Choosing a Cryptocurrency to Invest In
There are thousands of cryptocurrencies available to invest in. But only a good selection will help you realize your investing goals and ambitions.
Here is what to consider when choosing a cryptocurrency to invest in:
In cryptocurrencies, market capitalization reflects the scope of traction a project has garnered. Coins and tokens with high market cap tend to be more established and less prone to price manipulations. They also enjoy massive news coverage, which makes it easy to perform both technical and fundamental analyses on their prices.
Liquid cryptocurrencies feature high daily trading volumes. This essentially means that it is easy to buy or sell them at any given time. It also means that investors will receive the best prices at all times when trading liquid cryptocurrencies.
Cryptocurrencies are inherently volatile assets. Still, it is vital to assess the historical prices of underlying cryptocurrencies before investing in them. Usually, ultra-cheap coins and tokens are vulnerable to wide price swings that may hinder objective price analysis. A stable price trajectory, on the hand, may mean that a coin or token is backed by solid fundamentals.
It is important to consider the number of exchanges a cryptocurrency is listed on. A good coin will be available for trading on a couple of major exchanges. In contrast, a risky crypto asset will be available for trading on only small exchanges. As well, it is important to track announcements by exchanges on new cryptocurrencies that will be trading on their platforms. Such announcements usually trigger massive price reactions on the underlying crypto coins and tokens.
Developer and Community Activity
Strong crypto projects will have huge developer and community activity. There will always be innovations and technological advancements in the pipeline. This will also attract investment as well as massive community interest. In contrast, shady projects will almost never have anything forthcoming and there will be almost nonexistent or exciting community interest.
How to Diversify Effectively in Cryptocurrencies
The above checklist will filter out the best cryptocurrencies to invest in. But this will also bring forth a new dilemma: how to effectively diversify your crypto portfolio.
In any investing activity, diversification serves the role of minimizing risk exposure and essentially not putting all your eggs in one basket. In cryptocurrencies, diversification is especially important because as a relatively new asset class, investors are exposed to even greater and uncertain risks.
When diversifying a crypto portfolio, the main types of coins to consider are:
Although just a single coin, Bitcoin is, without doubt, the primary coin in the crypto market. It was the first cryptocurrency and to date, remains the most significant. Having Bitcoin in your portfolio is a no-brainer.
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Like Bitcoin, Ethereum is also a significant player in the crypto land. In addition to being the second most popular crypto, Ethereum also serves a platform upon which other crypto coins and tokens are launched. Thus, investors can have Ethereum coins on their portfolio, as well as some of the top coins and tokens that run on the Ethereum platform.
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Here are other areas to consider when looking to diversify your trading portfolio:
1. Use Cases
Blockchain projects emerge to serve specific use cases, whose success or traction will help propel the underlying cryptocurrencies. There are different types of use cases ranging from Digital Store of Value and the Internet of Things to Cloud Storage and Decentralized Finance. Investors can seek to invest in use cases they deem more valuable or attractive.
Stablecoins came about to solve the number one challenge of investing in cryptocurrencies - volatility. Stablecoins, such as Tether, are backed with real-world financial assets, which ensures that their values remain stable at all times. Stablecoins help investors to have a portion of their capital remain less volatile.
Some coins can earn investors passive income going forward. This can be in the form of interest or free coins as a result of hard forks or airdrops.
Overall, the best cryptocurrencies to trade and invest in will feature in more than one category on the above factors. As a rule of thumb, when you have to choose between multiple cryptocurrencies in any category, always go for the least volatile one. Furthermore, for investors who wish to own and store their cryptocurrencies, it is important to always choose those that are easy and safe to store in both online and external wallets.
The Best Cryptocurrencies in 2020
Based on the factors described above, here are the best cryptocurrencies to invest in, in 2020:
Bitcoin’s introduction in 2008 marked the beginning of the cryptocurrency revolution. It was the first and remains the primary cryptocurrency today. Its dominance stands at 40% and it has grown beyond a digital coin to also serve as the modern-day digital store of value. Its biggest feature is its scarcity, with its maximum supply capped at 21 million. Its journey from being worth a few cents to the dollar to printing a peak of circa $20,000 has been a storied tale in the industry as well as a genuine manifestation of the potential returns investors are exposed to when delving into the industry.
