ZoneBitcoin EditorialFrankly, Investing in cryptocurrencies is becoming an increasingly difficult activity because the choice is always greater. For a novice, it must be even more difficult because he does not have the experience or knowledge to do a first sorting.
Make a crypto fundamental analysis can be tedious, of course. We do enough of it to know how time-consuming and time-consuming it is. That said, considering the most important points of a crypto is essential for an investor.
You are probably wondering how to accurately perceive the value of a cryptocurrency? You are wondering what to consider in the tokenomics of a crypto to estimate its future value and know if it is worth investing?
Don't worry, these are questions that we ask ourselves even if we have background in this universe.
And, to determine the price, certainly the law of supply and demand comes into play but it is essential to know the other factors behind it. Indeed, there are many factors that will influence supply and demand….
What does tokenomics mean for a crypto?
We recommend that you read our article on tokenomics to better understand in detail what it is about.
The term is formed with the association of the words tokens and the word economic (in English economy, eh).
Thus tokenomics (which is often used in the plural) refers to all the characteristics of a crypto token. It's a kind of identity card and the DNA of a token. This is what the investor will look at first before making his decision.
With tokenomics which is explained in the white paper, we have a complete idea of the token: its objective, the product, the functionality, the allocation policy, the structure of the offer, the economic model, etc.
The most important metrics are also available on ranking sites like coinmarketcap and Coingecko.
We can already estimate the broad outlines of a cryptocurrency.
What factors to consider in Tokenomics?
Here are the most important factors to consider before investing.
Be aware that it is the combination of several factors and not taken in isolation that will make your judgment more relevant.
👉 The allocation and distribution of tokens
This is a primordial factor. Most tokens are generated in two different ways: either they are pre-mined or they are distributed according to a given process. In this case, the crypto is mined and owned and governed by the entire community. For example, bitcoin or dogecoin are good examples of this scenario. These are cryptos that are distributed or available equally to all users.
This is generally what investors prefer. Cryptos that are distributed in pre-mining can be assigned to exclusive addresses (such as project developers or other team members) before being made public.
Most of the projects coming out currently are probjects in pre-mining. You should not be wary of it per se but you should still be wary if you see that there is a portfolio that will receive a large percentage of the supply. This means that there may be a risk that the future crypto whale manipulates markets and causes the price of the token to fall.
👉 Crypto supply (supply structure)
There are three types of offer you should consider:
- Circulating Supply: The number of issued tokens currently in circulation.
- Total supply: Number of tokens that currently exist.
- The maximum supply of a crypto: The maximum supply of tokens that can be created.
There are also cryptos with unlimited supply like Ethereum for example.
If you observe that the circulating supply of a token has been steadily increased by project developers over time, you can assume that the value of the token will increase in the future if you see this following demand.
On the other hand, if there are too many tokens released at once or too frequently, the value of the token may drop surtout if the request does not follow…
All the subtlety of a good monetary policy is there. This is also why an inflationary or deflationary crypto is not sufficient to estimate the value of a crypto.
Everything will be played out with law of supply and demand…Because this is where the value of a crypto will be determined.
👉 The economic model of the token
You need to know whether the token in question is inflationary or deflationary. An inflationary token (like FIAT currency) has no maximum supply and will continue to be produced over time on a continuous basis.
Most tokens with Proof-of-stake like Ethereum are also inflationary because it is necessary to continue to reward validators and delegates of the network.
A deflationary token model is simply the opposite, where there is a maximum supply that the token is capped at, such as the 21 million Bitcoin that will be created.
Final word on the elements to consider when estimating the value of a crypto
What must be understood from this article is the need to compare different factors to have a fair overall view.
There are also many other factors that do not enter into mathematical measurements such as the marketing of a crypto, team changes, the arrival of competitors, etc. All of this can impact the price of a crypto.
And, it’s this still mysterious part that you shouldn’t neglect when you want to invest…
Read other articles to better understand the topic:
- Make a crypto fundamental analysis
- Definition of marketCap
- Understand the different types of offers (total supply, circulation supply, etc.)
- Understanding the FDV
- La law of supply and demand in crypto
To find out more and learn how to invest in cryptocurrencies, we recommend the Crypto-Expert training from Chantal Lang:
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Disclaimer: This content is for informational purposes and does not constitute financial advice. We strongly advise our readers to conduct their own independent research before committing to any investment.
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