Best crypto for beginners: How to choose the right coin
Cryptocurrency markets suffered through a volatile ride in 2022 amid a wider shift in investor sentiment, soaring inflation and fears of recession. Yet despite the recent market slump, there were still 9,453 different cryptocurrencies available in CoinMarketCap, as of 5 October. It looks like the world of decentralised digital assets is here to stay.
With so many choices at hand, novice traders may be left wondering what are the best crypto for beginners in 2022 and beyond. Here we take a look at how to choose the right cryptocurrency as a newcomer to the decentralised world.
Choosing cryptocurrency by market capitalisation
Market capitalisation, or market cap for short, is the most vital aspect that helps traders and investors analyse how big an asset is. It could be a useful tool to choose the best crypto for beginners.
In crypto terms, market cap refers to the total value of all the coins that have been mined since the cryptocurrency’s launch date. It is calculated by multiplying the number of coins in circulation by the current market value of a single coin.
Market capitalisation is often used as a guide to determine how relatively stable a token is. However, even bitcoin (BTC), the biggest coin by market cap, may experience high volatility due to the nature of cryptocurrency markets.
Market capitalisation is split into three categories, which investors often use to identify how “safe” an asset is for investing: small-cap, mid-cap and large-cap.
A large-cap coin is considered to be of lower risk, and could be the safest cryptocurrency for beginners. Mid-cap tokens are more volatile but may have better growth potential. Small-cap tokens are considered to be higher risk assets that are prone to swings and could crash in seconds.
Before novices start investing in cryptocurrency based on market capitalisation, it is important for them to calculate their risk threshold. Paul Rogash, founder of Earnu.io, told Capital.com:
Nayeem Syed, chief vision officer at Exponentials.tv, agreed, adding that blue-chip projects often have a proven record of building momentum as well as a strong team, great partnerships, strong market volume (not to be confused with market cap) and a cohesive roadmap. Syed said:
At the time of writing (5 October), the biggest cryptocurrencies on CoinMarketCap were Bitcoin (BTC), Ethereum (ETH) and the stablecoin Tether (USDT).
However, it is important to note that choosing a token based on market capitalisation alone could be risky. Cryptocurrency markets are extremely volatile, with even the biggest tokens suffering through the 2022 crash. Bitcoin, for example, has lost over half of its value year-to-date, as of 5 October.
What is your sentiment on BTC/USD?
Choosing crypto by price performance
Analysing an asset’s past price action and gains could be another way of choosing a cryptocurrency for beginners, whether you are looking for holding long-term or trading for a short-term gain.
For crypto investing
Novice investors can choose the best crypto to start with based on its past performance. This can be done by looking at the coin that achieved the highest gains over a given period, from six months to a few years.
However, this strategy can work only if there is a reasonable belief that the upward trend will continue, as past performance does not guarantee future returns. Investors should look at the coin’s tokenomics, the latest news about the project and technical analysis to assess whether its price could rise. Dr. Raullen Chai, CEO and founder of IoTeX, noted:
For crypto trading
Past performance can also be handy for short-term cryptocurrency trading, in which traders speculate on token prices for a short-term gain. Using past performance in trading is known as price action trading. This strategy makes use of technical analysis, a method to evaluate future price movement by using historical data and statistics and an important tool in crypto trading for beginners. Dr. Chai added:
Please note that past performance does not guarantee future results. Always conduct your own research and due diligence. And never trade money you cannot afford to lose.
Choosing crypto based on analyst views
The growing popularity of cryptocurrencies in 2021 has pushed for emergence of crypto influencers and YouTubers. These enthusiasts have been sources for novice traders, creating content on topics such as the best cryptocurrency for beginners, price analysis and so on.
Indeed, comments on cryptocurrencies from various analysts can easily be found online. This is definitely something people can utilise to choose a crypto for beginners.
However, according to Mark Basa, global brand and business manager at HOKK Finance, analysts’ predictions can often be leaning to a particular belief. He explained to Capital.com:
“I'm always iffy about analysts. I think we’re biassed in our own views about what moves the market and what could happen to an asset.
“Now that doesn’t mean you should rip on analysts for spending hours trying to predict the next move. It’s better to take it all in, and buy, and wait. Investing is a long-term game.”
Exponentials.tv’s Syed stressed in his advice for crypto investing for beginners that novices should exercise caution when looking at analysts' predictions. Bullish analyst sentiment could raise the value of a certain cryptocurrency, making it a bad time to buy, but good to hold.
Please note that analysts’ price predictions can be wrong and shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing or trading. And never risk money you cannot afford to lose.
Choosing crypto by market niche
Like any other market, cryptocurrencies have different niches, from decentralised finance (DeFi) to metaverse and stablecoins.
