What Cryptocurrencies Should You Invest In
This is a personal question based on your interest in the technology and risk appetite.
Because the technology is so new, there isn’t one silver bullet to evaluate these investments, but there are several methods for analyzing whether a project has legs or not, including investigating the team behind the project and inspecting the developer community working on the protocol.
The longest-standing and most secure cryptocurrency is Bitcoin. Bitcoin was what started it all and has the highest market cap of any other coin, at over $1 trillion as of writing in mid-October 2021. The project has a healthy developer ecosystem constantly working to upgrade the code and has the most users by many metrics.
Currently, bitcoin is trading around $57,000 a coin, although the price sees massive swings in both directions from time to time. For instance, bitcoin reached an all-time-high price of $63,576 on April 14, 2021, before falling by more than half to $29,971 only a couple months later.
Most cryptocurrencies and crypto tokens see significant price volatility, which is why it’s seen as a risky choice for many retail investors.
Ethereum is another good bet for investors. Ethereum innovated on Bitcoin by implementing what’s called smart contracts that allow for more complex tokens and transactions. While the Ethereum blockchain has dealt with significant scalability issues since it launched at the end of July 2015, it is the most actively used blockchain.
How Many Cryptocurrencies Are There
As of writing this, Canada has about 5,500 different cryptocurrencies, with Bitcoin, Ethereum, Tether, Binance Coin, Cardano, and Dogecoin being the top six.
Fair warning: cryptocurrencies can appear and disappear in the blink of an eye. In the future, investors will probably find more than this number.
How To Pick A Cryptocurrency To Invest In
Before you go ahead and buy some coins or tokens just because somebody says it’s a good investment, it will pay to do some research.
First of all, it’s important to understand that picking a good cryptocurrency is not like picking a good stock. A stock represents ownership in a company that creates profits for its shareholders, or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset with zero intrinsic value.
What makes a cryptocurrency increase or decrease in price is simple supply and demand. If there’s increased demand and a limited supply increase, the price goes up. If supply becomes constrained, price goes up, and vice versa. So, when evaluating a cryptocurrency, the most important questions to answer are how the supply increases, and what will drive demand for the coin higher.
You can answer those questions by reading the white paper that a cryptocurrency team publishes to attract interest in their project. Look at the roadmap for a project and see if anything could spark an increase in demand. Research the team behind a project and see if they have the skills to execute their vision. Try to find a community of people already investing in the cryptocurrency and gauge their sentiment.
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How To Invest In Crypto Without Buying Coins
The easiest way to get investment exposure to crypto without buying crypto itself is to purchase stock in a company with a financial stake in the future of cryptocurrency or blockchain technology.
But investing in individual stocks can bear similar risks as investing in cryptocurrency. Rather than choosing and investing in individual stocks, experts recommend investors put their money in diversified index funds or ETFs instead, with their proven record of long-term growth in value.
Believe it or not, most individuals with a retirement plan or an investment portfolio allocated in an index fund already have some exposure to crypto, says Daniel Johnson, a CFP with ReFocus Financial Planning.
Many of the best index funds like S& P 500 or total market funds include publicly traded companies that have some involvement with the industry by either mining crypto, being involved in the development of blockchain technology, or holding significant amounts of crypto on their balance sheets, says Johnson.
For example, Tesla which holds over a billion dollars in Bitcoin and accepted Bitcoin payments in the past is included in any funds that track the S& P 500. Since its 2020 inclusion, its become one of the most valuable, and therefore influential companies in the index. And Coinbase, the only publicly traded cryptocurrency exchange, is in the ARK Fintech Innovation ETF.
Should I Invest In Cryptocurrency
Plain and simpleinvesting in cryptocurrency is not a good way to build wealth for your future. If you really want a solid investment, dont mess around with adding some crypto coins to your digital wallet. Heres the better plan: If youre out of debt, have an emergency fund that will cover three to six months of expenses, and youre ready to invest, then focus on investing 15% of your income in growth stock mutual fundswhich are way more secure than crypto.
Dont give in to stupid just because theres a lot of hype. Weve talked to people who have taken out a mortgage or cashed out their entire 401 early to invest in cryptocurrencyheck no! Dont put it all on the line and risk your financial future, your retirement dreams and your familys well-being. If you cant afford to lose the money, dont invest it in something as unstable as crypto.
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Protecting Yourself While Investing In Cryptocurrency
You must take extra steps to protect yourself and your capital with any investment type. There are a few common concerns when it comes to cryptocurrency: credibility, security, privacy. Many investors are skeptical of crypto platforms and are hesitant to start investing.
A great way to mitigate these concerns is by thoroughly researching the crypto you want to invest in and whats behind the platform. Look up who owns the marketplace you are interested in and gather more information about them. Research how old the company is and in what stage of development the platform is in.
