Cryptocurrency selection guide for beginners.
You probably became interested in cryptocurrencies by hearing about Bitcoin or Ethereum. However, if you saw thousands of coins when you entered CoinGecko and this confused you while investing, this guide is exactly for you. This guide explains in detail the metrics you should look
As of the date of writing, there are more than 10,000 known cryptocurrencies.
Before starting the guide, I would like to make my first warning: if you have heard of any other currency other than Bitcoin or Ethereum, the first money you should not invest in is the money you heard about. Because the current currency has made its name known even to you who are not interested in crypto, its fame has reached the last person and is now preparing for a fall.
1. Where should we first look at the cryptocurrency we will invest in?
The first place you should research before clicking the BUY button on a cryptocurrency you have heard of or want to buy should be CoinGecko and CoinMarketCap. These sites are places that list major cryptocurrencies.
Although these sites contain detailed information about existing cryptocurrencies, it takes time to update the information they contain specifically for a particular currency. Therefore, purchases cannot be made just by looking at these metrics. I will delve deeper into these data one by one in the following sections of the article.
2. So what data should I look at first and what is their importance?
A. Total Amount of Coins
One of the most important features of Bitcoin is that it is a limited asset. Nowadays, states print money in a free and unlimited way. Bitcoin's power comes from its limitations. Since the increasing demand for a limited asset, which is the basic rule of the economy, pushes the price up, as the demand for Bitcoin increases, it causes its price to rise. For this reason, perhaps the first data to look at is whether the money we will receive is limited or not. What we mean by restriction is not "HardCap". HardCap means, for example, that there will be only 21 million Bitcoins. There will not be 21,000,001 Bitcoins. 21 million limit means HardCap for Bitcoin
As of now, there are 18,651,625 Bitcoins in circulation and the maximum will be 21 million. In other words, 89% of the existing money has been mined. (The importance of this % will be discussed later.) However, currencies such as Ethereum or Monero do not have this “HardCap”, so does this mean that the existing currencies are bad, no. Restriction does not mean “HardCap”. Ethereum and Monero are also limited coins, the only difference from Bitcoin is that these coins decrease over time and limit their supply at an unknown point.
Monero does not have a “HardCap”. However, this does not mean that Monero is an unlimited asset.
In other words, the important thing is not that it has a sharp limit, but that its supply will eventually limit itself. So that's the first metric we should look at. Will the cryptocurrency we buy restrict itself in the future? If the answer to our question is yes, we are on the right track.
(For example, Tether is a crypto Dollar and the Tether company can print unlimited USDT as many Dollars as it has).
B. Amount of Coins in Circulation and Its Ratio to the Total Amount
Well, we learned that a cryptocurrency is limited and has a “HardCap”. Then what is the amount in circulation? The answer to this question is very easy. For example, 89% of the Bitcoin mined was released as seen in the example above. This means that only a small portion of 11% remains. Approximately 2 million Bitcoins will be released and mining will end.
Then comes the second place to look, the rate of circulation of a cryptocurrency. If the rate of a cryptocurrency in circulation is less than the amount that will be released, it will cause the value of this money to decrease with the currencies that will enter circulation in the future.
For example, the example below is for Ravencoin (RVN). As can be seen, there will be a total of 21 billion RVN. It will not exceed this limit, but the total amount of RVN in circulation is 8 billion units. This means that another 12 billion (60% of the total amount) RVN will enter circulation
In short, the more the total amount of a coin in circulation compared to its total amount, the more stable its price will be, that is, the less volatile it will be. Because the new coins that will enter circulation will be less than the existing coins and will not reduce the price.
So should we not invest in these coins? So should we stay away from these coins? The answer is a big NO. From where?
C. Increase Rate of the Amount of Coins in Circulation and Inflation
The speed at which a coin enters circulation is very important. For example, based on the Ravencoin example above, 12 billion RVN are currently waiting in line to enter circulation. What is important is the speed at which these 12 billion pieces enter circulation. For example, if all 12 billion units enter in 1 year, Ravencoin circulation will increase by 120% in almost 1 year, thus the price, which cannot withstand the supply shock, will drop significantly.
Let's say that these 12 billion units will be released in 120 years, which means that 100 million RVN will enter circulation every year, and this amount is very small compared to the current 4 billion RVN. This means that the price is not affected much by the coins that will enter circulation.
