Overview of the Crypto Market
The Lehman crisis of 2008 remodeled the belief of investors across the world. An impactful event in financial market history, it led to the birth of a new class of assets i.e. Bitcoin. Investors began to view assets that were not backed by a formal banking system and crypto fit the bill. This new asset class then slowly rose to be one of the most important asset classes for investors. Even over a decade after establishing its presence, which crypto to invest in is a question that continues to create a whirlwind across the globe.
The primary idea of crypto was to decentralize the financial system. This meant that crypto investors would not have to rest the well-being of their investment in a centralized authoritative system, like a traditional bank. While the concept may have been indicated in 2008, it quickly gained popularity in 2011. Bitcoin was initially valued at $1 and currently holds a value of $43,902 (as of 24th March 2022: 6.30 PM IST) amidst peaks and drops. Over time, Ethereum joined the wagon to establish dominance in the crypto market movement. The two coins have led to new ‘Initial Coin Offering’, an ‘Initial Public Offering’ equivalent, being announced and traded worldwide every few weeks.
Understand Risks Before Investing in Crypto
As a crypto investor, one of the biggest challenges lies in steering away from the hype. There is no doubt about the fact that digital assets have made their way to the portfolios of top investors, however, it is essential to also understand the risks. The crypto market is highly volatile, and you must be cautious about its unpredictability. Like with any investment, do your research at the time of investing in the crypto market.
To begin, understand why you want to invest in crypto. Is it the mere pressure to keep up with investment trends of going digital? Different investors choose the space to mark specific financial goals. Explore the industry to get a sense of different crypto assets and take time to learn. After conducting research, monitor the regulations. Do your homework to increase your chance at success.
Most importantly, follow the volatile investment market rule – only invest as much as you can afford to lose.
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Diversification Options for your Crypto Investment Portfolio
Diversification stands at the core of building a successful crypto investment portfolio. Adding the right blend of assets manages risks and offers a greater chance of rewards. This is because the fall of one coin does not translate to the fall of the entire crypto market and vice versa.
There are different crypto assets available for you to choose from. Let’s look at some of the notable assets that you could add to your well-diversified basket.
DeFi Projects – DeFi Projects or Decentralized Finance offers the world an inclusive internet-native financial system. It simply allows everybody to avail financial services in a transparent environment. DeFi projects are aimed to leverage decentralized networks and replace traditional intermediaries. Currently valued at $77 billion (at the time of writing), DeFi continues to emerge. Closely research before investing in popular DeFi projects like Anchor protocol, Avalanche and Terra (LUNA).
NFT Tokens – NFT tokens or Non-fungible tokens denotes a digital asset that represents real-world items such as real estate, artwork, event tickets, videos, and more. These tokens exist on a blockchain and enable the ‘tokenizing’ of tangible assets for convenient buying, selling, and trading. According to experts, popular NFT tokens like MANA, SAND, and AXIE INFINITY are great portfolio additions.
Metaverse – If you have closely evaluated the crypto market recently, you must know that Metaverse tokens are the rage. Metaverse is a virtual reality that enables users to experience things and interact the way they can in the real world. It is believed to be the next big thing of the internet with the possibility of strong gains. The top three Metaverse cryptos to watch out for are Stacks, Theta Network, and MANA in order of lowest to highest valuation.
DAO Projects – An organization devoid of centralized leadership, DAO or Decentralized Autonomous Organization operates with the rules laid out in smart contracts. The organization is transparent and autonomous. It allows like-minded individuals to work within a safe environment. Uniswap (UNI), Aave (AAVE), and Maker (MKR) are the top DAO tokens that the crypto community is adding to enrich a diversified portfolio.
Remember, unless you have a very strong reason to place all your eggs in one basket, maintaining a well-balanced portfolio is a good risk-management strategy.
Read more on how to diversify your crypto investment portfolio.
How to Pick the Best Crypto to Invest in?
The number of actively traded cryptos is growing manifold. Thus, guesswork is not the way forward. As a savvy investor, you must master the psychology of an investor. Guard your decisions against the hype of blind crypto investment. Follow algorithm, organizational history, and the crypto community. Effective research powers you with actionable insights.
Learn how to do a fundamental analysis of any crypto project you wish to invest in, in 3 steps:
- Read the Project Whitepaper – A whitepaper is a document that is made available to potential investors through a website that is dedicated to the coin. It helps you understand the features of the crypto in detail. The whitepaper lets you in on important information about the project, the duration of the ICO campaign, available project tokens, and more. Read it with due diligence before making a crypto-investment decision.
- Credibility of Founders & the Team: An initial crypto offering can be launched by anybody. This makes it extremely important to ensure that the crypto is initiated by a legitimate party. Evaluate the history of the product lead, the project’s time frame, the authenticity of the people initiating the offering, and their relevant experience. If you find anything amiss, treat it as a red flag!
- Check Supply and Market Capital: Perhaps the easiest way for you to think when purchasing crypto is by comparing it with the performance of older successful cryptos. However, that is truly a flawed way to base your purchase decision.
Do not be swayed by the cheap price of the coin as it nowhere denotes that the crypto will perform well in the future. Carefully note supply and market capital. Market capitalization indicates the relative size of the crypto. It is calculated as, Market Cap = Price X Circulating Supply.
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The Bottom Line
Crypto is indeed a lucrative market but one with potential risk just like any other investment assets. The key lies in analyzing the offerings and staying informed on the evolving trends. Treat the investment with caution before determining the best crypto to invest in.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. In case you have any queries, write to [email protected].
The above information represent the independent views of Primestack Pte. Ltd, Neblio Technologies Pvt. Ltd, and/or their affiliate entities and are for informational & educational purposes only. The content, information or data provided above is not an offer, or solicitation of an offer, to invest in, or to buy or sell any interest or shares, virtual digital assets/ crypto products or securities, or to participate in any investment or trading strategy. Any statement or communication made above shall not be treated as a legal, financial, investment or tax advice by the reader. The calculations, data, risk-return formulations, performance or market capitalization indicators captured above are based on the independent data sourcing including collation of public information and/or analysis performed by analysts, advisors or employees of Primestack Pte. Ltd/ Neblio Technologies Pvt. Ltd and/or their affiliate companies and/or any third party. Past performance is not indicative of any future results. The reader(s) are hereby advised to consult their financial/ legal/ tax advisor(s) before making any investment.