Six Newbie Tips for Comparing Cryptocurrencies
Contributed by Luigi Wewege At Caye International Bank
19 January, 2022
While cryptocurrency is still a mystery to some, there's no doubt that it's here to stay. You may be thinking of cryptocurrency as a good way to invest in something that will grow over time. However, you might be confused by the sheer number of cryptocurrencies currently on the market.
Which one should you begin with and why? How does technology play into your decision? One way to narrow the range of choices is to compare the technologies and identify the one that's the best fit for you. Here are some tips that will help beginners get off to a good start.
1. Check into the History of Different Cryptocurrencies
It's been a long time since Bitcoin was the only game in town. Since 2009, several different types of cryptocurrencies have come into being. These include Ethereum, Litecoin, Cardano, Polkadot, Dogecoin, and more.
Before assuming a particular type is the right choice for you, check the history and performance of the currencies.
Find out the following:
- How long has the currency been around?
- How has the currency performed?
- What is the current exchange rate of the currency?
This type of information is essential if you envision cryptocurrency as another way of building financial reserves.
2. Investigate Popular Locations
Investigate how widespread the popularity of a given cryptocurrency happens to be. You'll find that some older options are popular in more parts of the world. Others are in the process of building a presence in various countries.
Given the recent decision of El Salvador to adopt Bitcoin as legal tender, there's every reason to think that other nations will follow suit over time. If its use is as successful as the leaders of El Salvador believe, multiple cryptocurrencies could be adopted as legal tender in various nations.
Should that happen, the crypto that you choose is likely to escalate in value. By focusing on currencies that are already showing some popularity, you can be ahead of the game.
3. Identify the Price and Market Cap
You must know what it will cost to invest in any cryptocurrency. At the same time, you also want to have some idea of growth potential. That's where taking a good look at the market cap comes into the picture.
The market cap indicates how one cryptocurrency compares to the other in terms of growth potential. A higher cap means that the crypto under consideration is more dominant in comparison to another. That dominance, especially if sustained for some time, tells you that the growth potential is higher than some of the other options in the marketplace. While it does not mean the risk is necessarily lower, the market cap does tell you something about the level of volatility involved.
4. Understand the Technology Used to Buy and Sell Currency
There are many ways to buy and sell cryptocurrency. The same goes for using the currency to purchase goods and services. All of them involve using technology. As you compare currencies for investment purposes, it helps to know what methods can be used for different transactions.
Exchanges are one of the more common means in use. Exchanges can be accessed through various websites and will require confirmation of your identity. In many cases, you can also link the account where the currency will reside to that exchange for easier purchases and sales. If you're using blockchain, the process remains secure, and transactions protected.
Bitcoin ATMs are growing in popularity, and you can expect to see them appear in more nations. Users can establish a digital wallet or use cash or debit cards to buy or sell cryptocurrencies. Be sure to inquire about the fees associated with using these ATMs. These fees can include a percentage of the transaction, a flat rate charge, and the ATM operator's transaction fee.
5. Note Ease of Converting Between Cryptocurrency and Traditional Currency
There may come a time when you decide to convert a portion of your cryptocurrency into traditional currency. The good news is that several Bitcoin ATMs that process cryptocurrency transactions will convert to multiple types of conventional currency.
This can be especially convenient if you're traveling abroad and find you need some cash. Once the transaction is done, the funds show up in your traditional bank account based on the type of traditional currency you would typically use. Keep in mind that the funds from the transfer may or may not be immediately available.
6. Establish Your Level of Risk Level
As with any investment, you should establish how much risk you're willing to take to generate greater returns. You may decide to go with a less popular cryptocurrency that has excellent potential but not much of a proven track record just yet. If you can use of the most recent technology to manage the account and you're comfortable with the amount of risk involved, why not try it?
Remember that you do have the option of moving away from one cryptocurrency and going with another. You can also diversify and invest in more than one type. Provided you have options in managing your accounts and using the balances; diversification may be the right approach.
Is Cryptocurrency Right for You?
Cryptocurrencies are generating more and more interest worldwide. This digital cash phenomenon is moving from futuristic to the mainstream.
Before you dive into cryptocurrency investing, get a firm grip on the basics. This will help you understand if this is the correct currency type for your financial portfolio.
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