Since Bitcoin arrived on the scene in 2009, cryptocurrencies have been gaining in popularity. While first conceived of as an alternative means of exchange—without the need for government-backed (or “fiat”) money—today crypto is also seen as something you can invest in.
Types of Cryptocurrency
There are more than 6,800 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 capacity (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. Therefore, it's important to use the limited metrics that do exist.
There’s no guarantee that any cryptocurrency won't disappear, no matter how big or popular it is. These assets have no regulated financial or governmental intermediary. When you're trying to figure out the best cryptocurrency for you to invest in, you should 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 October 27, 2021, the top cryptocurrencies by market cap are Bitcoin, Ethereum, Binance Coin, Tether, and Cardano.
Bitcoin (BTC) kicked off the crypto revolution when it was created in 2009. The original creator remains somewhat of a mystery, but it's claimed that the founder's name is Satoshi Nakamoto. As of October 27, 2021, Bitcoin's market cap is 44% of the market, around $1.1 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. Another price jump happened in October 2021 when the first bitcoin-based exchange-traded fund entered the market.
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 securely directly between parties. For instance, you could complete a real estate purchase 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 more than a currency,
As of October 2021, Ethereum traded at over $4,000 and commanded more than a $460 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. However, the discount decreases over time. As of October 27, 2021, BNB has a market cap of more than $75 billion and trades for over $450.
Launched in 2017, Cardano is a public blockchain platform. Its cryptocurrency is named ADA. Cardano differs from other cryptocurrencies in that it uses a proof-of-stake (PoS) protocol rather than a proof-of-work one. Proof-of-stake protocols use the number of blockchain tokens a user has to append the blockchain rather than the amount of work that has been done.
This reduces the incentive to use large amounts of energy to mine or attack the blockchain, causing Cardano and other PoS protocols to be labeled "green coins." Cardano has a market cap of $64 billion as of October 27, 2021.
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 needs and reflect what you think is likely to happen in the future. Because they are new, cryptocurrencies are still 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.
Frequently Asked Questions (FAQs)
What are the risks of investing in cryptocurrency?
Cryptocurrencies are still a relatively new form of investment, and they have grown rapidly since their introduction in 2009. The huge price swings of some of these currencies should give any investor reason for caution. Crypto is not as well regulated as other securities, and much of the trading happens overseas, further increasing the risks. You should only invest in cryptocurrency after learning about the dangers and ensuring that you have other, safer investments to offset the risks.
Can you get rich investing in cryptocurrency?
The risk of cryptocurrency has a flip side: the potential for outsized returns. If you had invested $1,000 in Bitcoin a decade ago, for instance, you'd be a millionaire many times over today. However, it's not always easy to foresee which currencies will explode and which ones will collapse. That's why it's important to keep a level head and use a balanced investing strategy.