This is where the concept of "inflation" comes into play. Inflation in crypto is the ratio of the amount of coins in circulation per year to the amount of coins in circulation. Let's say the amount of coin A in circulation is 100 units, if there are 200 units in circulation at the end of a year, the inflation of this coin is 100%.
Based on my own experience and observations, inflation seriously suppresses the price of coins with annual inflation above 20%. Therefore, we should be careful when buying coins with inflation greater than 20%.
Inflation is not always something to be afraid of, you can turn it into an advantage. If a coin's inflation is high, the price is seriously suppressed. These types of coins are among the coins that can be evaluated for the long term (5 years and beyond). Especially updates such as Halving - Difficulty Bombs seriously suppress inflation. That's why these updates increase the price of the coin (this is why the halving in Bitcoin increases the price). Buying and waiting when inflation is high will cause a serious price increase when it falls. In the following parts of the article, inflation calculation and halving etc. methods will be explained.
D. Market Size of the Coin
We learned the concepts of total amount of coins, amount of coins in circulation, rate and inflation. We come to another metric. Market size of a coin.
The market size of a cryptocurrency is calculated with a very easy process.
(Amount of Coin in Circulation) x (Instant Price of the Coin) = Market Size of the Coin
So, what does Market Size do for us? What kind of data does multiplying the coin's price and its amount in circulation provide us? Then comes the most key sentence:
“THERE IS AN INVERSE PROPORTION BETWEEN THE MARKET SIZE OF A CRYPTO CURRENCY AND THE APPETITE FOR RISK.”
This sentence says that if a cryptocurrency has a high market size, it is very well-known, it is likely to be listed on many exchanges, and it is a safer haven than coins with lower rankings.
Bitcoin is the biggest money in the cryptocurrency market. Therefore, the cryptocurrency with the least risk and volatility in the cryptocurrency markets is Bitcoin. As the market size decreases, crypto money becomes much more risky.
So should we avoid crypto money, which has high risks? No. If the risk of a cryptocurrency is high, its return and cost will be higher. For example, while it is quite normal for a cryptocurrency ranked 600th to double its value or experience a 90% loss, this is more difficult for Bitcoin.
My own experience is that cryptocurrencies with low market sizes are seriously manipulative. However, it would be logical to give these coins a chance with small volumes. For example, although buying Bitcoin with 10 lira does not bring much profit, a coin with a low market size can multiply this money. However, investing in these coins in high volume may result in a painful experience.
E. Exchanges where the coin is available
Although it is a metric close to market size, the more exchanges a coin is available on and how large and prestigious these exchanges are, gives a lot of insight about this coin.
If a coin is listed on many exchanges, it will be easy to access this coin. This will be very important for the pricing of a coin. Because in a breakout wave, everyone will want to buy this coin. If it is on unknown and non-famous exchanges, which we call "under the hood", it will be difficult to access this coin and the coin price will be manipulated by the few people in that exchange.
It is true that if a coin's market size is high, it is generally listed on many exchanges, but there are many exceptions. For example; Bitcoin SV
Although BitcoinSV has a HardCap of 21 million, 89% mining and low inflation, and a market size of 22nd, it is not listed on many well-known cryptocurrency exchanges. (Binance, Kraken, Bitstamp, OKex, etc.) This shows us that the exchanges do not trust this coin very much.
This logic is wrong, “If a coin is listed on few exchanges, it is bad.” No, the stock exchanges look after their own pockets. If there is a lot of buying and selling of a coin, they will happily add this coin and earn commission. However, despite the high volume and market size of BitcoinSV, many exchanges do not list this coin. This is an important metric.
In my personal opinion, if a coin is listed on the Kraken and Gemini exchanges, that coin is long and sustainable. So, trusting this coin would not be a bad choice. Because Kraken and Gemini are two exchanges that meticulously list coins on cryptocurrency exchanges and pay great attention to regulations.
3. I looked at the first data and the coin I will buy is positive at first glance, but then what?
We looked at the key metrics of our coin from CoinMarketCap or CoinGecko. We learned about the circulation amount, maximum amount, inflation (I will explain its calculation) and the exchanges it is listed on. Now it is time to examine the coin we will buy in more detail. These metrics only give a small idea.
A. Coin Distribution
FIRST OF ALL, WE DON'T LOOK ANYWHERE. THE FIRST PLACE WE LOOK AT SHOULD ALWAYS BE THE COIN DISTRIBUTION.
