The altcoins season is back and coins like Ethereum, Polkadot, and Solana are breaking all-time highs. In August, the total coins listed on CoinGecko was about 9,000 coins. As of this post, there were 10,089 coins in the market. More than 1000 coins have been added in the short span of around 100 days!
The returns you could get from these coins are insane, however, it is important to note that not all altcoins are good and profitable! There may be hidden scam coins out there as well – the latest $SQUID saga is a timely reminder.
So, how do you find the gems out of the 10,402 altcoins in the market, and stay away from the potential scams?
Here are 3 tips that I personally use. I hope they’ll can help you spot the next winning altcoins:
1) Market Cap and Trading Volume
We start off by looking at the coin’s Market Cap and its trading volume. This will give you a general idea of the potential risks and rewards.
How to use Market Cap as a gauge
An altcoin with higher market cap generally has a lower multiplier of profits (2-3X) while one with lower market cap tends to deliver higher multiplier profits of (10-20X). Here’s a case study of 2 altcoins:
| Celsius network (CEL) | Alchemist (MIST) | |
| Rank | 75 | 393 |
| Market Cap | $2.1 billion | $135 million |
| 24 Hours Trading Volume | $3.3 million | $920k |
In order to generate 5X profits, the capital injection would be at least $8 billion for Celsius and $550 million for Alchemist respectively. It is easier to push the prices up for Alchemist compared to Celsius which already has a bigger cap.
On the other hand, let’s say their prices were to fall 50%, it would take $1.05 billion to pull down Celsius compared to $68 million in Alchemist‘s case.
| Celsius network (CEL) | Alchemist (MIST) | |
| Market Cap | $2.1 billion | $135 million |
| 5x Profits | $2.1bn x 5 = $10.5bn (Difference of $8bn) | $135 m x 5 = $680m(Difference of $550mil) |
| Down 50% | $2.1bn x 0.5 = $1.05bn | $135 m x 0.5 = $68m |
How to use Trading Volume as a gauge
Next, we look at trading volume because it determines how liquid the coin can be. Liquidity is very important because it allows you to buy or sell easily.
You could end up in a situation whereby you have lots of profits but you are not able to secure the profits because you are unable to sell them.
Therefore, before purchasing an altcoin, it is important to understand the risk involved. Table 1 above suggests that it will be easier to sell Celsius which has a trading volume of $3.37million compared to Alchemist which only has a trading volume of only $920k.
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2) Coin Information
Next up, study the coin’s information.
There is a lot of information in the cryptocurrency world and sometimes it might be hard to filter what is real or fake information. Because of this, I like Coingecko helps to collate reliable sources of information of the coin.
It is properly categorised and allows me to search for the right information easily. They even list sources for the coin’s source code, official website and even the support group.
For example, the screenshot above shows that Celsius does have a lot more community support and credible sources compared to Alchemist. However, that is to be expected as Celsius has been around way longer compared to Alchemist which was launched a few months ago.
Do keep this in mind when you’re researching on a coin. For newer coins, do not discredit the lack of approved information sources.
3) Community
Community builds confidence.
A coin with more supporters would generally have more community platforms and a bigger market cap. By looking at the different community platforms available for the coin, you can get a better idea of how people see the coins.
By comparing the two altcoins in our case study, it is obvious that Celsius does have more community platforms such as Reddit, Twitter, Facebook, Telegram, and Bitcointalk.org while Alchemist only have a Twitter platform at the point of writing. However, this does not mean that Alchemist will not grow to be like Celsius in the future.
Conclusion
In conclusion, I hope that the case study of the two altcoins gave you a better understanding of risk and rewards and what are some tips to look out for when selecting an altcoin.
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