Narratives are ideas, innovations and beliefs that influence the perception of the masses on cryptocurrency and blockchain.
WHY IT MATTERS
Narratives can construct public opinion, influence investment decisions and ultimately impact the adoption of crypto. When new projects are developed to provide solutions to innovative ideas, the crypto market usually propels towards these trends and as a result, price appreciation is imminent. The principal rationale behind investing in crypto is profit making and the best technique to bring this purpose to fruition remains knowing where to look and getting in early.
Understanding narratives can enable one's research methodology as it enables a better insight into projects and ecosystems where liquidity(money) flows into. This will enable a fine-tuned and straightforward approach towards research rather than an endless surfing of a market comprising over 22,000 cryptocurrencies.
2023 TRENDS AND NARRATIVES
The new year began with euphoria in the cryptosphere as a good number of cryptocurrencies experienced significant percentage gains. Here are 2 major narratives which contributed to the recent bullish trend:
1. Layer-2 Blockchains:
Also known as L2's, these are protocols built on pre-existing blockchains to solve problems such as scalability, adoption etc. present in the parent Blockchain. Arbitrum, Polygon and Zksync are currently the most talked about L2 projects on the Ethereum blockchain. Sequel to knowing where to look while carrying out research, a good strategy will include looking out for crypto projects launching on these trending L2 blockchains.
2. Artificial intelligence tokens:
Interest in Artificial intelligence has increased dramatically in recent months and the Crypto and Decentralised Finance sectors are not exempted. Many new cryptocurrency projects are closely intertwined with aspects of AI, utilizing the technology for improved security, scalability and user experience. According to statistics by Decrypt, as of Feb. 2023, the market value of all AI tokens was about $1.6 billion. This is a narrative worth looking into.
Other narratives include:
- Liquid staking derivatives
- Solidly
- Gamefi etc.
HOW TO CARRY OUT EFFECTIVE RESEARCH
Before investing in a cryptocurrency, it is important to Do Your Own Research(DYOR) regardless of what anyone says about the project. Research is primarily carried out to determine whether the Cryptocurrency of interest is worth investing in. Here are a few metrics to look out for while researching:
1. Tokenomics:
This is the study of the economics of cryptocurrency. It is a portmanteau made up of token and economics. It encompasses every factor that can affect the value of a crypto. Few Tokenomics to look out for:
a. Price: All-time high & All-time low price
b. Supply of the token: There are three kinds of supply for crypto tokens - circulating supply, total
supply and max supply.
- Circulating supply refers to the number of cryptocurrency tokens that are issued publicly and are in circulation.
- Total supply, meanwhile, is the number of tokens that exist currently, subtracting all the tokens that were burned.
- Maximum supply quantifies the maximum number of tokens that will ever be generated. Eg. Bitcoin has a maximum supply of 21 Million but a circulating supply of 19 million.
c. Distribution and allocation
2. Liquidity:
This refers to the ease to buy and sell a token without affecting the overall price of the coin. It is a crucial catalyst to look out for during research. The higher the liquidity of a token, the better. Here's an example to drive home this concept:
Let's say Mr. Adam invested $5,000 in a particular cryptocurrency and the liquidity of the project is $3,000, this ultimately implies that it would be impossible for Mr. Adam to sell off all his crypto even when he sees some gains because his asset is greater than the liquidity of the project. This insufficient liquidity will not permit larger transactions to be carried out.
But let's assume the project has a liquidity of $500,000, it would be super easy for Mr. Adam to carry out even larger transactions.
3. Project Whitepaper:
Crypto projects are mostly laid out in a publicly available document known as a whitepaper which details the project's mission and the road map to achieving it. It is important to read the whitepaper of any project to discover if there are sustainable plans which will enable the project growth in the long run.
Other notable metrics to look out for include:
- Social media presence of the project
- Community
- Venture capitalists and investors
- Recent price movement
- Marketing etc.
RESEARCH TOOLS
There are two popular websites to research cryptocurrencies. They are Coingecko.com and Coinmarketcap.com
Other research aggregators include:
- Coinmarketcal
- Coin Metrics
- Messari
- Lunarcrush
- Dexscreener
- Twitter etc.
Trends and narratives change with time and as a result, liquidity flows from one ecosystem to another. Hence, prior to investing in any cryptocurrency, it is important to carry out due diligence on the project by carrying out research using any of these research tools.
Sources:
https://www.coingecko.com/learn/what-is-liquid-staking-liquid-staked-derivatives-you-need-to-know
https://www.google.com/amp/s/decrypt.co/resources/what-are-ai-tokens-learn%3famp=1
https://www.gobankingrates.com/investing/crypto/best-crypto-research-tools/amp/
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