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Bitcoin is almost synonymous with the blockchain, which means that further adoption of the revolutionary technology bodes well for its future. In recent years, Bitcoin has also taken the role of a directional cue provider in the crypto markets. This has made the coin the most watched, tracked and analyzed cryptocurrency in the world. If cryptocurrencies have a future, then definitely Bitcoin has a future. Still, while Bitcoin remains a solid bet in both the short and medium-term, there are some concerns about its long-term limitations. As technology advances, we can never rule out a better, faster and more efficient cryptocurrency coming up and challenging Bitcoin’s status in the industry. Until then, it is really hard to look beyond Bitcoin in 2020.
Ethereum is the second most popular crypto coin, and its purpose and functionality in blockchain have already propelled it to become the most used cryptocurrency. Initially nicknamed Bitcoin 2.0, Ethereum is nothing like the first-ever cryptocurrency. In addition to its coin, Ethereum is also a blockchain platform that supports the development of decentralized applications, tokens and smart contracts. Numerous major blockchain projects have been launched on the Ethereum platform, and this has required the use of the Ethereum coin. This is the reason why Ethereum is responsible for the bulk of transactions in the crypto world. The coin launched in 2015 (7 years after Bitcoin), but quickly rose to become the second most popular cryptocurrency both in market capitalization and popularity. Investors are always excited about the possibilities of Ethereum because it offers an expanded scope of application in the broader blockchain industry. The platform is also backed by a robust developer team and ever-growing community, which has ensured that it continues to implement technological advancements and innovations, such as the recent Ethereum 2.0. but unlike Bitcoins, Ethereum does not have limited supply. Its current circulation stands at over 100 million coins, and creation will always continue. Nonetheless, supply will become gradual as time goes by.
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Litecoin was created in 2011 by Charlie Lee. It became one of the earliest and most successful forks of Bitcoin. A fork occurs when a new blockchain uses the original code of a previous blockchain but makes some changes so as to improve upon it. In its early days, it earned the moniker ‘Bitcoin-Lite’. The vision of Litecoin was to make a lighter version of Bitcoin which would facilitate faster and cheaper transactions. Litecoin has practically the same technical features as Bitcoin but with some minimal tweaks. The mining of Litecoin can be done on cheaper and readily available GPU (graphical processing units) computers rather than the expensive, dedicated ASICs (application-specific integrated circuit) computers. As well, Litecoin’s blocks form faster (every 2.5 minutes) compared to Bitcoin blocks that form every 10 minutes. This allows for faster verification of transactions. Litecoin also notably pioneered its Lightning Network in 2017, which marked the first instance a crypto transaction was performed in less than one second. Like Bitcoin, Litecoin also has a maximum supply that is capped at 84 million coins (4 times that of Bitcoin). Its security is also enhanced, and it is one of the few coins to be listed on major crypto exchanges.
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Binance Coin (BNB)
Binance is one of the largest (if not the largest) crypto exchanges in the world, and in 2017 they launched the Binance coin as a utility token for discounted trading fees on their platform. It initially ran on the Ethereum platform but in 2018, it transitioned into its own blockchain platform. At launch, the Binance coin was hailed as the first actual tokenized security, that offered investors the unique chance to become part of the success of Binance. The Binance coin fuels transactions on the Binance exchange platform and this is why the token is one of the most widely used in circulation. The Binance coin also possesses a robust engine that is able to compare over 1.5 million orders per second so as to match buy and sell orders instantly, which is the core business of any crypto exchange platform. Binance already has over 400 crypto coins and tokens available for trading, and with BNB integrated into their ecosystem, the coin will only grow in prominence. As a platform, Binance has also built a reputation as a secure and trustworthy exchange; something that bodes well with investors that assess the security aspect when investing in cryptocurrencies. This alone gives BNB a blue-chip status, or literally, a coin that you cannot afford not to own.
