What is the best Cryptocurrency to invest in?
It’s a question that is often asked by novice Cryptocurrency investors and traders or even by those who have been sitting on the side lines hoping to get in on the space at the right time.
Hop over to Google Trends and run a search on the word “Cryptocurrency” and you will notice that over the last 12 months, the peak at which it was searched coincides with the most recent all-time high of many Cryptocurrencies across the board.
During these periods of all-time highs many popular and new Cryptocurrencies tend to rally which makes them very attractive long-term investments and short-term trading opportunities.
With that said, what is the best Cryptocurrency worth investing your hard earned money in? Does one single Cryptocurrency rain above the rest? How do Cryptocurrencies differ in what they have to offer?
To answer these questions, we are going to explore:
Understanding Cryptocurrencies
Before we address the above questions and other aspects to consider, it is important to understand the origin of Cryptocurrency and what it is. The first known Cryptocurrency appeared not too long over a decade ago – Bitcoin which was created by Satoshi Nakamoto is believed to be a pseudonym of the creator(s) of the digital currency.
Depending on who you ask, you might find that some classify Bitcoin as a stand-alone digital asset instead of a Cryptocurrency. These individuals consider everything other than Bitcoin as a Cryptocurrency or what is also known as an altcoin.
Both Bitcoin and altcoins are based on a very similar architecture, the use of a blockchain to record transactional data in a decentralised fashion instead of using a centralised approach. However, one could argue that some Cryptocurrencies are more centralised than others – with Bitcoin being the most decentralised of all on a technical level.
This implies that Bitcoin is the most secure of all Cryptocurrencies, although there are trade-offs such as much slower settlement times, lower transactions per second, less scalability and the fact that its consensus mechanism runs on proof-of-work (PoW) which requires a significant amount of energy – again, depending on who you ask and its relative consumption of energy compared to other industries.
Most other Cryptocurrencies adopt a consensus mechanism called proof-of-stake (PoS) and they offer faster settlement times, significantly more transactions per second, a greater level of scalability and they are considered to be more “green”, but they are not as secure. It thus becomes evident that there are trade-offs to consider when deciding on which Cryptocurrency is best suited for your investment portfolio.
Cryptocurrency volatility
One of the key aspects to take into account when investing into Cryptocurrencies is that they are all volatile, especially given that the technology is fairly new. While Cryptocurrencies can provide you with an immense amount of returns on your investment, it can also lead to significant losses – it is imperative to understand that volatility does not trade only to the downside but also the upside.
It goes without saying that higher risks tend to lead to higher rewards and vice-versa. It is often the case that Cryptocurrencies that are fairly new are inclined to be a lot less stable in their value. Sometimes this can be owed to the maturity and level of adoption of the Cryptocurrency in question. Volatility is an important concept to understand before deciding to invest in Cryptocurrencies.
Technical analysis
Understanding how to perform technical analysis is an excellent way to assess the performance of any given Cryptocurrency using time series data and price movements as variables. Although, it is important to account for the fact that macroeconomic circumstances also play a major role in the movement of Cryptocurrency prices.
That said, many investors and traders use technical analysis to predict long-term and short term movements of Cryptocurrencies over a period of time. This is also an excellent way to determine the maturity of a Cryptocurrency.
For example, any Cryptocurrency investor will most likely advise you to opt for a more stable and proven Cryptocurrency such as Bitcoin or even Ethereum over an altcoin such as Luna – especially given the recent horrific Luna crash that only a handful of investors could see coming, this not something we will explore in greater detail but it is a noteworthy use case to better understand the difference between mature Cryptocurrencies and those that come and go which are considered “cash grabs”.
Invest in meaningful projects
By now it should be quite apparent that there really is no such thing as the best Cryptocurrency, the best Cryptocurrency can be thought of as something that is relative.
To an investor who has a long-term investment strategy, often delineated in years, a stable and proven Cryptocurrency such as Bitcoin makes a lot more sense as an investable asset. While those who seek a quick return and are comfortable with higher risk might find altcoins as a more appealing investment or trade.
The key to investing in good Cryptocurrencies is by understanding the actual projects and the problems they are trying to solve. It is easy to get caught up in Cryptocurrencies that seem to only increase in value until they tumble as a result of solving no meaningful issues – value investors are quite good at being able to distinguish between meaningful cryptocurrency projects and those that are likely to fail.
The point here is to ensure that you always do your research, understand what it is you want from a cryptocurrency and which projects are worth adding to your portfolio based on your investment strategy.
Keen to learn more about investing in Cryptocurrencies? Take our Cryptocurrency Course Online.
