2021 has been the year of cryptocurrencies and digital assets with a wide range of currencies including Bitcoin witnessing large gains in terms of their value. Due to the pandemic, people have become more inclined to rely on digital means of sending and receiving funds which is one of the reasons why reliance on crypto ATMs has reached an all-time high. Digital currencies are now becoming a part of the mainstream finance environment as both commercial and consumer sectors have started to embrace them.
All these promising factors mean that cryptocurrencies could see further positive growth in 2021 and lead to great opportunities for traders and investors. This guide will help you to shortlist the best cryptocurrency to invest in 2021.
Compare the Best Cryptocurrencies to Invest In
Let's explore the best cryptocurrencies to invest in and the reasons why they make for such a popular investment.
1. Bitcoin (BTC)
Bitcoin is the very first and most popular digital currency project that was started in 2009 by an anonymous developer named Satoshi Nakamoto. The BTC project relies on a decentralised Proof of Work governance and verification structure which means miners need to validate transactions by finding solutions to cryptographic problems.
Bitcoin has shown immense resilience during the COVID-19 pandemic and currently holds more than 60% of the total cryptocurrency market cap. Many institutional investors have been attracted to Bitcoin due to these reasons and it has also gained widespread acceptance among businesses with some accepting it as a means of payment.
2. Ripple (XRP)
Ripple was developed to facilitate the payments system used by financial institutions by ensuring the quick and affordable transfer of funds across the globe. Ripple functions differently as compared to other blockchain-based cryptocurrencies as it has been pre-mined. The total number of coins available is 100 billion which are used for validating transactions. The coin was the subject of controversy after an SEC suit in the US but continues to remain popular among various financial institutions.
Ripple has been able to strike partnership deals with a multitude of banks and financial institutions around the world which means there's a real-world application for the network.
3. Monero (XMR)
Although in terms of market cap, it is not included in the top twenty coins as of now, Monero is one of the very few blockchain projects that have stayed true to the core of decentralisation ensuring private, secure and untraceable transactions. While Bitcoin and other popular tokens and projects promised absolute security and anonymity, they moved away from that particular objective to comply with a range of regulations and overcome mainstream acceptance challenges.
4. Ethereum (ETH)
After Bitcoin, if any other blockchain and cryptocurrency project can compete in terms of popularity and mainstream acceptance, it's Ethereum (ETH). The project is an expansion of the primary idea behind the BTC project as Ethereum takes on the challenge of building a new decentralised internet. It facilitates the development of smart contracts, decentralised services, and decentralised apps (dApps) along with the ability to hold initial coin offerings (ICOs).
Ethereum was based on a Proof of Work mechanism but with the ETH 2.0 update, the project has shifted to a Proof of Stake protocol that doesn't require a lot of computing power for validating transactions and is more environmentally friendly.
5. Litecoin (LTC)
Litecoin is a lighter version of Bitcoin. If BTC is the gold of the crypto world, then LTC is considered to be the silver. Over the years, the LTC project has been able to develop the blockchain effectively. It is one of the top ten cryptocurrencies in terms of market capitalisation. The total supply of LTC coins is 84 million with the circulating supply standing over 66 million tokens.
The project was initiated to ensure secure, quick, and cost-efficient transactions relying on the essential characteristics of blockchain technology.
Cryptocurrency is a token or reward of a blockchain project that is given to the people who contribute their financial, computational, or both types of resources on validating transactions on the network. It is also issued to developers, IT personnel, management individuals, and similar people who are invested in the project along with people who take part in initial coin offerings (ICOs). Generally, every cryptocurrency has a limited supply of tokens which either has to be mined or is pre-mined. Few blockchain projects don’t specify or disclose their maximum supply of tokens.
Blockchain projects are created to achieve a wide range of objectives—the most essential of which has been to develop an alternative digital currency while creating a quick, affordable, and secure payment transfer system that operates on a global scale. This will ensure financial independence for millions of people around the world who are either unbanked or under-banked. Blockchains have also been used for other goals including the creation of alternative decentralised internet, software marketplace, smart contracts, applications, games, and more. Cryptocurrencies can be earned through a multitude of ways including the following:
Advantages & Disadvantages of Cryptocurrencies
Should I Buy or Trade Cryptocurrency?
You have to make that decision yourself subject to your trading strategy and purpose. If you are a long term trader who wants to hold the digital tokens for a long stretch, purchasing cryptocurrency and storing it safely in a cryptocurrency wallet is a better option. However, if you are looking to make the most of the volatility of the crypto market to make quick profits, then short-term trading is a superior choice for you.
Crypto trading enables you to rely on a wide range of trading instruments including futures, options, and contract for differences (CFDs) that allow you to trade cryptocurrencies without actually buying them. This makes crypto trading much easier as you don't need to buy and manage a cryptocurrency wallet.
- Futures – These financial instruments are derivatives that enable traders to bet upon the future price of crypto coins. Investors have the option to go long which means they are wagering on upward price movement or go short if they think the price will decrease.
- Options - Options are traded similarly as any other traditional instrument. The trader pays an additional sum called a premium for the right to purchase or sell a certain amount of crypto tokens on a specified date. He or she is not obligated to make that sale or purchase.
- CFDs - Contract for differences or CFDs enable investors to bet on the price volatility of cryptocurrencies without actually buying them. Subsequently, the price difference at the end of the trade is deducted or paid by the broker depending on whether you made a profit or a loss.
3 Steps to Investing In Cryptocurrencies
Step 1: Choose a Cryptocurrency
Users should shortlist cryptocurrencies that have shown promise in the past and are expected to do well in the coming weeks. Read, research, and do your homework before you pick your crypto tokens.
Step 2: Signing up/Setting up on Cryptocurrency Exchange
The next step is to find the right cryptocurrency exchange that ensures compliance, offers affordable investment and provides a great quality service. You will have to sign up and verify your account on the platform to comply with KYC regulations before you can start buying/selling cryptocurrencies.
Step 3: Invest/Buy Cryptocurrency
Once you have accomplished the aforementioned steps, you are now ready to invest or buy the cryptocurrency of your choice. Employ risk management strategies such as starting small and only invest what you can afford to lose.
Cryptocurrency investment is definitely on the rise and gaining popularity. You just need to ensure that you are investing in the right coins with a promising future that is backed by the robust technological development of the blockchain, community support and sustained demand. You can also minimise your risk by choosing more than one cryptocurrency to invest in so you don't lose your capital. Investing in cryptocurrencies is risky so you must do your own research before investing and use risk management strategies.
Frequently Asked Questions
Yes, like any other type of investment, crypto trading also comes with a set of risks. You need to minimise your risk by investing in multiple promising tokens and investing capital that you can afford to lose.
Depends on multiple factors. For instance, investing in Bitcoin is better than mining because the mining space is heavily crowded by commercial players which means individuals have little to no chance of succeeding.
Only you can decide that. Do your research on the coin you are going to invest in before you go all in. Generally, it is a good idea to not invest during a price rally and wait for a market correction.
You could earn a passive secondary income and ensure your financial independence in the long run if you invest along with proper risk management strategies.
No. Spread your capital investment across many tokens. Diversification will minimise your risk of losing all your capital.
Cryptocurrencies operate on decentralised blockchains which ensures ultimate security and immutability. You just need to do your part by ensuring that you are taking all the security measures such as using a good crypto wallet, having a strong password, and enabling two-factor authentication.
Cryptocurrency investment is legal in most countries but check your local laws before investing.
Most countries tax profits earned through investing in cryptocurrencies. Check your local tax regulations.