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This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss
How Can I Choose A Crypto Coin To Invest In
The cryptocurrency market is volatile and unpredictable. So it is difficult for investors to identify the best cryptocurrency to invest in.
There are many factors to consider before choosing a cryptocurrency its use cases, technology, team, community, security features, price analysis etc. This article will help you choose the best cryptocurrency to invest in by giving you some valuable tips.
There are a few key factors that you should consider when choosing the best cryptocurrency to invest in. The most important factor is the market cap. The market cap measures the size of the economy in relation to how many coins are available in circulation. So, when considering a new cryptocurrency for investment, its better if you choose one with a low supply and high demand.
The other critical factor is which blockchain or protocol does this cryptocurrency run on? This is because some blockchains are more popular than others, so the coins will be more valuable when they are traded on these popular blockchains.
Finally, you should look into whether or not theres an active development team behind this coin- they need to be constantly developing and providing updates for its user base.
Advantages And Drawbacks To Investing In Cryptocurrency
Investing in cryptocurrency has a few advantages:
- Diversification: The value of cryptocurrency doesn’t appear to be correlated with the price of stocks, bonds, or other asset classes. That said, cryptocurrency has only existed for about a decade, so the data is limited in this regard. Theoretically, though, it makes sense that the price of crypto is unrelated to the price of traditional assets.
- Return potential: Cryptocurrency has produced extremely strong returns as adoption increases. Most people agree the expected return for a sound cryptocurrency investment is greater than that for stocks.
- Additional utility: Unlike stocks, some cryptocurrencies provide utility. Bitcoin , for example, can be used to pay for goods and services. Other tokens may provide access to projects or discounts on a project’s services.
But there are some big disadvantages for investors as well:
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Ethereum Virtual Machine Chains
While we donât have the space in this article to examine the minutiae of Ethereum Virtual Machines , which can be quite arcane even for experts, a few words by way of an explanation are in order. The keyword here is interoperability.
Ethereum was the first blockchain with smart contracts, but other chains have evolved to offer smart contracts using EVM as their standard smart contract engine, meaning that layer-1 blockchains are interoperable. Rather than developing completely new ways of creating smart contracts, which are chain-specific and therefore limited, EVM-compatible blockchains ensure that smart contracts created on, say, Polygon are recognized by Ethereum nodes, allowing devs to copy their dApps or tokens across different chains.
A token on an EVM-compatible chain, then, becomes far more interesting as an investment option given its increased compatibility and interoperability. Below are some of the best EVM-compatible cryptocurrencies .
Bnb Coin With Ever Growing Usage
Previously known as Binance Coin, BNB is the crypto asset backed by Binance. It allows users of the Binance exchange which facilitates billions of dollars in daily trading volume, to benefit from a 25% reduction in trading fees. Moreover, and perhaps most pertinently, BNB is used to pay transaction fees on the Binance Smart Chain.
This aforementioned network is now favored by up-and-coming crypto projects that are launching for the first time such as Lucky Block. And therefore, when you consider that thousands of tokens are listed on the Binance Smart Chain, demand for BNB will likely continue to rise in the long term.
For those interested in buying BNB from Binance read our Binance review for further details on this leading crypto exchange.
Cryptoassets are a highly volatile unregulated investment product.
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Compare Fees For Different Service Providers
Each crypto exchange or other service provider will have different fees for their services. Below are the rates from some popular crypto exchanges.
|Up to 0.1% maker fee Up to 0.1% taker fee|
Comparing the fees from different service providers is an easy way for crypto investors to save on transaction fees. Some websites and apps will allow users to compare multiple providers at once, making it quick and easy to choose a service provider with low fees.
Are There Cryptocurrency Exchange
Given the thousands of cryptocurrencies in existence , its understandable you might want to take a diversified approach to investing in crypto to minimize the risk you lose money.
Multiple companies have proposed crypto ETFs, including Fidelity, but regulatory hurdles have slowed the launch of any consumer products. As of June 2021, there are no ETFs available to average investors on the market.
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What Is The Best Site To Invest In Cryptocurrency
This guide has reviewed five of the best places to invest in cryptocurrency for 2022. With that said, we found that eToro is the overall best broker in this space for its strong commitment to regulation alongside its low-fee policy and support for debit/credit cards. eToro also offers one of the best apps to invest in cryptocurrency.
How To Find New Crypto Coins
Cryptocurrencies once struggled in the backwaters of finance. Now they have become part of the mainstream discourse. As a result, their prices and valuations have exploded in the last decade as investors, searching for growth in a zero-interest rate environment, poured money into the asset class. An early investor in Bitcoin would have racked up tremendous returns since its launch in 2009.