Now, from the previous data, we learned the general amount and circulation of the coin. Coin distribution is very simple. Who has the coins in circulation, where and most importantly, how were they distributed at the beginning of the incident?
Bitcoin was created by Satoshi Nakamoto in 2009. Later, Satoshi Nakamoto dug in to try Bitcoin. We estimate that Satoshi mined nearly 1 million Bitcoins in the early days (equivalent to 4–5% of the total Bitcoin supply). I leave BitMex Research's article to the person concerned. BitMEX Research
When Ethereum was announced in 2015, 60 Million ETH was initially mined and sold to the community with an ICO price of $0.33. 10 Million ETH is reserved for developers and the Ethereum Foundation (Developers are still supported with these ETHs, today it corresponds to 4-5% of the total supply).
In another example, let it come from NANO Currency. NANO started to be developed as “RaiBlocks” by Colin LeMahieu in 2014. In 2015, 126,248,289 NANO was distributed free of charge with the FAUCET system, and 7,000,000 NANO was reserved for developers. A total of 133,248,297 NANOs are currently in circulation. Yes, although it is hard to believe, NANO is a completely free cryptocurrency that is distributed through faucets called FAUCET.
The 3 examples are examples of different distribution models. Those who were the first to mine Bitcoin, who were the first to sell in Ethereum, and who were the first to use the Faucet system in NANO made a serious profit. These examples caused a serious ICO craze in 2017. Especially the coins made on Ethereum were being sold through ICOs and reaching significant amounts. (As a matter of fact, most of the 2017 ICO coins collapsed.)
All these developments taught everyone that coin distribution is very important. Because the teams holding large amounts of coins were selling their coins without doing anything, increasing the price of the coins, passing on the large amount they had to people and running away.
After this period, every project started to transparently indicate the coin distribution. IF A PROJECT'S COIN DISTRIBUTION IS NOT TRANSPARENT, DO NOT BUY.
Pie chart showing the distribution of AVAX coin.
For example, if we look at AVAX, the coin of the Avalanche Project;
360M of the 720M Maximum AVAX will be obtained through Staking. The remaining 360M AVAX:
10% belongs to the Avalanche team.
10% was sold as ICO.
9.26% belongs to Avalanche Foundation.
2.5% were AirDroped.
5% is reserved for Strategic partners.
Every project should clearly and transparently display the distribution of its coins in this way. If the coins of a project are collected in a single hand or if these coins are distributed unfairly and VCs (Venture Capital) have a big say, it is necessary to approach this project with caution. Because someone who manages a large amount of assets leaves the coin price open to all kinds of manipulation.
Until this part, we investigated the sales of coins when a project was announced and to whom it went. Now let's look at the current status of the current coins.
Monero, Piratechain etc. You cannot see the coin distributions of projects such as. Because these coins are based on privacy. Click for privacy coins.
In these projects, coins are like paper money. It is difficult to trace. However, contrary to popular belief, cryptocurrencies are quite transparent. Any movement can be easily monitored in currencies such as Bitcoin and Ethereum.
In these projects, we monitor the movements of coins using Blockchain Explorer. For example, Etherscan for Ethereum and BitcoinExplorer for Bitcoin are among the main Explorers I use.
Let's monitor an ERC20 coin with and without a good distribution using Etherscan
I found a coin called SHIBA INU, 50% of the coin is in the hands of a single account, a total of 10,974 people have this coin.
Uniswap's UNI coin is very distributed and 187,192 people have this coin.
The conclusion to be drawn from here is that the more distribution and dispersion of a coin, the better. The more people have a coin, the more difficult it becomes to manipulate its price. These examples are given for ERC20 tokens. Be sure to look at the distribution of the coins you will buy.
B. Coin's current status, RoadMap, developer team.
In the 2017 ICO frenzy, almost all projects issued their coins on the Ethereum network, and after selling their coins to people on this network, they said that they would move to the Mainnet (that is, they would leave Ethereum and move to their own chains). However, things ended in fiascos for some projects, and most of the project owners sold their existing coins and ran away.
The second question to ask after coin distribution without investment is whether this project has its own chain. The best example of this is Holochain. Holochain, which started selling Holotoken (HOT) ERC20 in 2018, was in serious demand. However, Holochain's Mainnet has not been announced yet in 2021. (However, the approach of the Mainnet caused serious prices 1 month before this article.)
