Since the beginning of 2022, an ambiguous situation has been observed in the cryptocurrency market. Back in March, bitcoin approached a record $ 60,000, after which a decline to $ 20,000 began, which provoked strong altcoins volatility. In such circumstances, it is worth taking a particularly careful approach to compiling a crypto portfolio. Which coins have the greatest growth potential and what should be considered when investing today? We’ll answer these questions in detail in the article.
How to choose coins to invest?
According to the CoinMarketCap, there are more than 15,000 digital currencies in the world today. Mostly these are young, actively developing startups. Despite the high temptation, professional analysts advise buying only those tokens that have already been ranked in the TOP 100 or TOP 50 of the best in the cryptocurrency market. This is the first and basic rule of a crypto investor.
Investments in inexpensive and little-known coins can lead to a complete loss of funds. This will happen if the startup goes bust or turns out to be part of a frauders’ scheme.
So, you have an amount of money for investing in cryptocurrency. Even at the very beginning, it is important to understand that the risks are high, and for this purpose it is better to use the money, the loss of which will have a slight impact on your budget. It is also necessary to determine the deadlines after which the rebalancing (or revision) of the investments will be required. This will help identify projects with a low ROI (Return on Investment).
The purpose and timing determines the investment strategy. After that, you can start selecting assets and compiling a crypto portfolio. What things should you pay attention to in order to determine the potential of a coin? Analysts identify several factors:
💧 Liquidity, or the possibility of selling an asset by ordinary users. It determines how quickly the currency can be exchanged or resold, whether it is possible to use it for payment in the real world. Recognized tokens have high liquidity, they can be cashed out at special ATMs, and many people have heard about them.
Cryptocurrencies with high liquidity are rapidly becoming popular, they have a stable exchange rate and they are suitable for investing in long-term strategies. The scalability of the network (the speed of transactions) can also affect liquidity.
💰 Trading volume, which helps to determine liquidity. It shows how many transactions were made using this asset in a fixed period of time. An increase in trading volume and the prevalence of demand over supply provokes an increase in quotations.
📈 Capitalization, that is, the total value of all coins in circulation. It affects the stability of the virtual currency. The higher the capitalization, the more uniform the price change will be. The indicator may depend on the number of all coins and the values of the issue (the introduction of new cryptocurrency units into circulation).
For example, in order to change the value of Ethereum, whales, that is, large players in the market, will need to conduct multibillion-dollar transactions. The costs required to influence less popular cryptocurrencies will be significantly lower. Therefore, it is better to choose liquid assets with high capitalization values.
It is believed that when you invest your own funds, you invest them not in virtual currency, but in the project and the team that creates it. Therefore, always learn the general concept and technological aspects of coin development. Evaluation of prospects and competitiveness will allow you to choose tokens with the greatest payback in the future.
6 best cryptocurrencies to invest in 2022
🏏 Bitcoin (BTC)
Bitcoin is the first of the electronic currencies and, undoubtedly, the market leader. It was developed by analogy with gold, the most popular medium of exchange.
It is based on blockchain technology, which ensures transparency of all transactions. Other key features are open source and full decentralization. The rise or fall in the value of the token depends only on demand.
Investing in bitcoin is definitely worth it. Today, it retains its leading position in the market and ranks first in terms of capitalization. Despite the low transfer rate, a long history and popularity provide it with high liquidity. The steady bullish trend up to $ 60,000 at the beginning of 2022 stopped in the correction phase, and now bitcoin is trading at the level of 20-30 thousand dollars.
The Winklevoss brothers, founders of the Gemini exchange, predict that after passing the correction phase, the coin will start moving up to a possible $ 500 thousand. Then bitcoin will catch up with gold in terms of capitalization. Another checkpoint will be the year 2140, when miners will get the last bitcoin.
The only thing that analysts warn about is that bitcoin, because of its fame, may be subject to attempts to be regulated by the governments of some countries. Such statements in 2021 have already been made, in particular, in China.
Liquidity – 7/10, capitalization – 10/10, decentralisation – 8/10, volatility – 9/10.
💠 Ethereum (ETH)
Ethereum is both a cryptocurrency asset and an entire online platform for creating blockchain applications. The coin was originally presented as part of a large-scale project. The developers have offered a mechanism that allows you to create online services based on smart contracts. Major payment systems, banks and airlines immediately appreciated the smart payment system. Transactions are carried out here after the parties fulfil the conditions prescribed in the contract.
The full-scale implementation of the platform provided high liquidity of the cryptocurrency token. Already now it is used everywhere, which makes it possible to predict further growth in popularity.
Ethereum is currently in second place in terms of capitalization. Investors are attracted by the unique concept of the project and an active team that is constantly improving the platform.
