The first thing to say about cryptocurrency investment is that it does not provide a guaranteed windfall in the short term. There was a time when cryptocurrencies could seem to do no wrong but the stories of hugely impressive financial gains seem to be consigned to the past.
However, for those who believe in the ethos of cryptocurrencies and blockchain technology, investment can still be a worthwhile enterprise and can deliver rewards for those who are willing to be patient. After all, as Eric Rosenberg says while writing for The Balance, "The cryptocurrency markets have calmed down a bit since that record high, but many Bitcoin evangelists still claim Bitcoin to be the currency of the future."
This being the case, investors need to ask themselves the question which cryptocurrency to buy? Is Bitcoin still the best choice?
Look around online and you’ll find all kinds of advice about picking altcoins to invest in. But, to choose the coin that is worth your investment, you need to ask some questions about what it is you want from a cryptocurrency.
Are you seeking a stable project that could produce decent gains on your investment with the lowest chance of failure? Or, are you hoping to put a little money into a high risk, high reward coin and hope for it to shoot the moon? If it’s the latter, you are obviously going to want to study small market cap coins.
We are not in the business of giving advice on whether it's better to buy Bitcoin or any particular altcoin, and with so many different obscure projects out there, there simply is not enough time to outline all the pros and cons of each option. Instead, we would rather provide potential investors with advice about what to look for in a small market cap coin, along with some suggestions about the best cryptocurrencies to invest in.
Which cryptocurrency to buy - diversification
There is not one best option when it comes to which cryptocurrency to buy. Any investment in cryptocurrency carries some risk with it. The best way to succeed in the cryptocurrency market is to diversify.
This is due to the fact that different cryptocurrencies have different use cases and promise disruption across various industries. For instance, XRP is a cryptocurrency that is used as part of the Ripple Payment Network. The point is that choosing to invest in a number of different cryptocurrencies is the optimum way to hedge your risk. Given that this is the case, let's examine how to go about choosing the coins to include in your cryptocurrency portfolio.
Look at the Problem the Coin Purports to Solve
The first and most important thing to consider when picking a small cap coin is whether people will actually need or want to use it. To answer this, look at the project’s whitepaper. Find out the specific problem that the coin seeks to address. Is it simply a means of payment? Is it to be used with a specific application? If it is, what does the application do and is a decentralized, tokenized, blockchain-based solution the best way to achieve the ends set out in the project’s documentation?
Does the Coin Project Face Competition?
After identifying the problem that the coin seeks to solve, you should research other projects that are also trying to solve the same issue. Just as Ethereum faces competition from NEO, Monero faces competition from Verge and Zcash. Therefore, it’s likely that there will be other coins seeking to achieve similar goals as your chosen project. Of course, the fewer alternatives in the space, the more likely it is to succeed. Alternatively, if you identify other projects that have a different approach to solving the problem, why not invest in both? If you were looking at alternative models for online advertising, for example, you could invest in both Basic Attention Token and ADEX.
Examine the Roadmap
The outline of what a project aims to achieve, and in what timeframe it intends to reach its goals, can give some clues to the likelihood it will succeed or not. If the roadmap seems lengthy and ambitious, like Ethereum’s, it’s likely going to be a long-term hold with huge upside potential. That said, if it’s going to take three years for a team to maybe or maybe not achieve what they set out to, that leaves a lot of time for competition, legislation, or other circumstances to harm the coin’s chances of growing into the space-dominating behemoth you hope it will.
Conversely, projects with big rebrands and other such publicity events can be traded successfully if timed well. NEO’s rebrand in Q2 of 2017 would have provided such an opportunity; however, being a project with solid long-term ambitions, those unfamiliar with trading would have been just as happy with a buy-and-hold strategy over the course of the previous twelve months.
Investigate the Team
Browsing a project’s website and analyzing its team members is an absolute must when choosing a coin to invest in. Look for those with experience in the space. Obviously, it’s unlikely that you’ll find people with many years of blockchain engineering behind them (they all work on Bitcoin already or are multibillionaires and own private islands). A few years of blockchain experience, a bit of marketing clout, and a few business-minded members on the team are all good indicators. Also, check that the people exist if it’s smaller coins or initial coin offerings (ICO)s you are considering investing in. A recent example of an ICO that raised nearly $1 million had the audacity to include a fake name with a picture of Hollywood A-Lister Ryan Gosling as one of their employees. Obviously, most cases of fraud are not quite this blatant though.