The only reason for this decline is because people gave up hope on Holochain's Mainnet, which never came. Therefore, be sure to check whether the coin you will buy has its own Mainnet or not.
Otherwise, it is necessary to determine whether they have such a goal or not. It is necessary to ask whether they wrote this in their RoadMap and whether they achieved the goals written in the RoadMap. RoadMap is a project's calendar of future goals. The RoadMap of a project must be clear and understandable, and it must have achieved its previous goals
So, what do we do if there are delays in a good project like RoadMap? For example, while IOTA 2.0 was expected to arrive in 2020, it was postponed to 2021. What should we do in this situation?
Every project experiences various disruptions. What needs to be considered here is whether the schedule is delayed despite the work of the developer team of these projects, or is it not working and trying to stall you?
At this point, it is necessary to be close to the developer team of the project and ask and question through social media and various channels. All these projects are software and they use GitHub to develop these software. A project's GitHub activity can give developers an idea of whether it's working or not. For example
There are as many efforts as there are activities. Of course, it is difficult to get a clear conclusion just by looking at these graphs. Therefore, do not hesitate to ask questions to the team of the project you will receive. If they are afraid of you, there is a problem.
C. Mining metrics for coins that work with mining.
Bitcoin, Litecoin, Ethereum, GRIN, Ravencoin etc. Many coins are mined and these networks are maintained by miners. The first thing to look at in coins that work with mining is how decentralized the mining is.
MiningPoolStats will help you with this. For example, Bitcoin's HashRate distribution is below according to pools. This distribution should be diverse in coins that work with mining. For example, the distribution in Bitcoin is nice.
Bitcoin HashRate distribution.
However, if a coin's HashRate distribution is not diversified, this is a dangerous situation. Below is the mining distribution of BitcoinSV
As can be seen, only two pools in BitcoinSV control 72% of all issued BSVs. This distribution is extremely central. These two pools can attack the network 51% at any time.
Another issue is Mining profitability, which I think is the most important metric. If a coin is mined and its HashRate increases even though mining is not profitable, the expectation for this coin is high, because it is an important sign that miners expect an exit in this coin, or conversely, if the HashRate of a coin decreases, mining is not profitable despite this decrease. A decline expectation occurs.
Monero is an example of this. According to MiningPoolStats, although Monero's HashRate is increasing day by day, Monero mining is still done at a loss with an average electricity price and 10 GTX 3080 graphics cards. This shows that the project is well-established.
D. Coin's community, social media power and marketing.
This part is not actually based on any data, but it is important to know that the crypto market has always been and will be open to speculation. The more flattering a product is, the more its price increases. Empty projects can reach serious profit margins only with mass guidance.
I have been following Ethereum Reddit for years, every question I have asked has been answered there. If I had not found answers on Reddit to my pessimistic, anxious and unanswered questions from time to time, perhaps I would have sold my Ethereums long ago. It is very important to communicate with a coin's community and get the opinions of the people there.
E. Future current events and news of the project.
You have often heard a sentence like this among cryptocurrency lovers. “Buy the rumor, sell the news.” Let's explain this sentence like this: many cryptocurrencies share announcements, events, important partnerships and news. For example, Justin Sun, the founder of TRON, is someone who frequently performs this manipulation. He constantly says that he will give news. TRON (TRX) price increases and the coin falls after announcing the news.
Therefore, the crypto money you will receive may not have any news, announcements, events, etc. in the future. It is of serious importance to investigate whether this will happen. CoinMarketCal is perfect for this job. When you enter this site, be sure to write down the name of the cryptocurrency you will buy and see if there is any important news in the future.
As in the example above, the more events, news, etc. in front of a coin. If there is, it can be predicted that the coin will increase in price as it approaches these dates.
Now, here I will especially talk about the concept of Halving and Inflation. I mentioned inflation above, now let's talk about what halving is, why it is one of the biggest harbingers of the exit, and how inflation is calculated accordingly.
Halving means reward halving. What does this reward halving mean? Bitcoin is a blockchain technology. Miners, on the other hand, mine Bitcoin by operating large computers. The Bitcoin they earn is a block reward found every 10 minutes. Bitcoin's block reward first started as 50 BTC. It then continues to halve roughly every 4 years.
Bitcoin started with a block reward of 50 Bitcoins in 2009, decreased to 25 in 2012, became 12.5 in 2016, and finally in May 2020, the block reward became 6.25 Bitcoins. Bitcoin will hold its 4th halving in 2024 and the block reward will be 3,125.
