There is no one size fits all approach when it comes to investing. If you are on the internet looking for somebody to tell you which crypto you should invest in, you are heading in the wrong direction.
No one can tell you where you should put your money. Every individual has a different risk profile, capital, level of commitment, profit goals etc. While some investments may suit someone, the same investment may not serve others.
Take the recent Elon Musk and DOGE incident; for example, the dogecoin wave was everywhere, with its moves controlled largely by Elon Musk and the Doge community.
Looking at which, many people who didn’t even know anything about cryptocurrency bought it. While some were able to ride the wave and make millions, more people went broke because they failed to correctly assess the cryptocurrency.
So here in this blog, we will not tell you where you should invest but rather how to invest in a cryptocurrency.
4 Crypto Investing Lessons
The four lessons to go back to whenever you are not sure which cryptocurrency to invest in:
First Lesson: Cryptocurrencies Have an Underlying Vision| Utility
First things first, not every cryptocurrency is the same; each cryptocurrency has a distinct purpose attached to it. They are attached to an underlying vision.
For instance, Bitcoin has a firm purpose of replacing fiat; it realises the pitfalls of fiat and improves its shortcomings. Fiat loses its value over time and is inefficient for cross border transactions because of higher fees. In contrast, Bitcoin increases in value over time and is cost-effective for cross border transactions.
Likewise, Ethereum goes a step further and allows developers to build decentralised applications on its network. In simpler terms, it makes it easier for developers to build applications on blockchain by giving them access to Ethereum’s infrastructure.
The more a cryptocurrency solves a problem, the more people will want to adopt it, and thus it gains value.
Second Lesson: Which Cryptocurrency People Are Investing in | Market Capitalization
Think about it this way; a cryptocurrency is nothing if people don’t believe in it. Market capitalisation is the share a particular cryptocurrency owns in the entire market. It indicates a cryptocurrency’s market dominance.
Large market capitalisation means more people are investing in a cryptocurrency, thus pushing up its market value. It is an excellent estimate to know which crypto people are investing in.
Fun Fact: Bitcoin owns over 50% of the total crypto market capitalisation
Additionally, the greater the market cap of a cryptocurrency, the more liquid it is as more people are inclined to invest in it. Liquidity refers to the ease with which the asset can be converted into cash.
Greater Market Cap = Greater Liquidity
Third Lesson: Scarcity Creates Value | Limited Supply
Well, as far as economics is concerned, this point stands true. A cryptocurrency with a limited supply would have a greater value than a cryptocurrency with an unlimited supply.
Bitcoin, for example, has a limited supply of 21 million coins, which helps drive its prices up. On the flip side, Dogecoin, which works on practically the same framework but has an unlimited supply and thereby struggles to reach $1.
However, scarcity alone isn’t enough to determine the potential of a cryptocurrency. If it were the case, then Ethereum wouldn’t be as successful as it is today.
Fourth Lesson: Ask Yourself Questions
This is often the most underrated aspect of investing in cryptocurrencies. As mentioned earlier, there is no one size fits all approach when it comes to investing. To find the right crypto for your portfolio, you need to ask yourself some hard questions:
- What is the objective of my investment? Do I want to make crazy profits? Or grow steadily?
- How much do I want to invest?
- What is my risk tolerance?
- How much do I know about Cryptocurrencies and the specific Crypto that I want to invest in?
- How much time will I be able to invest in the research?
Answering these questions and weighing them with the other three lessons will help you select from an ocean of cryptocurrencies that are around.
For instance, somebody with a lower risk appetite may choose to opt for safe havens like Bitcoin and Ethereum. At the same time, aggressive traders with in-depth knowledge might reach out for something like Dogecoin (DOGE).
What Is the Best Cryptocurrency to Invest in Right Now?
Now that we have the basic framework down. Let’s take 5 cryptocurrencies and test them on the above parameters.
1. Bitcoin (BTC)
Being the first-ever cryptocurrency, Bitcoin is highly reliable. It was introduced to be the new form of money, replacing the paper money we use today.
However, since it hasn’t fully evolved yet, it is currently treated as a store of value like gold because of the similarities they share. Both gold and Bitcoin grow in value over time (deflationary assets) and have limited supply; it’s a different story that Bitcoin is far better than gold in all aspects.
