Lastly, you might want to research the regulatory environment within which your cryptocurrencies of interest operate. While blockchain is decentralized, some aspects of it could still be affected by the government. Ripple (XRP) is a perfect case study. The company behind this coin was sued by the SEC on allegations of participating in an illegal security public offering. This has significantly affected the value of the coin despite its strong use case and strategic partnerships.

Bitcoin has also suffered some setbacks in the past after the government in China cracked down on mining facilities. In June 2021, El Salvador adopted BTC as a legal tender. A positive development like this one could see a coin’s price skyrocket.

Expert Conclusion

When choosing the best cryptocurrency to purchase, we prefer taking into account all the variables mentioned above.

To have a better understanding of the project, you might wish to start by reading the white paper. This saves a tonne of time because you’ll know early on whether it’s worthwhile.

Then, you may move to explore the other important metrics, such as price development, market capitalization, volume, and liquidity. Feel free to reach out to other traders, particularly more seasoned ones, to seek their thoughts. But be sure that you evaluate what they also tell you. Remember to double-check everything twice, even if it seems appealing.

Eugene Abungana
Eugene Abungana - Investment Analyst, Financial Analyst, and Institutional Trader
195 Articles

Eugene is a crypto and iGaming writer, with a passion for sharing the latest trends and developments in the industry. His fascination with cryptocurrency started in 2014 when he first discovered Bitcoin. He has since expanded his knowledge and experience through education, trading, gaming, and working with different experts. My goal is to offer unbiased and accurate information while promoting ethical and responsible gambling practices.

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