The inflow of money has broadened the boundaries of cryptos investing landscape and made it more complex. There are more than 18,000 cryptocurrencies available for trading in crypto markets. Each coin boasts an array of technical terms, many of them difficult to explain, to sell its value proposition.
So how do you find your new crypto coin? Knowing where to look and how to evaluate them will help you determine whether the coin is worth it or not.
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How Do Cryptocurrencies Work
When a new cryptocurrency transaction occurs, it gets added to a digital ledger of all other transactions on a decentralized network of computers called the blockchain. Computers or nodes of blockchain can have varying degrees of centralization and decentralization, and can be spread all across the world. Before a new transaction can be added to the blockchain, these nodes check the new data to be added or block, against each others records to verify it.
This makes the blockchain incredibly secure and virtually impossible to hack. If someone wanted to fake a transaction, theyd essentially need to hack 51% of the nodes in a network, which would be incredibly time consuming and expensive to ever be worth it.
Thousands Of Cryptocurrency Tokens To Choose From
First and foremost, we like the fact that there are now thousands of cryptocurrency projects in the market.
And as such, in a similar nature to the thousands of stocks listed on the NYSE and NASDAQ, you are sure to find a cryptocurrency that aligns with your financial goals.
For example, if you’re simply looking to dip your toes into cryptocurrency for the first time, then you might decide to stick with established and large-cap projects like Bitcoin and Ethereum.
In comparison to lower-cap tokens, these cryptocurrency projects are less volatile, albeit, the upside potential might be more limited.
On the other hand, you might also consider investing in less established cryptocurrencies with a smaller market capitalization. These tokens will appeal to investors that have a higher risk tolerance and wish to target greater profit margins.
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Join An Online Community Of Cryptocurrency Enthusiasts
Because the digital currency space is such a trendy area, things tend to change and develop quickly. Part of the reason is that a robust and very active community of digital currency investors and enthusiasts are communicating around the clock.
Get plugged into this community to learn about the buzz in the cryptocurrency world. Reddit has become a central hub for digital currency enthusiasts. There are also many other online communities with active discussions going at all times.
Are You Stable Bro
Stable coins such as Tether, appear to be uncorrelated with the fluctuations in the bitcoin price. Stable coins help eliminate doubt about conversion rates, making cryptocurrencies more practical for buying goods and services. This is so because the underlying asset is not correlated with Bitcoin. However, the main criticisms of stable coins , is proving that the amount of the commodity/fiat used to back the stable coin, reflects the circulating supply of the stable coin.
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Check Fees For Different Cryptocurrencies
Bitcoin is known for having relatively low fees because its mining process has been simplified over time. However, some cryptocurrencies still have much lower transaction fees. For example, the average transaction fee for Bitcoin Cash is less than one cent. Litecoin is another good alternative for low transaction fees.
On the other hand, Bitcoins current transaction fees are lower than Ethereums average of $2.41. Therefore, investors will have to balance their desire for low fees with the ability to use their choice of cryptocurrency for a wide range of transactions.
What Is A Paper Wallet
To keep it very simple, paper wallets are an offline cold storage method of saving cryptocurrency. It includes printing out your public and private keys in a piece of paper which you then store and save in a secure place. The keys are printed in the form of QR codes which you can scan in the future for all your transactions. The reason why it is so safe is that it gives complete control to you, the user. You do not need to worry about the well-being of a piece of hardware, nor do you have to worry about hackers or any piece of malware. You just need to take care of a piece of paper.
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Which Coins Can Help Diversify Your Portfolio
It is notable that almost all of the cryptocurrencies have become more correlated with each other across the board. In practice, when investing in the stock market, having a diversified portfolio reduces risk. However, having a diversified portfolio of the top 20 coins, does not have the same effect as in trading stocks.
Interesting enough, Ravencoin, which is a fork of Bitcoin with the added feature of asset issuance, and transfer has a very low correlation with Bitcoin and most of the altcoins in the top 20. I am not sure of the reason for this, but it is definitely one of the coins to keep an eye on.
Also, while Bitcoin, Etherum and Litecoin has been in the top 5 for the past 5 years, it would be interesting to further evaluate what are the drivers for other coins moving into the top 20. However, this is beyond the scope of this post.
Why Should You Invest In Cryptocurrencies
Before recommending what crypto to buy, lets discuss why anyone should buy cryptocurrencies in the first place. The following are some of the main reasons:
- The blockchain technology that cryptocurrencies use to validate every transaction is disruptive. It has the potential to transform many industries like banking, shipping, and even healthcare. Investing in cryptocurrencies is a way of supporting the future of technology while earning high returns.