In September 2022, a big event took place – the Merge. The speed of the network has increased, and the developers have improved protection against hacker attacks. This, most likely, will soon affect the change in currency quotes and attract even more investment in the project. Now Ethereum has about 20% of the market, and many people consider the token that can bypass Bitcoin in terms of capitalization and liquidity.
Liquidity – 7/10, capitalization – 10/10, decentralisation – 10/10, volatility – 9/10.
Everscale is a blockchain with a unique architecture and history of creation. Its first version is the Free TON project. The blockchain platform was originally introduced by Durov brothers as part of the Telegram network. After the project was outbid by a group of developers, and the name was changed during the voting. Now it's Everscale – a fully decentralised platform. Decisions on the project are made by a general vote of EVER holders.
Everscale can rightfully be considered one of the most promising projects of the modern crypto industry. Today it is a full-scale ecosystem that actively attracts the best developers.
Everscale offers users a huge toolkit, including a fully decentralised exchange that allows you to exchange currency immediately on the site. There is also a cross-chain bridge with the possibility of conducting transactions between closed blockchain networks. An NFT marketplace with record sales was also implemented.
The difference between the Everscale system and other projects is a multithreaded transaction execution system. The translation speed is about 4 seconds, which makes it the fastest blockchain platform.
Today, EVER is just entering the growth phase and has a small value in the region of $ 0.1. By capitalization, the coin is in the TOP 200, and innovative technology and growing popularity provide it with high liquidity indicators. The uniqueness of the blockchain platform and the active work of the project team allow us to predict the growth of the asset in the near future.
Liquidity – 9/10, capitalization – 3/10, decentralisation – 10/10, volatility – 7/10.
🎱 Polygon (MATIC)
Polygon is a sidechain, that is, a platform made as an addition to the main network. It was created to solve the main problems of the Ethereum blockchain. In 2017, the founders of the Matic Network company saw that with all the advantages of Ethereum, the system has a number of disadvantages, which were the speed of transactions and high gas fees.
The developers created Polygon, which opened up new opportunities for using the Ethereum platform. The transfer rate has increased from 15 to 65,000 transfers per second, and the commission has significantly decreased. The project interested investors, including Ethereum holders, who immediately saw favourable prospects in its development.
An important quality of Polygon is integration with Ethereum DeFi projects. The audience is rapidly expanding due to the introduction of decentralised applications. Some of them concern gaming (for example, the NFT game Aavegotchi).
The most famous Polygon project is the decentralised Quickswap exchange. The ecosystem of the platform is supported by the MATIC token, which is already traded on Binance Launchpad. The rapid development and distribution contributes to the growth of its popularity. Already today, the coin is in the TOP 20 by market capitalization, and in terms of liquidity it becomes a competitor to the oldest cryptocurrencies.
Liquidity – 8/10, capitalization – 6/10, decentralisation – 10/10, volatility – 6/10.
💵 Tether (USDT-ERC20, -TRC20, - TIP-3)
Tether is one of the most popular and unusual projects. Its main feature is that it offers investors digital assets backed by fiat money and gold. In fact, today Tether is a cryptocurrency analogue of the US dollar. This makes it convenient for exchange. The most well-known currency of Tether is USDT. In addition to it, there are also analogues of other international currencies – euro (EURT), yuan (CNYT).
USDT coins can be sent to different cryptocurrency networks. Different protocols provide transactions to a particular network. For example, to send USDT on the Ethereum network, you need to choose the ERC20 standard. In the same way, transfers are made in the TRON network (TRC20 standard) and in the Free TON network (TIP-3 standard).
The USDT currency has unique liquidity characteristics as the possibility of its exchange is provided on almost all exchanges. The token is among the three strongest cryptocurrencies by market capitalization.
There is an opinion that in the future Tether USDT can replace the US dollar. You can invest in it both for the purpose of storing funds, and with the expectation of long-term growth of the asset.
Liquidity – 10/10, capitalization – 10/10, decentralisation – 4/10, volatility - 10/10.
Tron is a relatively young project, the creator of which was the world–famous entrepreneur Justin Sun. Already today it is a completely independent blockchain platform that creates an ecosystem with dApps for gaming.
TRON developers claim that their global goal is the complete decentralisation of the Internet. Another goal was to provide everyone with the opportunity to develop in a virtual environment and make a profit without corporate intermediaries.
Already today, the TRON ecosystem includes a service of decentralised applications, a JustLend lending platform, as well as its own TronLink crypto wallet. The platform has reached high scalability rates, its speed already reaches 2000 transactions per second. The cost of the commission is extremely low and starts from $ 0 per transfer, depending on the load on the system.
TRX is a coin of the TRON network that provides the exchange of digital currency between users. The coin is directly related to the growing popularity of the blockchain platform. Earnings through stacking, participation in development and influence on decision–making on the project – all these opportunities have already been provided and implemented.
