Are you planning to invest in cryptocurrency? It is a new type of investment. Therefore, you should learn more about it to ensure that you put your money in the correct place. The first thing you can learn here is the Tokenomics concept. What is it, and how does it affect your cryptocurrency investment? We will talk about it below.
What is Tokenomics?
Maybe, you can guess what it is from how you read it. Yes, it is the combination of the token and economics. The token represents the currency or transaction asset that you can use within the Blockchain environment. And, economics is the knowledge about how to use the wealth.
So, Tokenomics is how a crypto token attracts people to buy or invest in that cryptocurrency. Therefore, it is one of the most essential knowledge that every investor and cryptocurrency trader must know. It becomes the base of their journey in the cryptocurrency exchange and investment.
The Tokenomics Important Factors
When you want to learn about Tokenomics, you will also learn about how investment in cryptocurrency works. Therefore, we have already gathered several factors that hold a significant role in token economics, which you can use as the base to master cryptocurrency investment. Here they are:
- Token Allocation and Distribution
The allocation and distribution of tokens for specific cryptocurrencies is the best way to see their value. You can find about whether cryptocurrency is profitable, safe, and has the potential to grow in the future, or not. Mostly, we can find two methods to distribute and allocate the token. They are pre-mined and fair launch.
The pre-mined is the method where the executive or earlier investor gets the right to mine the cryptocurrency before they release it to the public. Most of the project uses this method to get early funds to develop and release the full version.
As for the fair launch, this method is similar to the asset investment we can find today. So, the issuer of the token will release the available token to the public at the same time. There is no privilege of early mining here. Everyone has the same chance to buy and own the tokens.
Which one you should consider investing in? From our experience, a fair lunch is the best choice with lower risk. The pre-mined method has a risk of the whale miner. It means they mine and keep the tokens as many as they can in their wallet. Then, after the release and when the tokens value increases, they will sell all their tokens. It increases the number of tokens available on the market, which will reduce its value. The project with this kind of method, mostly, has no longevity and only seeks profit.
You should choose the fair launch because the token’s distribution and allocation will be controlled and monitored by the community. The chance of whale investors is very low on projects or cryptocurrency with this allocation and distribution method. It also creates better token value stability, which can give you more profit in the future. The project also will last for a long time. Because of that, you can get continuous profit as long as that project keeps running.
- Token Supply
The next essential factor of Tokenomics is the token supply. The token supply consists of three different types, which are the circulating supply, the total supply, and the max supply. Each of them will give you a reference about which token and cryptocurrency you should buy and invest in.
Circulating supply is the specific number of the available tokens in the market. You can buy them for your investment. This number also represents how many times the issuer releases the tokens.
The total supply represents the current number of tokens. It includes the circulated one as well as the burnt token. On the other hand, max token supply shows you the maximum limit of the tokens that the issuer can create.
How to use this information for crypto investment? By looking at the circulating supply, you can see how often the issuer releases and increases the available tokens number. If they are released too often, the number will increase over time. That lowers its rarity and reduces its value. You don’t want to invest in this kind of cryptocurrency. You can compare this number with the total supply number to get even more detailed information.
- Market Capitalization
Market capitalization, that’s another factor that you also have to learn in Tokenomics. It shows you how much money that people invest in a specific cryptocurrency and tokens. Then, you can compare it with the market cap to see the value of that token. The best choice is to find the token with a high market cap and low circulating supply. This kind of token has the highest value. Investing in it will give you more profit in the future.
- Token Model
The token model determines the release of the tokens in the future. Some crypto tokens have a limited production number, which can be categorized as inflationary tokens. The limited cap mostly is used on the finance token, like Bitcoin with its 21 million caps. On the other hand, there is also a deflationary token that doesn’t use the maximum cap. Mostly, the cryptocurrency with this system is the utility-type token, like Ethereum.
Learning and mastering Tokenomics will help you to understand token value even better. With those factors we mentioned above, you can determine where you should invest. Therefore, we can also say that Tokenomics will help you to get a better investment.
However, you can’t simply depend on the four factors of Tokenomics here. Try to look at the person and team behind the crypto project that releases the tokens. Invest in the project that was born from a professional and expert with many experiences and names. That kind of project has a low risk of failure. Therefore, your investment will net you the profit like what you want. Therefore, learn more about Tokenomics now for a better investment.