3 Rules for Finding Crypto Winners

|January 16, 2024
Cryptocurrency on Binance trading app

There’s a lot of bad information out there in the crypto space.

If you go on X (formerly known as Twitter), you see many people claiming you need to make a lot of short-term “directional trades” to make money in crypto.

When you trade that way, you make a lot of money if you’re right. But if you’re wrong, your position goes to $0.

This is more akin to gambling than investing. And as we talked about last week, I’ve made the most money in crypto using a strategy you’re already familiar with: buying and holding.

But how do you know what to buy?

Luckily for you, I wrote the book on this.

It’s All About the Team

First, I want to note that most investors should hold about 90% of their crypto portfolios in Bitcoin and Ethereum.

These are the “blue chip” crypto projects that are suitable to hold long term. In my own portfolio, these two positions went from making up 10% of my total invested assets a year ago to making up nearly 20% today. (And I have not bought any crypto since early 2023.)

But for those looking to add more risk in the altcoin space, there are a few factors to keep in mind.

The foundation of any good altcoin investment is its underlying use case. Look for coins that solve real-world problems or provide a unique value proposition in the digital ecosystem.

Whether it’s facilitating faster transactions on the Bitcoin network, developing decentralized storage solutions, handling cross-border payments and remittances, or supporting smart contracts, the coin should have a clear and viable purpose.

Research the project’s white paper, assess the team’s background and evaluate the technology behind the coin. Strong projects often have a dedicated team, a clear road map and ongoing development activity.

A Strong Community Is Ideal

A vibrant and engaged community can be a strong indicator of an altcoin’s potential.

An active community contributes to the coin’s development, spreads awareness, and often indicates a level of trust and belief in the project. Look for signs of a healthy ecosystem: active discussions on forums, social media presence, and partnerships with other reputable projects or companies.

Crypto tokens from the previous cycle that had these characteristics were oracle network ChainLink (LINK), “internet of blockchains” Cosmos (ATOM) and decentralized exchange Uniswap (UNI).

Also, consider the network effect. The more users and adopters a cryptocurrency has, the more valuable its network becomes. This is the same concept we see with social networks: The more people use a product or service, the more valuable that product or service becomes.

This is particularly true for platforms that host decentralized applications (dApps) and services.

Market Liquidity Is Key

Market factors play a crucial role in the success of an altcoin.

High liquidity is essential. It ensures that you can buy or sell the asset without causing significant price fluctuations. Before you buy, check the trading volume of the coin on various exchanges to gauge liquidity. Be wary of coins with inflated volumes or those listed on obscure exchanges.

And if you see volume rising for a cryptocurrency, that usually means the “community” I highlighted above is growing… and the price will likely follow suit in short order.

Furthermore, assess the coin’s market capitalization. A higher market cap can mean stability.

But remember that in the crypto world, even large cap coins can be volatile. Look at historical price patterns, but avoid basing decisions solely on past performance… as the crypto market is known for its rapid and unpredictable shifts.

Bringing It All Back Home

Finding winning cryptocurrencies for a bull run involves a combination of technical, fundamental and market analysis.

While the potential for high returns exists, it’s crucial to approach altcoin investment with a strategy grounded in research and realistic expectations.

As with any asset class, you need to diversify your portfolio to mitigate risk and stay updated on the latest developments in the crypto space. Remember, the cryptocurrency market is highly volatile and speculative, so invest only what you can afford to lose.

As always, my goal is to provide you with the knowledge and tools you’ll need to navigate the exciting yet complex world of cryptocurrency investing. And I’ll be here to show you how to take on “smart risk” in this lucrative market.

Because – as I’ve written often – I expect 2024 to be an incredible year for crypto.

Robert Ross
Robert Ross

Robert Ross’s unique style of clear and direct stock research helped him build a massive following in the investment research industry, starting his career at investment research company Mauldin Economics and quickly rising through the ranks to become one of the youngest chief analysts in the industry. Today, over a million investors turn to Ross every month for his take on investing, economics, and personal finance. He now shares his unique insights in Total Wealth and Manward Money Report.