How To Select The Right Crypto For Your Investment Portfolio

Cryptocurrency has changed the financial landscape, introducing a concept that was both new and appealing to investors. Over 1.8 million cryptocurrencies are currently available, each characterized by technical terms that are often difficult to grasp. So, understandably, each investor can find it confusing to pick a suitable coin to invest in.

After cryptocurrencies’ prices fell considerably last year, the market was filled with a lot of uncertainty. However, this year, the industry somehow managed to regain some of its lost ground, and despite its volatility, cryptocurrency remains part of the mainstream discourse in the financial sector. Despite all the challenges cryptocurrencies have faced, attitudes towards them are still positive. In fact, forecasts show that the ethereum price usd could experience a significant surge. Undoubtedly, this asset class is worth considering, but you should evaluate it carefully. Below, we will look at the factors you should keep in mind when looking for a crypto coin to invest in.

Use cases

The use case of a cryptocurrency is an essential criterion that will help you make the right decision. Your goal should be to choose an asset with a clear use case, such as Bitcoin and Ethereum. Ethereum was created to enable future development, allowing developers to build DeFi apps on its ecosystem.

Moreover, Ethereum is known for powering Web3 and its uses are only growing. On the other hand, Bitcoin was initially designed to work only as a payment method, but after its price increased, it developed a new use case, becoming an excellent store of value.

If a new coin has multiple use cases, this likely is a sign that the asset is strong enough and has the potential to grow. Of course, there are always exceptions, which is why it is essential to look at other factors as well instead of only relying on a coin’s use cases.

Whitepaper

White papers have been used in the IT field to describe a tech concept or solution. In the crypto industry, a whitepaper combines a business plan with a technical whitepaper, creating an official resource for investors looking to educate themselves on a specific project and its underlying blockchain technology.

An authentic whitepaper should include aspects like team, vision, partners, reputation, token economy, technology, use cases, and advisors. Although this document generally follows the best practices, taking it with a grain of salt is recommended, given that it’s unregulated and unverified.

Value

The value of a coin is another essential factor you want to consider. When thinking about value, you may view it as monetary, but it’s actually more than that: it refers to something intangible, like an NFT, that evokes an emotion within you. For instance, a graphic could trigger one of your happiest memories, so you want to get the NFT to always be reminded of it while also hoping for substantial gains.

When looking for the best crypto to buy, the price is a critical element to keep in mind. For investors who can’t allocate a significant amount of money to crypto, there are low-priced coins available, offering the best bang for their buck.

Market cap

Market capitalization is one of the most important – and easiest- features to consider when choosing a coin for investment. Simply put, this is a number that reflects the overall value of a cryptocurrency. Market capitalization is an indicator of an asset’s potential and popularity, and it is divided into three categories: small-cap, mid-cap, and large-cap.

The coins with a small cap are susceptible to price swings and pose more significant risks, while those with mid-cap are characterized by high volatility but also by a substantial growth potential. Lastly, coins with a large-cap are the safest bet (especially if you are a beginner) due to their low risk.

Liquidity

A cryptocurrency thrives based on its liquidity – in other words, it requires enough trading volume to allow you to sell it immediately if necessary. If a coin has no trading volume, it’s a good idea to wait and determine if it has a chance to develop any.

In the crypto trading realm, liquidity has an impact on price stability. High liquidity indicates that a coin is traded in substantial volumes, leading to smaller price fluctuations. This happens because a highly liquid market attracts a significant number of participants, ensuring someone will buy or sell an asset, thus maintaining stable prices. However, if a coin has low liquidity, it is likely to experience dramatic price changes, due to the low market participants, which makes it challenging to find a buyer or seller.

Market niche

It’s worth noting that cryptocurrencies belong to different niches, so any beginner investor should start by exploring the market’s sub-sectors, and determine which coin has the strongest growth potential. DeFi coins make for an exciting sector, with Uniswap, Chainlink, and Aave standing out as very popular coins with immense value.

But there are also metaverse coins, whose importance lies in their utility and versatility, providing a seamless means of exchange and empowering users to navigate this digital frontier easily. The top metaverse coins based on market cap include Axie Infinity, The Sandbox, Decentraland, and Theta, to name just a few. Lastly, the non-fungible tokens market is projected to grow significantly in the following years, reaching a volume of US$3162.0m in 2027. This asset class differs from the rest because they can’t be exchanged in trades. Every category of cryptocurrency is unique, so in order to stick to a niche, it’s imperative to do your research and understand how each of them works. This will help you make the right decision for your investment journey.

Takeaway

Investing in cryptocurrency can be appealing and overwhelming, given the myriad available options. This is why you should take the time to conduct your own research instead of simply following the herd. You want to evaluate each cryptocurrency carefully by considering all the factors discussed above. This way, you will succeed in choosing the best crypto for investment, whether you’re in the game for the short-term or long-term. Selecting the right digital asset for your portfolio is a crucial decision so make sure it fits into your investment strategy and financial goals.