How to Find Out If a Cryptocurrency Is Undervalued

How-to-Find-Out-If-a-Cryptocurrency-Is-Undervalued

Learn how to find a diamond in the rough with these tips!

As of December 2021, the global crypto market capitalization reached US$2 trillion. While this US$2 trillion market has made many billionaires, not all of us have been lucky enough to cash in on the crypto boom. 

Just because we didn’t make an investment earlier doesn’t mean that the crypto ship has sailed. In fact, far from it! Today, there are a lot of cryptocurrencies that you can choose to invest in. Finding undervalued crypto with the right potential might be the way to enter the rapidly growing crypto space. Let’s take a look at how you can identify undervalued crypto and what are some projects you could consider investing in.

Ways to identify an undervalued crypto project

Research the team behind the project

When looking for coins to invest in, it is important to look into the team leading the crypto project. A strong team is a positive sign for the project’s future. 

Finding information about the team members might not be the easiest task, particularly if the team hasn’t been made public. If that’s the case, the best way to verify the safety of your investments is to look at the team’s collective accolades. This could include previous projects that have taken off and even testimonials from trustworthy individuals. 

Check out the project’s backers

After finding out the background of the team leading the project, you must check any individual investors or companies that are backing it. You must pay close attention to any well-known angel investors or venture capitalist funds. One of the few trusted individuals within the realm of crypto projects is Ethereum’s co-founder, Vitalik Buterin. So, a project backed by him would be a good pick!

Usually, the project would list most of its backers on their websites. When you go through the list of a project’s backers, you want to see names that not only have a great track record but also add value to the project. Also, look into companies and entities that are partnering with the project. The project’s partners signify that it has real-world uptake or practical usability. For instance, Microsoft’s plans to use Ethereum’s blockchain to combat digital piracy is a signal that the Ethereum blockchain has practical application and is, therefore, a viable investment. Thus, if influential companies are backing the projects and showing an intent to use it in the future, it indicates that your investment will bear great returns.

Examine price stability

It is crucial to study the price of a crypto project over time before investing. If it stays stable over the course of time and survives any initial hype, it is usually a positive sign. 

For projects that haven’t been launched yet, you can determine stability by looking at the token’s initial market capitalization (the total value of all tokens that will be in circulation post the token generation event). Projects with a lower initial market cap compared to its expected fair value can be great investments. This is because the market gradually shifts a token towards its fair value following the token generation event.

Cryptocurrencies that should be on your radar

Now that you know how to identify undervalued crypto, here are some projects that you can consider investing in: 

Cardano

Cardano is a proof-of-stake blockchain platform that hopes to bring about positive global change. Cardano’s crypto token, ADA, is currently valued at US$1.02. According to a report by Grayscale Investments, Cardano is undervalued for its performance and growth when compared to Ethereum, its largest peer which has a similar working pattern. The report points out that Cardano’s total on-chain transaction is only around 40% less than Ethereum and 50 % less than Bitcoin, but its market capitalization is about 80% and 90% lower than that of Ethereum and Bitcoin respectively. Moreover, Cardano’s latest Alonzo smart contract upgrade adds to its competitiveness in a wide range of crypto market segments, including decentralized finance (DeFi), non-fungible tokens (NFTs) and other Web 3.0 developments.

Sandbox

With the rising popularity of the metaverse, naturally, the tokens associated with it are also climbing the ranks. One such token is SAND, the metaverse token of the Sandbox metaverse. The Sandbox metaverse is a blockchain-based game that allows users to buy virtual plots of land, and it is filled with quests and opportunities to win rewards. Currently, SAND is valued at US$3.03. According to the CEO of financial news channel Real Vision, Raoul Pal, the Sandbox is one of the most undervalued altcoin projects. 

The token offers investors an opportunity to cash in on the metaverse trend. The project has been generating interest, with Adidas Originals buying a plot of virtual land in the Sandbox. 

While the two tokens mentioned above are considered undervalued, it is important that you do your own research. Not only do you need to have an in-depth understanding of the current scenario of the token, but you should also assess what it will look like over time. Make sure that you’re not getting swayed by a cryptocurrency that is appropriating current trends. That said, crypto markets are unpredictable, and a project that might seem totally profitable at one point could end up not performing as well as expected. 

Header image courtesy of Freepik

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