How to choose which cryptocurrency to invest in: top 7 tips
These days there’s an ever-expanding universe of different blockchain-based digital currencies to choose from. There are so many factors to consider that it can seem overwhelming. Is bitcoin a good buy given its relatively low price versus the peak last year? If you’re more interested in a newer product, what’s the best altcoin to invest in? Which ones will survive, and which are a flash in the pan?
To compound the problem of choice, everyone is always touting their solution as the next bitcoin. There’s an informed a feature that sounds a little too good to be true, or a deadline that seems difficult to meet. Staying realistic in your expectations will help you make the right choice.
Even if you do your best research, there are simply too many choices to review them all. You need a good strategy and some solid criteria before you start looking. We’re going to give you some of our tips to help you navigate the ever-expanding crypto market.
1. Choose your risk level
While there are almost 1,800 different cryptocurrencies in circulation as of this writing, by far the most stable one is bitcoin (BTC). Being the oldest on the market, investing in bitcoin is a relatively safe bet. Especially given the current price, far below the all-time high of $20k. All other coins are known as ‘altcoins,’ and there are some very stable choices including Ethereum (ETH), Litecoin (LTC), and Ripple (XRP).
It’s always a good idea to diversify your investments, so you may consider choosing one of more established digital currencies to anchor your investment portfolio. Another stable investment are so-called ‘stablecoins.’ These are a great way to hold money between trades, or put money into a crypto exchange. Stablecoins are designed to mirror a fiat currency, keeping price fluctuations to a minimum. For an example, check out bitCNY, pegged to the Chinese Yuan.
2. Do your research
While it’s important to read opinions and listen to what company representatives have to say, nothing beats doing your own independent research. You want to look at all the historical charts on the currency you’re interested in. Pay particular attention to market cap and circulation, don’t get hung up on the price alone.
You want to look for stability and understand the full history of a particular altcoin. Maybe it is still in a growth phase, and has continually been growing. Maybe there’s always been a big peak and a large correction. Steer away from currencies that have seen sustained big drops in market cap, as it shows that demand has died down.
You should also research as much as possible about the company offering the coin, and what problem it aims to solve. Look for offerings with innovative technology, and a strong proof of concept. Big promises should factor less than actual sample use cases and trials. Make sure you learn about company leadership as well, the CEO’s track record, and if there is a solid technical team.
3. Stay informed on upcoming ICO offerings
The ‘Initial Coin Offering’ has become the de-facto method of both rolling out a new cryptocurrency and for the company to raise working capital. As in the traditional stock market, you’re betting on which company can produce the product they are promising and deliver on your investment.
ICOs are often the best way to get in on the ground floor of a great opportunity. You can’t look at historical charts, so you’ll have to put even more emphasis into understanding the offering and how it differs from others on the market, as well as the team behind the company.
Because you’re buying in at the ground floor, you can see some of the biggest gains by investing in the right ICO. Learn about what has made successful offerings in the past to help you spot the next promising one.
4. Research lesser known exchanges
Even if you’ve missed an ICO, you can still buy the coins on exchanges. The bigger exchanges limit which coins they trade, and often you can find better investments on more obscure exchanges. A word of caution, you should do a similar amount of research about the exchange and who’s behind it to help protect your investment.
5. Time your trades based on important dates
Companies will often announce partnerships, project milestones, and other critical dates on their Twitter feed, official websites or even blogs. By closely following these feeds, you can often learn of these dates before most people ever hear of them. That means you can prepare to time your trades based on these important milestones.
This strategy involves a much higher level of engagement, but choosing a currency based on these important events can increase your short-term gains. There’s almost always a price jump around these dates, and if you have an advance notice, you can actually anticipate. Be ready to acquire coins as soon as you hear of such news.
6. Be well-versed on political and regulatory changes
You can be the most informed investor when it comes to your portfolio and the assets within, but if you’re not paying attention to the political climate and regulatory shifts – especially in the countries where your products are based or traded – you can quickly suffer big losses.
A large part of your investment strategy is to be well-versed on the laws (or a lack thereof) regarding cryptocurrency in the jurisdictions that will affect your portfolio. Many big swings in the price of crypto are due to these external factors.
7. Closely monitor your portfolio
Once you’ve made a choice and invest in cryptocurrency, make sure you stay vigilant regarding your assets. You want to stay just hyper-aware of all news about your specific investments. By continuing to stay engaged with all the same research you did prior to making your investment, you can be ready to sell when needed, or know the best times to grow your position.
Staying aware is key
Choosing altcoins to invest in can be a difficult task, but if you stick to the information and don’t let emotion get into it, you can pick a good investment for you. While we’re not likely to see the kind of meteoric growth that bitcoin experienced, we are still at the very early stages of the industry and the right investments can be very lucrative. Now is the time to get started!