- Cryptocurrencies offer a reliable way to store value. They are not affected by inflation, bank failures, or other disastrous events. Governments cannot tax or confiscate crypto assets without the owners permission.
- The possibility of high earnings within a relatively short time. Most cryptocurrencies are highly volatile. This means that the price of a digital coin can have tremendous growth in a matter of a few hours. By making the right buy-sell decisions, one can make huge profits. However, profitable crypto trading requires a good understanding of the market. Volatility means that the price of a cryptocurrency can also plummet suddenly.
Next, lets briefly review some of the common crypto trading and investment techniques.
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Use The Lightning Network
When Bitcoin was first established, there were issues surrounding processing times. However, the Lightning Network was introduced to speed up payments by using off-chain payment protocol.
The Lightning Network can create payment channels off-blockchain that create separate ledgers and then merge with the blockchain when the channels are closed. Investors can reduce their processing times to milliseconds by using the Lightning Network.
Fees are also lower than the fees associated with regular Bitcoin transactions. The Lightning Network is especially useful for making small payments with Bitcoin since people wont have to pay high fees for micropayments.
Advantages Of Investing In Cryptocurrency
Investing in cryptocurrency is popular because it provides several advantages, such as diversification, return potential, and utility. Investors like to diversify portfolio as a way to spread risk, but also to increase the odds of striking gold. Crypto is a popular option for diversification because it has offered strong returns, as especially the number of crypto uses and applications increase. Finally, its an investment that you can actually use. Investors can use crypto to pay for goods and services, for example.
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Choose Which Cryptos Youd Like To Invest In
Bitcoin isnt the only digital currency in town. In fact, there are over 7,500 cryptos in existence.
Luckily, most exchanges only offer a couple of dozen. These are typically the most legitimate and viable coins with a respectable market cap.
Here are some examples of the top-traded cryptos today:
- Bitcoin : The king of cryptos is still around and available to purchase on every popular exchange.
- Ethereum : The second most popular crypto by market cap achieved success through innovation, allowing for the recording of smart contracts to the blockchain.
- Dogecoin : Dogecoin was created in under 2 hours as a joke a loving satire of cryptocurrency. Despite this, DOGE has reached an $85 billion market cap, highlighting the power of speculation and internet chatter.
- Binance Coin : BNB is the proprietary coin of Binance, the worlds largest coin exchange . Its become popular due to its wide acceptance and ability to reduce Binances trade fees.
Which ones should you buy? Well, cryptocurrency is so speculative and volatile that choosing the right cryptos for your portfolio may come down to which ones you believe in. For example, do you think Ethereum has more technical merit and worldly applications than Bitcoin?
While stock traders may read form 10-Ks when vetting companies, crypto investors might consider reading whitepapers like the original one for Bitcoin.
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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S = Social Engagement
Last but definitely not least is the social engagement of the crypto’s community. All successful cryptos have a large, vibrant, active, engaged, positive community with a fair share of fanatics. Need proof? Check out Bitcoin and Dogecoin.
While checking out a crypto’s social status, check out its presence and engagement on Discord, , , , Reddit, Telegram, , and . And if you want to try out the R.O.H.A.S. Crypto Valuator, head over to the Future Money Wallet and create a free account.
Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. You can follow him .
Disclaimer: Cryptocurrency is an unregulated digital currency, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice or recommendation of any sort offered by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast, or any other information contained in the article.
Invest In Companies Connected To Cryptocurrency
If youd rather invest in companies with tangible products or services and that are subject to regulatory oversightbut still want exposure to the cryptocurrency marketyou can buy stocks of companies that use or own cryptocurrencies and the blockchain that powers them. Youll need an online brokerage account to buy shares of public companies like:
- Nvidia . This technology company designs and sells graphics processing units, which are at the heart of the systems used to mine cryptocurrency.
- PayPal . Already a popular choice for people buying items online or transferring money to family and friends, this payments platform recently expanded to allow customers to buy and sell select cryptocurrencies with their PayPal and Venmo accounts.
- Square . This payment services provider for small businesses has purchased over $220 million in Bitcoin since October 2020. In February 2021, the firm disclosed that Bitcoin made up around 5% of the cash on its balance sheet. In addition, Squares Cash App allows people to buy, sell and store cryptocurrency.
As with any investment, make sure you consider your investment goals and current financial situation before investing in cryptocurrency or individual companies that have a heavy stake in it. Cryptocurrency can be extremely volatilea single tweet can make its price plummetand its still a very speculative investment. This means you should invest carefully and with caution.
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