If you do not have enough time for all that research and insist on getting into the crypto game, here are some of the cryptocurrency options that seem likely to succeed based on their current performance and fundamentals. We are not telling you to invest in these coins by any means, but they seem quite stable if there is such a thing in crypto.
Bitcoin is still the most widely used and largest cryptocurrency there is. The original Bitcoin has been joined by Bitcoin Cash which was created as a fork in 2017. This fork currency enabled the use of an increased block size limit when using the blockchain technology. Bitcoin has the most liquidity of the cryptocurrency world which makes it an ideal choice for first time cryptocurrency investors. Despite its price volatility, it's also one of the more stable cryptocurrencies out there. At the end of the day, Bitcoin is still a popular choice with investors despite the proliferation of new coins in the cryptocurrency space.
Ethereum have massive plans for their platform. Look at the names on the Enterprise Ethereum Alliance. Just about every conceivable industry is represented on the list of the who’s who of global finance and manufacturing. If just one of these end up with products built on Ethereum’s public blockchain and using Ether, the market cap and the ETH to USD price would most likely soar many times from what it is today. The community and team surrounding Ethereum is loyal; a fact which should provide this cryptocurrency with a higher level of stability.
Monero already has a well-defined product and market. It might be a bit seedy but it’s not going anywhere. Over the years, Dark Web market places have turned to Monero to provide their users with even greater anonymity using encrypted messaging and specialist browsers. However, that’s not to say Monero doesn’t have an opportunity for its own moon shoot. Imagine suddenly every cryptocurrency became illegal tomorrow. Watch how fast Monero would rise in price. This makes this coin a great pick as a hedge versus a crypto that is susceptible to legislation (i.e. all of them). One of the biggest benefits of Monero is that it has a high level of liquidity which should mean that buying and selling is easier to achieve than with some other cryptocurrencies.
After Bitcoin, Litecoin was one of the first cryptocurrencies to come to the market. Technically, it's a fork of Bitcoin which was created as the result of some technical changes to the code that was used. Litecoin is a high liquidity cryptocurrency and benefits from a large market cap.
Binance Coin (BNB)
Binance coin is different to some of the other cryptocurrencies that we have mentioned. Unlike others which are intended to be used as digital currencies, Binance Coin is a utility token. This means that the value of BNB is a result of how useful it is and how much demand there is for it within the Binance ecosystem. It's important to remember that Binance is one of the fastest growing cryptocurrency exchanges in the world. Given that BNB is utilized to pay for transactions within the exchange, it seems likely to maintain its popularity. There is no doubt that it's still a volatile cryptocurrency, but its growth has been consistent. For instance, during the bear market in early 2019 its price rose by a multiplier of 3.
NEO makes a good hedge against Ethereum. It offers similar functionality but the bonus of an innovative model to find consensus on the network. It’s called delegated Byzantine Fault Tolerance. Now, this article is much too short to explain what that means in full but the perks to it are it pays dividends just by holding NEO. GAS is used to power smart contracts and the staking reward on NEO is paid in GAS. This can then be traded in for more NEO allowing GAS to accumulate even quicker.
Another advantage NEO has over Ethereum is that it allows decentralized applications to be programmed in any language. Many coders and software developers have their own preferred language, and by including most of the popular languages, NEO team hopes to appeal to a wider spectrum of would-be blockchain engineers. This should help create that killer dApp the platform needs for its market cap to go stratospheric even quicker.
Cardano, is currently one of the main competitors for Ethereum and NEO. Allegedly, the main advantage that Cardono has over its competitors is that it's more scalable due to an additional two layers of technology being utilized. One of these additional layers of technology is aimed at being utilized to check balances on the ledger. The other layer is aimed being utilised to transfer value.
In addition to the apparent scalability improvements, Cardano also makes use of two programming languages; Haskell and Plutus. The aim of this is to enable developers to create decentralized applications simply and in a more efficient manner. Interestingly, Charles Hoskinson who is the co-founder of Cardano was also the co-founder of Ethereum and is a leader of IOHK which is at the forefront of researching blockchain technology.
With over 1,500 cryptocurrencies currently listed on Coinmarketcap, choosing which to put your money in is decidedly difficult. All cryptocurrency investment is subject to risk. The aim of any investor in cryptocurrency should be to minimize that risk as much as possible. One of the best ways to do this is to develop a diverse cryptocurrency portfolio. Establishing which cryptocurrencies to include in this portfolio requires a lot of research. We are sure that you have browsed social media groups on Twitter or on Reddit and seen countless members of these communities stating “DYOR” (Do Your Own Research). Well, this article showed how you can go about it. Happy investing!