Investing in digital currencies, especially in the extremely hot coins, requires a little bit of industry knowledge and a whole lot of DYOR-ing. Luckily, once you've mastered both, you can be on your way to making more thoughtful -- and potentially lucrative -- decisions in cryptocurrency investments.

With the current crypto market cap looking at an eye-popping $1.5 trillion, and over 10,000 coins to choose from, more and more investors are adding digital currencies to their portfolios. As a result, the days of holding only the Big Two, Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) are, quite frankly, passé.

Man and woman peering through a transparent screen showcasing a bitcoin.

Image Source: Getty Images

In the hope that they'll strike gold by pulling the trigger on the newest trending altcoin (any coin that is not Bitcoin), many investors rush in, chasing the pump. While I appreciate that new crypto investors are eager and sometimes overly confident, I do believe in being conservative.

That is, until you know what you are doing and how you limit your losses. With this in mind, let's take a deep dive into the trusted hacks that measure any altcoin's stability. 

The 7 crypto golden rules

Go to the DEX (decentralized exchange) of your choice, and search for coins that have been on your radar. Keep all options open. Otherwise, you might miss out on some real gems. Don't follow the market. Follow the numbers.

Then, click on your selections, follow these steps, and compare each coin side by side as if your life (rather, your wallet) depends on it.

And remember, don't chase the pump!

  1. Research: Be wary of the news and coins that are being shilled on Reddit as well as social media. When investigating a coin, see what kind of project it is supporting and if there is good value behind it. In other words-is it just another "memecoin" or is it attached to something innovative? Even better-join the coin's Telegram channel and see what people are generally saying about the coin itself.
  2. Volume: Click on the Volume tab as your primary filter. The highest volume coins are moving the fastest at low opportunity costs. This reduces the chances of getting trapped in a pump-and-dump.
  3. Percentage change: Check out the moving average indicator line. If you see a sudden, sharp drop from a coin's all-time high, you don't want to invest in it, because this coin has already broken its upswing trend and you risk losing money.
  4. If it's a solid uptrend: It's ok to buy high and sell higher, especially in a bull market.
  5. Market cap: Although not a deal breaker, it's nice to see that a coin has a high market cap. The higher the market cap, the more people have invested in this particular coin. Therefore, comparing all your coins here is a always good idea.
  6. Circulating supply: If this is an infinite number, you're in trouble. This coin will go nowhere in value and fast. On the other hand, a healthy coin should have an excellent circulating supply in the multi-millions and beyond. 
  7. TVL (Total Value Locked): Simply put, TVL shows that there is enough money locked into a coin to initiate its actual launch. This is an actual funding pool that lenders deposit money into. It shows exactly how much risk has gone into a coin. In fact, I would worry if a coin's TVL was under $1 million (for a new coin) and under $300 million for an established coin. But again-the higher the better.

And that's pretty much it!

Once you get the hang of things, you'll be able to invest like a crypto expert. Always remember to investigate and compare all options. Did coin #1 not meet any of the 7 rules? Run for the hills. Ask yourself if you really want to get in. Did coin #3 check all the boxes? Great! Just remember to always research the heck out of each option, make sure it serves a legitimate purpose, and avoid falling for coins that promise to go "to the moon!" 

We all know what happened with that last one.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.