Cryptocurrencies have become increasingly popular since Bitcoin emerged in 2009. Originally envisioned as an alternative medium of exchange that didn’t require government-backed (or “fiat”) money, today crypto is seen as something you can invest in.
Types of Cryptocurrencies
There are more than 6,800 cryptocurrencies on the market today.1 But the best ones for investing are those with high market capitalization. You can use market cap (or “market cap”) to look at the total value of crypto coins issued, just like you would look at a stock.
The larger the market size, the more likely it is to be liquid. It has a better chance of standing the test of time. However, unlike stocks, cryptocurrency issuers do not publish financial statements. Therefore, it is important to use the limited quantities available.
No matter how big or popular a cryptocurrency is, there is no guarantee that it will not disappear. These assets have no financial or government-regulated intermediaries. If you are looking for the best cryptocurrency to invest in, you should check if it is available on an exchange.
Tip: If you’re new to crypto, it’s best to invest in something you understand. Think about the utility, not just whether it’s a medium of exchange that more people can use.
The leading cryptocurrencies by market capitalization at the end of 2021 are Bitcoin and Ethereum, followed by Binance Coin, Tether, and Cardano.
Bitcoin (BTC) started the crypto revolution with its creation in 2009. The original creator is still somewhat of a mystery, but the founder’s name is Satoshi Nakamoto. As of October 27, 2021, Bitcoin’s market capitalization is 44% of the market, or approximately $1.1 trillion.
Note: Bitcoin uses blockchain technology, which allows for peer-to-peer transactions using a digital and decentralized ledger. This means that there is no need for a third party to verify information or act as a clearinghouse.
Bitcoin allowed people all over the world to send money directly to each other. No need to worry about exchange rates or bank transfer fees.
Bitcoin is accepted as a means of payment. As an investment, its value fluctuated wildly. At the beginning of 2017, its price exceeded $1,000 for the first time, and by the end of the year it had skyrocketed to more than $19,000; then fell to around $3,000 a year later.
By April 2021, Bitcoin regained momentum and crossed $64,000 before seeing some price reversals. In October 2021, the first bitcoin-based exchange-traded fund hit the market, which saw another surge in price.
Ethereum (ETH) was launched in 2015 and was originally developed by Vitalik Buterin in 2013. Ethereum uses blockchain technology but is also programmable. Ethereum is designed to be open access and provides a variety of applications.
The way Ethereum works makes it possible to do more than just deal with money. This is one of the drivers behind “smart contract” technology, which means that various contracts can be securely executed directly between parties. For example, you can complete your real estate purchase using Ethereum without the need for an escrow account.
For those who believe in blockchain technology more than financial transactions, Ethereum could be a good long-term investment. This may also be true for people who want to buy more than currency.
As of October 2021, Ethereum has traded for over $4,000 and surpassed a market capitalization of $460 billion.
Binance Coin (BNB)
Binance Coin trades under the symbol BNB. It was launched by the team that launched the crypto exchange Binance just 11 days later in 2017 with an initial coin offering. BNB was originally released on the Ethereum network but moved to its own Binance Chain in April 2019.
One of the big benefits of BNB is that you get a 25% discount when you pay your trading fees in cryptocurrency on Binance.com and Binance DEX. However, the discount decreases over time.6 As of October 27, 2021, BNB had a market capitalization of over $75 billion and was trading at $450.7.
Launched in 2017, Cardano is a public blockchain platform. Its cryptocurrency is called ADA. Unlike other cryptocurrencies, Cardano uses a proof-of-stake (PoS) protocol rather than proof-of-work. Proof-of-stake protocols use the number of blockchain tokens that a user must attach to the blockchain, rather than the number of tasks performed.
This reduces the interest in using large amounts of energy to mine or attack the blockchain, and Cardano and other PoS protocols are labeled as “green coins”. Cardano has a market cap of $64 billion as of October 27, 2021.
Which Cryptocurrency Is Right For You?
For the most part, investing in crypto is like investing in any other asset class, but there are higher risks associated with this type of investment.
You can invest in crypto for one dollar. You can buy it using a credit card.
You can start by opening an account on exchanges like Coinbase, Gemini, Binance, etc. You can buy and sell crypto from your brokerage account on trading apps like Robinhood.
As with any investment, the best cryptocurrencies to invest in will depend on your needs and your thoughts on what the future holds. Because they are new, cryptocurrencies are still volatile in price; there is no guarantee that they will live in the future.
As a result, consider how much of your portfolio should be in crypto. Make sure the allocation matches your risk profile.
Frequently Asked Questions (FAQ)
What Are the Risks of Investing in Cryptocurrencies?
Cryptocurrencies are still a relatively new form of investment and have grown rapidly since their inception in 2009. The extreme price volatility of some of these currencies is a reason for investors to be cautious.
Crypto is not as regulated as other securities, and much of the trading takes place overseas, further increasing the risk. You should invest in cryptocurrencies only after you are aware of the dangers and ensure that you have other safe investments to cover the risk.
Can You Get Rich by Investing in Cryptocurrencies?
The risk of cryptocurrency is the opposite: the potential for excessive profits. For example, if you had invested $1,000 in Bitcoin ten years ago, you would be a millionaire many times over today. However, predicting which currencies will explode and which ones will fall is not easy. This is why it is important to use a balanced investment strategy.