Cryptocurrency is unfortunately susceptible to hackers and other technical issues that simply dont impact other investments as frequently. For this reason, it is crucial that you fully understand the marketplace you choose to work with.
It is not uncommon to choose platforms high profile investors are known to work with as a starting point. This, along with a sound company structure, can help serve as a sign of stability for that marketplace.
As you continue to learn how to invest in cryptocurrency, take the initiative to read the fine print before you start an account. The companys prospectus will provide you with insight into the companys inner workings. This information can help provide you with peace of mind and let you know exactly how secure your investment will be.
Read The Projects Whitepaper
When youve found a cryptocurrency you like, the first thing you need to do is read the whitepaper.
A white paper is an authoritative report or guide that informs readers concisely about a complex issue and presents the issuing bodys philosophy on the matter. It is meant to help readers understand an issue, solve a problem, or make a decision.
Reading the whitepaper will give you two tremendous benefits:
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Invest In Companies With Cryptocurrency Holdings
Think of this strategy as cryptocurrency investing once removed. Some publicly traded companies have cryptocurrency holdings. And because they are betting on its success, you can too, with those companies acting as a buffer.
When youre thinking about investing in a company because they have exposure to crypto, it really runs the gamut from how direct or indirect you are in terms of that exposure, says Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth in New York City. It just depends on how much of their balance sheet is in crypto.
Checking a companys balance sheet can be revealing: As of June 30, 2021, Tesla held $1.31 billion in digital assets. And while the tech giant has received lots of media attention for its investment, that $1.31 billion currently equates to only about 2.4% of Teslas total assets. But if those assets balloon in value, as cryptocurrency is sometimes wont to do, Teslas stock value could too.
Is There A Good Time To Buy
There is no general rule when to buy cryptocurrencies. Usually it is not a good idea to buy in at the peak of a bubble, and usually, it is also not a good idea to buy it when prices are crashing. Never catch a falling knife, as the traders wisdom says. The best time might be when the price is stable at a relatively low level.
The art of cryptocurrency trading is a vast topic in and of itself, and determining precisely when a crypto is in a bubble and when it has reached a local bottom after falling is not an exact science. What is easy to say in retrospect is a hard question to answer in the present. Sometimes a coin starts to rise, and after it passes a key line of historical resistance, and many believe it to be at the peak of a bubble, the real rally just begins.
For example, many people did not buy Bitcoin at $1,000 or Ether at $100, because it seemed to be overpriced. But years later these prices now appear to be an incredible bargain that will never again appear to the market.
This is definitely not financial advice, but some general guidelines to help you decide when to make an investment include:
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Invest In A Cryptocurrency Etf
So far, the U.S. has approved one cryptocurrency exchange-traded fund, or ETF. This bitcoin ETF launched by ProShares doesn’t invest directly in bitcoin. Instead its based on futures contracts tied to the cryptocurrency. Because its an ETF, investors can likely invest directly from their brokerage accounts instead of having to open a crypto wallet.
How To Buy Bitcoin With Paypal
You can also buy Bitcoin through payment processor PayPal Holdings, Inc. . There are two ways to purchase bitcoin using PayPal. The first and most convenient method is to purchase cryptocurrencies using your PayPal account that is connected to a payment mechanism, such as a debit card or bank account. The second option is to use the balance of your PayPal account to purchase cryptocurrencies from a third-party provider. This option is not as convenient as the first because very few third-party sites allow users to purchase Bitcoin using the PayPal button.
Four cryptocurrenciesâBitcoin, Ethereum, Litecoin, and Bitcoin Cashâcan be purchased directly through PayPal. With the exception of those who live in Hawaii, residents of all states can either use their existing PayPal accounts or set up new ones. You can also use your cryptocurrencies to purchase products and services through the “Checkout with Crypto” feature.
To set up a crypto account with PayPal, the following information is required: name, physical address, date of birth, and tax identification number.
It is not possible to use a credit card to purchase Bitcoin using PayPal. During the buying process, PayPal will display a price for the cryptocurrency. But that price is subject to rapid change due to the volatility of cryptocurrency markets. It is a good idea to make sure that you have more than the price you budgeted for the purchase in your bank account.
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Ethereum Breaching $10k By The End Of 2022
Ethereum is the second-largest cryptocurrency by market cap and dominates 18.8% of the crypto market. Its been this way pretty much since it joined the market in 2015.
Only a handful of coins trade at a higher price most of which are stand-ins for Bitcoin. Such as Wrapped Bitcoin , which represents BTC on the Ethereum blockchain.
