7 .How To Invest in Cryptocurrencies - A beginners Guide - Part 2 | Steemit Crypto Academy | Lesson 7

Overview

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In which crypto currency should I invest to gain a profit ? , this is the question I get from most of the newcomers to this industry who are interested in crypto currency investing. Now after going through lot of lessons you have a idea how difficult to answer such question with the unpredictable nature of crypto currency markets. But with a proper analysis of a particular project we are able to predict the future up to some extent. Not with 100% probability , but at least with 70 %. So let's start the lesson. When buying crypto currencies we do not need to start from large amounts. Fragmentation is a positive quality of crypto currencies for investors. We do not need to buy 1 Bitcoin or 1 BNB to invest. We can invest even using few cents as majority of crypto currencies can be fragmented up to 8 decimals at least.

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As you can see even with few cents you can invest in Bitcoin. That's the advantage of Fragmentation . So simply what I wanted to tell you is price of a crypto currency is not a matter to invest in it. That's the first point.

Market capitalization

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A crypto currency can be over valued or undervalued in the market. The best way to decide that is to check the market capitalization.

Market Capitalization = Current Price * Circulating Supply

Circulating supply means number of tokens which are active on the market or circulating in exchanges. This circulating supply change with time. You can very easily calculate the market capitalization data from coinmarketcap.com for each crypto currency.

_{https://coinmarketcap.com/}

So now you know how to find out the market capitalization of a crypto currency. Now let's see how to consider this parameter when taking your investment decision. We can basically categorize these in to Large cap ( Above 10 billion ) , medium cap( 1 billion to 10 billion ) , small cap ( lesser than 1 billion) . Large-Cap crypto currencies like Bitcoin , XRP ,TRON , ETH are considered as lower risk investments. And Small-Cap crypto currencies are considered as high risk investments. The chances of sudden breaks of the price of a Small-Cap crypto currency is higher than a Large-Cap crypto currency. But when considering the potential profit the story is totally opposite. The probability of Small-Cap crypto currency gaining a large market price gain is higher than that of a Large-Cap crypto currency. Small-cap projects will sometimes give you very high returns. It's simply high risk high profit.

Liquidity

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Liquidity is a parameter which tells us how easily we can buy/sell a particular crypto currency. The liquidity of a currency is affected by the trading volume, number of exchanges , applications / use cases of the particular currency and regulations for payments , transactions etc. So it's very important factor to consider for your investment. When the liquidity of a currency is high , the market stability is of that currency is higher. So your investment is low risk when the liquidity is higher. When you invest in a lower liquidity token it's difficult for you to turn them in to fiat again. So the coins which are ranked in the bottom are currencies with lower liquidity. You can get a clear idea of the liquidity from the following tutorial.