Each halving causes less coins to enter circulation, as in the example I explained above, the less coins enters circulation, the higher the price. It follows from this that if the coin you bought has a halving mechanism and the halving date is approaching, this is a serious indicator of exit. For example, Ravencoin and zCash have a halving mechanism. It means that inflation will decrease after the halving, so it will have a positive impact on the price
Now, let's calculate inflation, find the halving date, and talk about the impact of Ravencoin with examples.
In Ravencoin, the block time is 1 minute and 5000 RVN is produced in each block.
There are 525,948 minutes in 1 year. This means that 525,948 blocks are produced in Ravencoin in 1 year. Since there is 5000 RVN production in each block;
It means 5000 x 525.948 = 2.629.740.000 RVN. There are currently 8,300,000,000 RVN in circulation.
2,629,740,000 (Number of RVNs to be entered in 1 year) / 8,300,000,000 (Amount in circulation)] x 100 (we calculate the percentage) = 31.6
Then we found this, inflation on Ravencoin is 31.6% per year.
So when is the halving? In Ravencoin, halving occurs every 2,100,000 blocks. We said the block duration was 1 minute. This means halving occurs in 2,100,000 minutes. There are 525,948 minutes in a year.
2,100,000 / 525,948 = 3.99
Then Ravencoin has a halving every 4 years (same as Bitcoin).
When we add 4 years to the start date of the Ravencoin chain, it means that the halving will occur in January 2022. Based on this, RVN inflation in January 2022 will be 31.6 / 2 = 15.8%. When we add 4 years to the start date of the Ravencoin chain, it means that the halving will occur in January 2022. Based on this, RVN inflation in January 2022 will be 31.6 / 2 = 15.8%.
he decrease in RVN in circulation always reflects positively on the price. Therefore, Bitcoin, Litecoin, Zcash, Ravencoin etc. The halving dates of coins are important and these metrics should be checked when buying coins.
Until this part of the article, everything was a guide and what you need to do was examined. If the cryptocurrency you will invest in meets the criteria and creates a positive atmosphere, it will be the right choice to invest.
The next part of the article will include what you should not do, my own experiences and comments.
What not to do.
A. VIP groups, pump groups, manipulator groups.
Cryptocurrency markets are not yet regulated by states. It doesn't look like it will happen. Although various regulations and rules have been introduced to centralized exchanges, regulations and restrictions do not seem possible in the near future due to the rise of decentralized exchanges and the ability to buy and sell cryptocurrencies peer-to-peer without the need for a third party.
First of all, free cheese only comes in a mousetrap. In this market, no one helps anyone they do not know, nor does they take from the rich and give to the poor. He doesn't act like Robin Hood.
As above, those who have previously purchased a large amount or opened a "Long" position start looking for victims, as the victim arrives, the price climbs up, the first ones to enter exit, and the situation is not encouraging after that. Almost all of the Pump groups, such as Çiftlikbank and Titan, work with the logic of pyramid schemes. Stay away from these groups.
VIP groups are a different version of this. VIP groups are no different from “Iddaa VIP Group”. If a trader is already successful, there is no need to set up VIP groups. This man is already making money. However, someone who creates a VIP group is both making money from you and using you like the victims in the Pump group above.
B. Crypto Twitter influencers
Dear friends, when they asked Satoshi Nakamoto if she could compare Bitcoin to something, she gave an iconic answer as follows:
"I'm sorry, but Bitcoin and blockchain are unlike anything I've ever seen on Earth."
When Satoshi Nakamoto invented Bitcoin, many systems similar to Bitcoin had emerged. However, most failed and the available knowledge in this area was extremely scarce. In other words, the total experience of the person who has the most insight about cryptocurrencies is at most 10-12 years.
C. Appetite for leveraged transactions and high ROE
So I only made a $3–$4 transaction here. I won $24. I haven't become incredibly rich and maybe it's nothing compared to what I've screwed up. What I'm trying to say is, don't let this type of visuals push you into leveraged transactions. Leveraged transactions are extremely risky. These transactions are not entered into for "quick riches". The new investor has no business in leveraged transactions. Leveraged transactions are the place for people with serious technical knowledge and stock market background.
In addition, such images are shared in phenomena and groups to deceive people. Don't fall into this trap. The size of available positions is low. They did not become rich, they did not fall short of money.
Thank you very much to TobbyKitty
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