In 2021, ETH did enormously well, mostly following the steps of Bitcoin. It rampaged upwards from a low of $736 per coin to hit highs of $4,297 in mid-May before following Bitcoin into a death spiral down to $1,700.
However, more recently it has been on the run again to new highs and reached its current ATH of $4,366.09 in October 2021 and it is plausible that this streak could continue into 2022.
With so many of the biggest crypto projects based on Ethereum , it only makes sense that it will continue to grow well into 2022 and beyond. Some, such as Nigel Green the CEO of the deVere Group, have even argued that Ethereum could overtake Bitcoin by 2026.
Bitcoin vs Ethereum transactions per day. Source: theblockcrypto.com
The only thing holding Ethereum back is that it still hasnt completed its transition to proof-of-stake which is taking place over several upgrades. However, some have estimated that the work could be completed by May or June 2022.
This is of high importance to prevent congestion the likes of which we saw in February 2021 which could cause devs to jump ship to other smart contract platforms.
Ethereum price predictions for 2022:
This Digital Asset Could Make You Richer In The Long Run
- The crypto market has produced a 150% return over the past year.
- Terra is a stablecoin ecosystem that aims to make e-commerce transactions more efficient.
- The Terra blockchain is powered by the LUNA token.
Over the last year, the collective value of all cryptocurrencies has soared 150% from $875 billion to $2.2 trillion. That’s even more impressive when you account for the fact that the crypto market has fallen 31% from its all-time high. Of course, that doesn’t mean every token has been a winner, and the market itself is rife with volatility. But if you can handle those wild fluctuations in price without panicking, I think it makes sense to own a little cryptocurrency.
Building on that idea, there are dozens of investable crypto assets, but one that has my attention right now is Terra. Over the last year, its price has soared over 14,000%, and it’s become the second-most-popular platform behind Ethereum. More importantly, given its ambitious vision, I think there is plenty of upside left for investors.
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How Does A Crypto Exchange Work
Crypto exchanges work a lot like brokerage platforms you may be more familiar with. Each offers a portal where you can create different order types to buy, sell and speculate on cryptocurrencies with other users.
Crypto exchanges can be centralized, meaning they are managed by one corporate authority, like a brokerage company that facilitates the security of trades, or decentralized. Decentralized exchanges generally distribute verification powers to anyone willing to join a network and certify transactions, much like cryptocurrency blockchains themselves. This may help increase accountability and transparency as well as ensure an exchange can keep running if something happens to a company running an exchange.
Total Float And Maximum Supply
Just like with stocks, you have to take the float and maximum supply into account, when making long-term cryptocurrency investments.
One thing that makes Bitcoin such a valuable commodity is the fact that only 21 million coins will ever be created. Once its all mined, there will be no more supply and demand will determine price.
The supply of Ripple is also limited. However, the maximum number is 100 billion coins! That is one of the biggest reasons that price has stayed so low.
Ether on the other hand, will have an unlimited supply. The same amount of Ether will be produced every year. As time goes by, that amount will become a smaller percentage of the total outstanding supply of Ether.
But this ever-increasing supply should keep the price fairly low, especially in relation to a currency like Bitcoin.
These are the types of supply dynamics that you have to understand about each currency.
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How Do You Buy Crypto
To buy cryptocurrency, youll need to create an account with a crypto exchange. You may need to obtain a crypto wallet to hold your cryptocurrency, or your exchange may provide one. Be careful when picking a crypto exchange as some, like Robinhood, provide wallets that do not let you transfer your coins off of the platform. This may create security risks, for instance if Robinhood were hacked, or tax issues if you ever wanted to move your crypto off of the platform. Youd have to sell and rebuy your coins, which might cause you to realize some capital gains.
Once youve picked an exchange and a wallet, youll be able to buy crypto by transferring U.S. dollars into your account via an ACH or wire transfer. You may even be able to buy crypto with a credit or debit card, though this may carry additional fees, some of which can get quite high, possibly up to 5% of your transaction. Some crypto exchanges will let you use other cryptocurrencies or their own branded stablecoins to fund transactions.
Note: If you want to use crypto to save for retirement, youll need to open a self-directed individual retirement account or a Bitcoin IRA.
How To Buy Cryptocurrency On A Decentralized Exchange
The question, what type of exchange to use depends on a number of factors. What is your risk tolerance? What are your investment goals and timelines? What is your investment or trading strategy? How important is security, privacy, or decentralization to you?
There are a lot of variables and trade-offs to consider, and no one-size fits all answer. One thing is for certain: crypto investing can be risky so do your own research, and do not make investments without strong conviction.
If you want to learn more about how to safely invest in CeFi and DeFi exchanges, our Crypto Investment School course has a comprehensive curriculum taught by crypto investors whove got real-world experience.
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