Since Bitcoin arrived on the scene in 2009, cryptocurrencies have been gaining in popularity. While conceived of as an alternative means of exchange—without the need for government-backed (or “fiat”) money—today crypto is also seen as a potential investment.
Types of Cryptocurrency
There are more than 9,500 cryptocurrencies on the market today. But the best ones for investing are those that have a large market capitalization. Just like when you’re looking at stocks, you can use market cap to consider the total value of an issued crypto coin.
The larger the market cap, the more likely it is to be liquid. There’s also a better chance it will stand the test of time. But unlike stocks, cryptocurrency issuers don’t publish financial statements. Be sure you use the limited metrics that do exist.
There’s no guarantee that any cryptocurrency, no matter how big or popular, won’t just disappear. These assets have no regulated financial or governmental intermediary. When trying to figure out which is the best cryptocurrency for you to invest in, check to see if it’s available on an exchange.
If you're new to crypto, it makes sense to invest in one that you understand. Think about uses beyond whether it’s a medium of exchange that more people are likely to adopt.
As of May 4, 2021, the top cryptocurrencies by market cap are Bitcoin, Ethereum, Binance Coin, and Ripple.
Bitcoin (BTC) kicked off the crypto revolution when it was created in 2009. The original creator remains somewhat of a mystery. But Bitcoin’s unconfirmed founder (or founders) is known as Satoshi Nakamoto. As of May 4, 2021, Bitcoin's market cap is more than $1 trillion.
Bitcoin makes use of blockchain technology, which allows for peer-to-peer transactions using a digitized and decentralized ledger. That means there is no need for a third party to verify information or act as a clearinghouse.
Bitcoin is finding mainstream acceptance as a method of payment. As an investment, though, its price has seen wild fluctuations. In early 2017, its price crossed $1,000 for the first time, skyrocketing to more than $19,000 toward the end of the year; it then crashed to around $3,000 a year later.
By April 2021, Bitcoin had gained momentum again, crossing $64,000 before seeing some price correction.
While Ethereum (ETH) launched in 2015, it was first conceptualized in 2013 by Vitalik Buterin. Ethereum uses blockchain technology, but it’s programmable. Ethereum is designed to be open access and provide a variety of applications.
The way Ethereum works makes it possible to do more than handle money. It’s one of the drivers behind “smart contract” technology. This means that various agreements can be executed in a secure manner directly between parties. For instance, a real estate purchase could be completed using Ethereum without the need for an escrow account.
For people who believe in blockchain technology for more than financial transactions, Ethereum may be a good long-term investment. This could also be true for those who want to buy something that is more than a currency,
As of May 4, 2021, Ethereum was trading at more than $3,200, after hitting a high of $3,400 in intraday trade; it commanded a $370 billion market cap.
Binance Coin trades with the symbol BNB. It was launched through an initial coin offering in 2017 by the team that just 11 days later launched the Binance crypto exchange. BNB was first launched on the Ethereum network but migrated to its own Binance Chain in April 2019.
One of the big benefits of BNB is a 25% discount if you use the cryptocurrency to pay trading fees on Binance.com and Binance DEX exchanges. The discount decreases over time.
As of May 4, 2021, BNB has a market cap of more than $94 billion and trades for more than $600.
Launched in 2012, XRP by Ripple Labs is one of the fastest and most scalable decentralized payment settlement technologies. XRP settles transactions in four seconds, making it faster than other types of crypto. The entire focus of Ripple is payment systems.
It’s important to note that you don’t have to just send XRP coins using this network. It’s open access and can be useful for cross-border transactions. These can be settled almost instantly without the need for a bank or other intermediary. While Ripple is primarily a payments network, third parties are looking into other uses for its technology.
Ripple found itself in hot water with the U.S. Securities and Exchange Commission (SEC). In December 2020, the regulator charged Ripple and its two executives for the sale of XRP coins through what it considered an unregistered securities offering. XRP’s price plunged more than 40% from 44 cents at open the day after the SEC’s action to 25 cents by the end of day. The legal tussle between Ripple and the SEC continues.
As of May 4, 2021, XRP is trading at a price close to $1.36 and has a market cap of more than $61 billion.
Which Cryptocurrency Is Right for You?
For the most part, investing in crypto is like most other asset classes. But there are higher risks that come along with this type of investment.
You can invest in crypto for as little as a dollar. You can even purchase it using a credit card.
As with any investment, the best cryptocurrencies to invest in will fit your own needs and reflect what you think is likely to happen in the future. Because they are new, cryptocurrencies are still fairly volatile in pricing; there is no assurance of their future viability.
As a result, think about how much of your portfolio should be in crypto. Be sure that allocation is in line with your risk profile.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.