Reasoning to select Bitcoin:
- It stands strong on all the key factors (first three lessons). It has a mighty purpose attached, the significant market capitalisation of > 50%, and has limited supply.
- Bitcoin is also one of the most popular cryptocurrencies with people like Elon Musk, Richard Branson, and even Amitabh Bachhan investing in it.
2. Ethereum (ETH)
Before Ethereum, all other cryptocurrencies that were launched were only focused on competing with Bitcoin. However, Ethereum began with the idea that blockchain could be used for much more than decentralising fiat and hence introduced smart contracts.
With the help of smart contracts, Ethereum allows developers to build decentralised applications on its blockchain. Anybody can build anything ranging from crowdfunding applications to games to financial services and make it accessible globally. As of today, it supports over 3000 applications.
Ethereum brought about the second generation blockchain that uses smart contracts.
Reasoning to select Ethereum:
- Ethereum is a pioneer in smart contracts; it is a platform that can decentralise anything and everything.
- It is the second-largest cryptocurrency by market capitalisation
- Has the potential to overtake Bitcoin
- Recently hit an all-time high of $4k with a yearly gain of over 1600%
Additionally, the development company of Ethereum is also participating as a partner in the development and testing of the CBDC prototype, the national digital currency.
3. Tron (TRX)
Tron intends to build a content sharing and entertainment infrastructure outside the control of Google, Apple, Facebook and Amazon with its evolution divided into six phases.
Currently, it is in the third phase of its development, called Great Voyage. It has evolved from just a platform for P2P distribution and storage of content to now allowing content creators to issue a stake in their personal brand through individual ICO’s.
It acquired BitTorrent in 2018 and has recently bought the largest decentralised blog and social media platform, Steemit. Steemit also has a video sharing platform like YouTube called D.Tube. If the team at Tron successfully rolls out all its six phases, experts have predicted a bright future for it.
Convert TRON to INR seamlessly on the CoinSwitch website.
Reasoning to select Tron:
- Tron has a very strong objective of powering the creator economy.
- It has a limited supply of 100B tokens
- Has a lot of developments in its network roadmap
4. Chainlink (LINK)
Chainlink is a decentralised oracle network.
Blockchains operate remotely and thus can’t access data outside their network, but for smart contracts to effectively perform tasks, real-world insights are important. Chainlink being an oracle network effectively bridges this gap; it is responsible for feeding reliable and tamper-proof inputs to smart contracts.
The protocol connects smart contracts on any blockchain with real-world data using oracles.
Reasoning to select Chainlink:
- Chainlink is the most widely used oracle solution among leading DeFi projects like Aave, YFI etc., and even Google uses Chainlink.
- Has a limited supply of 1B tokens
5. Polygon (MATIC) –
Polygon, formerly known as the Matic network, is a ‘Made in India’ cryptocurrency that is a scalability solution for Ethereum. Ethereum has thousands of applications running on its network and hence it has low throughput and high fees.
Matic allows Ethereum to interact with multiple blockchains and become a multichain system. It drastically reduces the network fees of the Ethereum network and also makes it more efficient.
Reasoning to select Polygon:
- It powers Ethereum, which in itself is very strong
- It has a limited supply of 10Million coins
The Don’ts of Cryptocurrency Investing
Now that you know how to go about your next crypto investment, here’s a list of things you should avoid doing in the process.
1. Always DYOR
Investing in a cryptocurrency because somebody tipped you about it is probably the worst thing you could do. As I said, everybody is at different levels regarding their investing knowledge, objectives and risk appetite.
So make sure you Do Your Own Research before you put your money in any cryptocurrency.
2. Never Overcommit
To avoid over committing, Diversify within and between asset classes. For instance, don’t invest heavily in one crypto diversify between a handful of them. Similarly, don’t just invest in crypto; diversify in other assets as well.
Most importantly, don’t invest more than anything you can afford to lose.
3. Don’t Swear by Social Media
Social media can hype up anything and everything. If you base your investments based on what social media is talking about, you are taking unforeseen risks. Anything on social media can touch the roof one day and become thin air the next day.
So take everything on social media with a grain of salt.
The lessons that we discussed above are directed towards people who are in it for the long run. For short-term traders, the criteria may be different since they intend to make money off of the market’s volatility; however, some factors like market capitalisation are important here as well.
P.S. KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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