Another way of choosing entry level cryptocurrency could be exploring different sub-sectors of the market and basing your decision on whether you believe it has the potential to grow.
DeFi coins
Decentralised finance (DeFi) tokens transfer value in a financial transaction. They are built on the blockchain of a DeFi application they belong to.
These DeFi projects aim to disrupt the traditional world of finance by removing the control of banks and legacy institutions via distributed ledger technology.
As of 5 October, the biggest DeFi tokens by market capitalisation were Dai (DAI), Avalanche (AVAX) and Uniswap (UNI).
Play-to-earn
Play-to-earn (P2E) cryptocurrencies, gaming or metaverse coins are used as cash within an online game, but arguably have real asset value. It’s an exciting phenomenon that gained popularity between 2020 and 2021, with the gaming industry experiencing the rise of the blockchain.
Some of the biggest coins by market capitalisation at the time of writing (5 October) were ApeCoin (APE), Internet Computer (ICP) and Decentraland (MANA).
NFTs
Non fungible tokens (NFT) are crypto-based collectibles, not to be confused with coins. They are linked to the Ethereum blockchain and built on the ERC-721 protocol. NFTs represent the ownership of digital or physical assets such as a piece of digital art or music.
NFTs can be purchased on online marketplaces that can be compared to what Amazon (AMZN) and eBay (EBAY) are for physical goods. Plus, in crypto games, virtual goods and objects can be purchased as NFTs. The biggest NFT coins by market cap were Flow (FLOW), Apecoin (APE) and Chilliz (CHZ), as of 5 October.
Stablecoins
Stablecoins are cryptocurrencies whose value is pegged to a reserved asset such as a fiat currency or commodity price. This is done in order to reduce a cryptocurrency’s volatility and provide an alternative to a stable currency, even though their prices can fluctuate slightly.
The de-peg of the algorithmic stablecoin TerraUSD may have earned stablecoins a bad reputation in 2022, but they are still considered relatively safe assets in the cryptocurrency world.
Some of the biggest stablecoins at the time of writing (5 October) were Tether (USDT), USD Coin (USDC) and Binance USD (BUSD)
Store of value
These are cryptocurrencies with a limited supply, which may mean that they increase in value similarly to gold.
Although some of these tokens were built to replace fiat money, their volatile nature made it hard for that to be achieved. Bitcoin (BTC) and litecoin (LTC) are the biggest examples of ‘digital gold’.
Software platforms
These are the native cryptocurrencies of platforms that provide software to build decentralised applications (dApps), projects crucial to the cryptocurrency and blockchain ecosystems. They do so via smart contracts used by developers.
The biggest platforms, as of 5 October, were Ethereum (ETH), Binance (BNB) and Cardano (ADA).
Decentralised exchanges
Used for peer-to-peer online cryptocurrency transactions, many decentralised exchanges (DEX) have native cryptocurrencies of their own such as Uniswap (UNI), Stellar (XLM) and PancakeSwap (CAKE). .
Memecoins
Often created for fun, memecoins are associated with internet culture. The first ever memecoin created was dogecoin (DOGE), inspired by the meme of a Shiba Inu dog named Kabosu.
Since its creation, the token has inspired the adoption of many more memecoins such as Shiba Inu (SHIB) and Dogelon Mars (ELON).
Move-to-earn tokens
A new category in the crypto universe, move-to-earn (M2E) tokens are exactly what they sound like. Inspired by play-to-earn platforms, move-to-earn cryptocurrencies reward users for walking, running, dancing or simply moving around.
Some biggest tokens, as of 5 October, included STEPN (GMT), XYO (XYO) and Sweat Economy (SWEAT).
The bottom line
Note that cryptocurrency markets are volatile. Your decision to trade or invest in cryptocurrencies should depend on your risk tolerance, expertise in the market and the spread of your portfolio.
We encourage always conducting your own due diligence on which crypto to buy for beginners, looking into technicals and fundamentals. And never invest money you cannot afford to lose.
FAQs
How much should I invest in cryptocurrency as a beginner?
The amount you should invest in cryptocurrency as a beginner should be based on your risk tolerance, investing timeframe and goals. Always conduct your own due diligence before investing. And never invest money you cannot afford to lose.
Is it possible to become a millionaire with cryptocurrency?
While there are examples of traders and investors who have become millionaires speculating on cryptocurrencies, they are rare. It is possible that they invested in crypto a number of years ago and had experience in investing. Cryptocurrency is an extremely volatile, high-risk asset that can lead to loss.
How to decide which cryptocurrency to buy?
There are a number of approaches you can take in choosing a cryptocurrency. For example, you can use market capitalisation as your guide, listen to analyst commentary, look into the past performance or choose your cryptocurrency niche. Note that any investing or trading decision should be based on your risk tolerance and overall goals.
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