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2021 has been the year for the crypto market. Many cryptocurrencies like Bitcoin, Ethereum, and Dogecoin hit an all-time high over the last previous months. Many institutional investors like Tesla and Micro strategy joined the race and invested billions of dollars in cryptocurrencies.
Many cryptocurrencies, including altcoins and stable coins, have emerged in the sector. The market estimates place these cryptocurrencies above 3000. Cryptocurrencies have different features and aim to fill a particular gap in the financial sector. This guide was created with the help of the Bitcoin Trader app.
How to select a cryptocurrency
There are many factors you can consider before investing in a cryptocurrency. Many traders choose to buy and sell different cryptocurrencies for several reasons, and they include:
Volatility
In general, the crypto market is highly volatile. Crypto prices fluctuate at a faster rate creating an ample opportunity for traders to generate a considerable profit. Many day traders take advantage of highly volatile cryptocurrencies like Bitcoin to create an income source. If you intend on day trading or trade on a full-time basis, high volatility appears instrumental to assist you in buying and selling a cryptocurrency at target profit.
Initial capital
The amount of capital you plan on investing in the crypto sector will determine the type of crypto asset to buy. Some cryptocurrencies are pretty expensive. For example, Bitcoin is the most expensive cryptocurrency, with each coin trading at $33,529.20 as of this writing. Ethereum comes second to Bitcoin based on market cap, and each ETH is currently trading at $2,099.17.
There are other affordable cryptocurrencies such as Cardano and Dogecoin. Over the previous couple of months, Dogecoin became popular through tweets by Elon Musk, Tesla CEO. These tweets helped the price of Dogecoin to hit an all-time high and currently is trading at $0.21.
Long term view
Another factor to consider is the long-term view. Many cryptocurrencies have been developed to meet a particular goal in the short term or long term. Moreover, the hosting technology behind these cryptocurrencies is ever-evolving. At the moment, it's difficult to tell the future potential of a particular cryptocurrency.
Many analysts suggest buying and holding a cryptocurrency for a prolonged period. For instance, investors who purchased Bitcoin in 2020 when the asset was trading Below $9000 and held for an extended period, could have generated a substantial profit.
If you're deciding to buy a cryptocurrency and hold it for a long period, research the asset's long-term goals. However, there are no guarantees that a cryptocurrency will pick a price momentum in the future because it can plunge as well.
Risk/reward ratio
Although anyone can invest in the crypto market, crypto investments are not favorable to everyone. Many traders join the action without proper knowledge and end up losing their capital. Experienced traders who have harnessed the skills generate profits because they know various risks in the sector.
Some people invest all their capital in a single cryptocurrency and forget about risks associated with crypto investments. As a beginner, you should invest a certain percentage of capital in one cryptocurrency and allocate the other capital to other investments. If the cryptocurrency plunges, it will not appear like the end of the world for you.
Your risk tolerance level
Cryptocurrencies plunge and surge at any given time. You can invest in a cryptocurrency today and wake up the following month to find it entirely worthless. If your risk tolerance level is low, you may panic sell, and afterward, the crypto asset can pick a price momentum.
When investing in a cryptocurrency, set a clear plan and stick to it. Without solid discipline and patience, you may not hit your target profit in the long run.
The most stable cryptocurrency
There are different types of cryptocurrencies in the sector. For example, stable coins like Tether are considered stable against fluctuations. These stable coins have their prices pegged to the US dollar. The price of Tether is equal to the price of one US dollar.
However, Bitcoin is the most stable coin, according to marker analysts. Bitcoin was launched in 2009 by Satoshi Nakamoto, an anonymous account. As the first cryptocurrency, Bitcoin traded below one dollar. Over the years, Bitcoin picked up a price momentum and has exceeded the market cap of $1 trillion. Bitcoin has dominated the crypto market for over a decade. In April 2021, Bitcoin recorded a historic high of above $65,000.
Many market analysts predict a future for Bitcoin and expect the digital asset to hit new price records over the coming years.
Final thought
Cryptocurrencies have become mainstream in the last few years. Many people invest in the sector based on various reasons. However, consider factors such as liquidity levels and volatility when investing in a particular cryptocurrency.