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Launched as Antshares in 2014, the coin rebranded as NEO in 2017. It gained the nickname ‘China’s Ethereum’ because it also serves as both a crypto coin as well as a platform where blockchain projects can be launched on. NEO supports the development of both public and private blockchain projects that can all link up on its platform. It features an active developer team and community that support its continued growth and wide use cases. NEO technology applies a unique blockchain technology that enables the identification and digitization of all types of assets. This can facilitate decentralized eCommerce as well as the development of targeted smart contract applications. It is also noteworthy to point out that NEO blockchain does not use the typical proof-of-work technology common with most blockchain projects. Rather, it implements a consensus mechanism known as Delegated Byzantine Fault Tolerance (dBFT), which eliminates any chance of a chain split and also significantly lower energy costs. The mechanism ensures that going forward, NEO can realistically achieve its mission of creating a digital identity for all physical financial assets.
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Basic Attention Token (BAT)
BAT is an ingenious cryptocurrency that was designed to deliver rewards to both advertisers and ad viewers. Advertising is very important for both advertisers and viewers, and the genius team behind BAT sought to create a virtuous cycle to boost interaction. For advertisers, ads serve as the only way to meet potential customers or basically, to build brand awareness. For consumers, ads are a tad more complex - they help them discover new products, but they can also be quite frankly annoying sometimes. But what if ad viewers were rewarded for ads they view? BAT runs on the Ethereum platform and is locally coordinated on Brave, a popular internet browser. Consumers are rewarded when they view or review promotion content, whereas advertisers are guaranteed that a willing community will view their targeted ads. The team behind Brave and BAT has an enviable track record, which includes the development of the popular Firefox browser as well. As a browser, Brave has also been committed to the privacy of its users, blocking all web footprints that its users leave behind when interacting with their favorite websites. Users have full control of their privacy and can also choose to reward their favorite content creators with BAT. Investors who are interested in BAT are basically inspired to create an ethical advertising ecosystem on the internet.
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VeChain was founded in 2015 with a clear mission of disrupting supply chain management. It is fair to say that the project was an instant hit in the crypto community. The project initially launched on the Ethereum platform, but in 2018, it transitioned into its own blockchain, VeChain Thor. While the original objective was to eliminate the drawbacks of traditional supply chain systems, the transition onto its own blockchain opened up new possibilities. The VeChain project would no longer be confined to supply chain management, but its platform would also support the development of enterprise-level blockchain apps that have practical, real-world use cases. A major feature of the VeChain utility is a two-token system that guarantees cost predictability at all times. Price volatility in the VET coin does not mean cost unpredictability on the VeChain platform. The project is overseen by the VeChain Foundation, which is tasked with responsibilities of business development as well as technological research and development. As a coin, VET has always been a lucrative prospect for investors who have faith that the solutions provided VeChain project on supply chain management are applicable in multiple industries across the world. The solutions include asset digitization, proof of audit, proof of origination and proof of publication. With the company already in active partnerships with major global corporations, VET will always be an exciting coin to watch for crypto investors.
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TRON launched in 2017 with a mission to disrupt the $1 trillion global entertainment market. It outlined a 6-stage program that will eventually ensure that content middlemen such as Google and Apple face a real threat on their activity. The aim is to ultimately empower creators to share their content to consumers directly without the need for intermediary services. The project is still in its first stage of Exodus, where a platform is being developed to enable free peer-to-peer sharing of content. The sixth stage, Eternity, will see the cryptocurrency network run on its own with content creators sharing their work freely and being rewarded. The potential for TRON is massive. It has big backers and enjoys particularly strong connections in China, a country with over 400 million active internet users that post content. Furthermore, the TRON Foundation has actively been reducing the circulating supply of the token, which can help support higher prices in future. The sixth stage of the TRON project is set to be achieved by 2023, but active development will continue to deliver price surges and reward investors in the medium term.
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