- New investor in the crypto space have thousands of coins to chose from, but this is the bedrock from which everything can be explained.
- Some of these investment options have stood the test of time, while others are offering unique solutions, pushing the market to new heights.
The crypto industry has witnessed a big number of new investors in the past six months. For some, it was the profits from BTC and ether that attracted them, for others, it’s the possibilities in DeFi, and yet for others, it was Elon Musk and many other celebs who have stormed the industry. However, for newbies, it’s never easy getting started. Many end up investing in scams, losing their private keys, transferring crypto to wrong addresses, getting swayed by social media campaigns and more.
Here at CNF, we have compiled a five-part series to help the newbies get started with crypto. For those who’ve been in crypto for years, it’s also a great time to refresh your knowledge and remind yourself about the basics. In part 1, we look at the five most common investments in crypto, their merits and what to watch out for:
Bitcoin (BTC) is one of the most popular cryptocurrencies in the market. On top of being the very first open-source digital currency, it is the largest one in the world. Having proven to work for more than a decade, most first-time investors chose to start with it as a safe bet. However, its value goes beyond this.
For starters, it has proven itself as a store of value. While the US dollar has lost its purchasing power because of rising inflation, BTC has gained massively. In 2011, one BTC was worth $0.30. In the last decade, the digital asset has rallied to reach as high as $64K. It is worth noting that in between, it climbed as high as $20K before consequently crashing as low as $3K. As a store of value, BTC has outperformed most traditional assets including gold. For most institutional investors, this has been the main attraction to digital currency.
BTC, being the most popular crypto also offers the highest liquidity of any token. This means there are adequate buyers and sellers on exchanges. In fact, recently Tesla offloaded BTC worth over $200M to prove BTC has liquidity. Additionally, the digital currency has seen a lot of business adoption. After years of persistent growth, there are now thousands of businesses that accept BTC as a form of payment, including Tesla.
Ethereum is the second-largest cryptocurrency by market cap and unlike BTC whose creator is unknown, this was the brainchild of Vitalik Buterin. The Ethereum project is an open-source blockchain with smart contract functionality. This has seen it gather a lot of adoption as traditional infrastructure is replaced by advanced smart contracts. With its application virtually infinite, a majority of crypto projects are built upon the Ethereum blockchain, bringing smart solutions in traditional industries. ETH enables these projects to run on the blockchain, gaining value with the rise in its demand.
Unfortunately, its growth has in recent years led to high transaction fees and slow transaction speeds. The developers are keen on upgrading the blockchain with the release of ETH 2.0 later this year. Ethereum also enjoys high liquidity and is available in most crypto exchanges.
In Ethereum’s rise, a number of blockchains saw opportunities to improve on what Ethereum created. These have come to be known as ‘Ethereum killers’ as some have recorded massive adoption that market observers have suggested will overtake Ethereum in adoption.
The most popular ones are Cardano and Polkadot. Their native coins, in this case, ADA and DOT respectively, which fuel the blockchain, gain massive value as the projects grow. More recently, the industry has seen the rise of the Binance Smart Chain with its native token (BNB) and Solana (SOL).
Decentralized Finance (DeFi) is a relatively new market born out of smart contracts. DeFi projects bring a traditional banking approach to the crypto space. These are lending, borrowing and staking with cryptocurrencies. Clients can deposit tokens into smart contracts from which they can earn interest. Through the same, users can also borrow crypto to trade or fund projects.
This practice has become so popular and projects built upon it have gained a lot of traction. In fact, they now make up a considerable number of top 25 tokens by market cap. Among the most popular are UniSwap (UNI), PancakeSwap (CAKE) and SushiSwap (SUSHI).
Every now and then, some cryptocurrencies are on-trend. This could simply be because it is a new exciting blockchain, an existing blockchain undergoing major development that possibly improves its adoption or simply because an influential person supports it. The most recent to go on a trend is Dogecoin (DOGE). Since Elon Musk, the second richest person came out in support of the meme coin, it has recorded massive earnings.
In some cases, like DOGE, the inherent blockchain carries little value. However, the demand for the coin keeps pushing prices up. In others such as Ethereum, the value is driven by the blockchain and/or its development.
The ‘money makers’ are popular with day traders since they can make quick money before the bubble bursts. For long term traders, they are the riskiest type of investment.