In addition, the founders' ideas and innovative services attract the attention of influential players in the cryptocurrency market. For example, Binance exchange is actively promoting the project. On the market, the TRX token is already in the TOP 20 in terms of capitalization, and it can become one of the best cryptocurrency assets for long-term investment.
Liquidity – 7/10, capitalization – 6/10, decentralisation – 10/10, volatility – 8/10.
Risks and how to avoid them
Investing in cryptocurrencies, like any other investment, is associated with certain risks. In this case, their nature is related to the characteristics of digital assets. Let 's highlight the most important of them:
⚙️ Decentralization of the cryptocurrency market. Cryptocurrencies are not tied to social institutions. Most often, there is no single governing body responsible for the sites. If you accidentally send coins to the wrong crypto wallet, there may also be no support service.
🌊 High volatility. This creates both pros and cons. On the one hand, with a sharp increase in the exchange rate, you can get more than 100% profit. On the other hand, a sharp drop in the cost to very low values is possible. This distinguishes cryptocurrencies from stocks, which, with lower profitability, give a more stable income.
🔑 Unsecured of crypto by state assets. Unlike fiat money, cryptocurrency has no provision for gold or other material resources. This is the reason why USDT tokens are attractive to investors, for which Tether Limited has guarantees of providing gold, fiat currency and shares.
💾 The probability of hacker attacks. In September 2021, hackers stole the assets of 6,000 users of the Coinbase exchange. Exchanges, wallets and cross-chain bridges have their own level of vulnerability. Today, cryptoportals are doing everything to project themselves, but there are still cases of theft.
👾 Fraudulent schemes. New cryptocurrencies that have just appeared are particularly dangerous. Scammers can create an artificial hype around coins, which later simply disappear.
A well-known fraudulent scheme is “Pump and Dump". Most often it is carried out by whales,or by major players in the market. They buy large volumes of a certain cryptocurrency, which leads to an artificial overestimation of the price. Weak players, observing the growth, make a purchase, after which the whales dump assets with a bid for a decrease and make a profit.
Often, the recent emergence of the cryptocurrency market is also among the risks. It has not been fully studied yet, but this is what attracts most traders. Most often, the rate depends on one indicator which is the demand for a specific token from investors interested in the project.
Nevertheless, today cryptocurrencies represent one of the most fashionable and profitable ways of investing funds. They are one of the few ways to make a profit several times bigger than the initial investment in a short period of time.
How to minimize risks? Digital assets are subject to the golden rule of investing, expressed in the French proverb: “Don't put all your eggs in one basket”. Unpacking:
🔸 Several cryptocurrencies should be considered for purchase from the very beginning.
🔸 The investment portfolio should include both popular new coins, such as, for example, TRON, and already proven ones on the market – Ethereum, Bitcoin.
🔸 Only part of the assets can be stored on the exchange. A wallet, especially one disconnected from the Internet, is considered more secure.
🔸 The seed phrase, wallet address and passwords of the entrances of exchanges are the information that is better to write down than to remember.
🔸 You should choose your own investment strategy, as well as you must know and understand the current market situation. Then the timely purchase or sale of coins will bring the greatest profit.
For how long to invest
The period for which you plan to buy cryptocurrency determines the investment strategy. It is chosen based on the goals and experience of the investor. There are two main trading strategies:
✊ Hold is a purchase for a long period. It was chosen by the first owners of bitcoin when they acquired an unknown virtual currency in 2009. A long is a transaction in such a strategy involving a long-term investment.
🔪 Scalping involves betting with the opening of short positions. The income from such investments comes from short-term changes in quotations.
Both of these strategies can be applied depending on which digital currency you choose. Popular tokens with high daily trading volumes are ideal for earning money on the price difference. To earn money on natural growth "for a long time", it is better to buy young altcoins with good forecasts. Short positions allow you to earn income faster, but the risks of losing part of your capital on them are significantly higher.
The main advice of Ethereum co-founder Vitaly Buterin, which was voiced in an interview with Forbes is the following: to make a profit, you should invest in cryptocurrencies for a long time and risk only free money.
Those who play short positions are often called traders. For such trading, it is important to have a good exposure and you need to be able to determine for yourself the stop loss after which the assets will be sold.
A significant disadvantage of trading is the need to spend a lot of time analyzing the exchange rate, the market situation, and trading operations with cryptocurrency. The advantage is less dependence on rising or falling prices. If there is volatility, a trader can also make money on a bearish trend.
Holders, those who buy for a long time, can leave assets on the stock exchange or in the wallet until the exchange rate increases. Especially profitable for them is the purchase at the ICO stage (the initial offer, or the sale of the newly appeared cryptocurrency).
Updates to the project to which the token is linked have an impact on the change in quotes. Altcoins, the youngest coins after bitcoin, often depend on older cryptocurrencies that are ranked in the TOP 5 in terms of capitalization. Therefore, in order to respond in a timely manner to changing trends in the cryptocurrency market, you need to follow the news.
This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.