How to distinguish a promising altcoin from "garbage"?

The product manager of the Garantex Academy, Semyon Nazaruk, explained how cryptocurrencies are classified and which ones have a better chance of growth 

The Garantex Academy is a set of courses from experienced participants in the crypto industry dedicated to the technical features of digital assets on the blockchain and the investment opportunities of the CFA and cryptocurrency markets.

To classify cryptocurrency assets according to the degree of risk, some investors use the concept of echelons. Unlike traditional stock markets, the echelons in the crypto market do not have a clear framework. The key criterion here is the market capitalization of the digital currency — the higher it is, the lower the volatility and the lower the risk for investors.

It is customary to include ten coins with the highest capitalization in the first tier. If we do not take into account stablecoins (which are essentially tokens), in the first echelon we see full-fledged cryptocurrencies with their own blockchains. As of October 25, the top 10 by market capitalization includes Bitcoin, Ethereum, BNB, XRP, Cardano, Solana, Dogecoin and other coins. However, when assessing the reliability of an asset, it is also worth considering that it has a solid base, including a stable, time-tested network and a large number of users. Therefore, I would not classify currencies such as Solana, Cardano, Dogecoin and Ripple as the first tier.

Solana has quite frequent network failures.
Dogecoin is a "meme" coin that reacts very sensitively to Elon Musk's tweets, which makes it a rather manipulative asset.
The Cardano network is not popular among developers of decentralized applications and currently ranks 32nd in terms of TLV (total value locked), far behind even currencies with much lower capitalization.
Ripple (XRP) stands apart due to its specificity and focus on use in the banking sector. In addition, decentralization in this blockchain is very conditional.
Thus, BTC, ETH and BNB can be attributed to the first echelon. These are cryptocurrencies with high capitalization and actively working and growing blockchains. They are time-tested and trusted by the market.

The second tier consists of blockchain platforms, the creators of which have already presented working products with a clear concept to the market, but their lifetime and capitalization level are still insufficient to get into the first tier. Avalanche, Polkadot, Polygon, Tron, Atom, Cardano and other systems can be included in this category.

The same group includes old cryptocurrencies like Litecoin, Bitcoin Cash and others — those that occupied the first lines of the ratings in 2017-2018 and still continue to function. Despite their current relatively low capitalization, they should not be discounted and enrolled in the third category. The second tier also includes tokens of promising projects (crypto exchanges, crypto wallets, oracles, DeFi systems, etc.), such as Chainlink, FTT, 1inch, Aave or Trust Wallet.

The third tier includes coins and tokens of new projects that have not yet fully shown themselves, as well as old platforms that have lost their relevance and lost the lion's share of their capitalization. They should be considered exclusively as an object of venture capital investments, since 80% of such projects are likely to cease to exist a few years after launch.

There is a perception that less capitalized assets tend to be more volatile and have greater growth potential. It is only partially true, since it is possible to find examples of cryptocurrencies that have a high capitalization combined with a more mobile exchange rate compared to other, less capitalized coins. For example, Ethereum with a capitalization of $157 billion demonstrates standard exchange rate deviations at the level of 4.58% in annual terms, while the BNB token with its capitalization of $43.8 billion is only 3.09%.

How to distinguish a promising project from a failed one?
There are several basic criteria to assess the prospects of a particular cryptocurrency.

First of all, it is necessary to understand whether the new product is needed by the market — whether it solves some problem, whether it has advantages over similar developments. If the project is a "dummy" (for example, another clone of Ethereum without any innovations), then probably everyone will forget about it soon.
It is worth asking about the personalities of the creators of the project and the management of the company for their experience and competencies. The key will be experience in the field of information technology and/or financial markets.
It is necessary to study the whitepaper (project document) of the new token and find out how fully the information is reflected in it. The document must contain specifics, including as much information as possible about the activities of the issuing company. If there is nothing but vague wording in it, you should not trust such a project.
Attention should be paid to the support of the project from investment funds and major participants in the crypto market. This is not a mandatory point, but it is still important for a private investor to know that the asset is kept in view by larger players.
It is necessary to evaluate the tokenomics and business model, determine what will trigger the increase in the value of the coin and at what point, pay attention to the "burning" mode of coins and the emission model as a whole.
Another important criterion is the distribution of tokens during the issue. It is important to understand whether they will concentrate in one or two wallets.
We recommend that you take a closer look at the work of the project's marketers. Of course, there are many decent platforms that do not really try to "sell" themselves, betting on the quality of their product. And yet, competent marketing is extremely important for the success of the cryptocurrency.
It also doesn't hurt to monitor the work of the development team and keep track of product updates on the GitHub portal and similar resources. A red flag is the absence of changes and new versions of the code for a long time.
It is also useful to check the commission revenue of miners and validators from transactions. If it grows over time, this is a good sign. (This metric is not relevant for tokens, since they do not have their own blockchain.)
Traders are interested in liquid and at the same time quite volatile markets. Large altcoins are great for this purpose. Small tokens are bought up as venture investments. "Whales" can afford to invest at the earliest stage of the initial offer, as they have sufficient capital.

Whales, Shrimps and How They Affect the Crypto Market

When choosing a token for investment, you can monitor the actions of major players, but you need to take into account that they are interested in hiding their activity or misleading other market participants in order to get a sufficient number of counterparties for transactions in large volumes. You can track general trends and the distribution of coins across wallets. However, it is very difficult to find out whether a wallet belongs to one or another owner, and in some cases it is impossible at all — which means that large market participants can distribute their funds to small wallets so as not to attract the attention of on-chain analytics enthusiasts.

Observation will not be superfluous, but to complete the picture, it is necessary to compare the movements in the blockchain with other factors.

This material is published for informational purposes only. Trading cryptocurrencies and digital assets involves significant financial risks. The ideas and phrases contained in this text are not investment recommendations and cannot be considered as such. Garantex and RBC-Crypto are not responsible for potential losses from any transactions that may arise directly or indirectly as a result of misuse of the information provided in this text.