Part One: What Cryptocurrency Should I Buy?
A question that we often get asked here at BitPrime is: what cryptocurrency should I buy?
With over 2000 cryptocurrencies listed on major exchanges, it’s a very good question indeed!
Unfortunately, there is no straightforward answer to this question.
It would be far too easy for me to say “*** coin is the best! Buy it all!” but, here at BitPrime, we focus on education and support. As far as I’m concerned, if somebody tells you to buy “this coin” or to buy “that coin”, you would be wise to think about what’s in it for them if you do.
Chances are, they’re simply offering advice based on their own experience and knowledge. Of course, they also might work for that platform directly, be involved in their marketing, receive referral bonuses, who knows. It’s just a wee something to be aware of.
With that in mind, the intention of this article is to help guide you in the right direction to rationally assess cryptocurrencies yourself.
This article presents some of the most important factors to consider when deciding what cryptocurrency to buy*.
I will say this now, and I will say it again at the end. Please, please, please! Do your own homework and form your own opinions.
*This is not investment advice, it is an opinion piece.
Top Considerations When Choosing What Crypto To Buy
What problem is the crypto solving?
It’s important to know what problems a cryptocurrency/the company behind it is aiming to solve. Is it something that has real-world value? Will it make a difference, or is it more superficial? Are they the best option for solving this problem? Or are there multiple other cryptos promising the same that might do it better? Is what they are offering something that is tangibly useful to us?
To help illustrate what I mean by this, here are a few examples of problems and companies using blockchain to solve them:
- Digital Identity - Identity is the foundation layer for any technology. Indeed, this is true for any business. Creating a viable ID verification process on the blockchain is the goal for New Zealand based SingleSource.
- Supply Chain Transparency - When it comes to food, there is a growing movement to understand where what we eat comes from. IT giant, IBM, is using blockchain tech to help make the world’s food supply chain safer and more transparent. A supply chain transparency solution for a different industry is Origins. Origins are the New Zealand based company looking to reduce clothing’s social and environmental impact.
- Carbon Offsetting - Another New Zealand based example is CarbonClick. This team’s vision is to create the world’s simplest carbon offsetting programme for both businesses and individuals.
There aren’t any hard and fast rules for assessing cryptocurrencies, but checking if the company is solving a problem is probably one of the more important considerations. This sort of information is useful for helping determine if the cryptocurrency will have long-term future value.
What do they offer that others don’t?
Many cryptocurrencies appear to be a simple “cut and paste” of others already out there. Unless they improve on a problem the others faced or bring something unique to the table, do they have any true worth? And when I say worth, I’m not necessarily meaning dollar-value. I’m referring to whether they are sufficiently important enough, or good enough, to be regarded highly.
It could be said that all altcoins arose as a means of solving various issues faced by certain networks. For example, Litecoin was partly released to make mining more accessible for GPU/CPU users after the Bitcoin network became dominated by ASIC miners.
Who is the team behind the crypto?
The people behind a company help to determine its success or failure. Therefore, no matter what crypto you’re looking at, you should evaluate the strengths and weaknesses the team members present. Do they have any relevant real-world experience to contribute to the project? Are they taking a centralised or decentralised approach regarding development, and is appropriate for the project in question?
Do the advisors have the skills necessary to help the project succeed? When it comes to strategic partnerships, do they have any appropriate to their field or are they going it alone? I’m not suggesting either is the correct option. But, as an example, it makes sense that a travel booking platform might partner with a hotel chain.
Is anybody actually using the project?
It’s all good and well for a blockchain project to have a high market cap, but there’s another way to consider value. Is anybody actually using the project? What level of activity is there on the blockchain?
A tool that I love is Block'tivity, a blockchain activity matrix. This matrix measures the number of operations performed on a blockchain and compares that to market cap to deliver an Activity Valuation Index. They also measure the Capacity Utilisation Index which looks at the ratio of daily blockchain activity to total capacity.
How does the cryptocurrency/token derive its value?
Is it a protocol token (e.g. Neo), a utility token (e.g. Augur), or a security token (e.g. Polymath)? Is it backed by an asset (e.g. Digix Gold Token)? Does the token represent equity or voting rights (e.g. DigixDAO)? Is its value only derived from token economics/incentives?
If it's your classic utility token, does the business model actually require the token to work? Or, is it superfluous and only there to provide a reason to do an ICO?
How does the project address potential scalability concerns?
Perhaps the biggest obstacle facing many blockchain projects is scalability. To process one or two thousand transactions per second might be sufficient for a platform’s users today. But what happens if the user base doubles in the next few months? Has the platform considered how to scale to meet future demand?
To illustrate this point, XRP has an average transaction speed of ~4 seconds. Their payment channel has the same level of scalability as Visa, and they now process over one million transactions per day.
A second example is that of Ethereum’s scalability issue and proposed solutions. As more and more people started using the Ethereum blockchain the speed of processing transactions slowed greatly. In some of the worst cases, a transaction could take hours to confirm due to the network congestion.
Hence, a solution proposed to solve this scalability issue: sharding. Sharding involves separating the blockchain state into different shards, with each node only storing part of the data. Essentially, it would speed up transaction processing as each node isn’t required to process the entire blockchain worth of data to verify a transaction.
Looking at the blockchain architecture is another way of assessing this point. Some platforms are implementing novel blockchain designs to mitigate common problems others face. Take a look at this article on IOTA’s Tangle, as one example.
What wallet options are there to store the coin/token?
You need to know if the currency you’re interested in can be stored on the devices you have available. Can it be stored securely on a hardware wallet? Do you need a computer, or can you use your smartphone? Is the wallet full node or lite? Is it beginner friendly or more suited to advanced crypto users? Do you retain your own keys or is it a custodial wallet?
A handy website for checking most cryptocurrencies wallet options is CoinClarity. Simply search for the coin you’re interested in and navigate to its page. There, you’ll find a section listing popular wallet options for that coin.
Given the popularity of Bitcoin, we also have an article highlighting our top 10 BTC wallets.
Proof of Concept vs Proof of Results
For the crypto you’re interested in, are the development team promising proof of concept or proof of results?
I’d suggest checking out their roadmap and comparing it with their milestones. Are the roadmap points realistic? Are they achievable?
Is the company/product already established or still floating an idea? I feel this is a very important consideration. Presently, there seem to be an awful lot of projects boasting grand ideas but bringing very little in the way of results to the table.
With that in mind, if they have a minimum viable product released does it satisfy the early adopters and the wider community?
Are they just an outright scam?
Top tip: if the answer is yes, AVOID like the plague!
I have previously touched on the topic of scam coins in my article explaining ICOs. As a recap, there have been plenty of scam coins to date and many unfortunate souls losing money.
“Don’t just assume that all that glitters is digital-gold!”
Reduce your chance of falling prey to a scam by reading a projects whitepaper. Well-researched, informative whitepapers cover both technical and non-technical aspects of a project's plan. If you find unrealistic claims, no code base, and key information missing, run a mile. If they “guarantee” profits, or returns, they’re lying. Remember, if it seems too good to be true, it probably is!
Another resource you can utilise to avoid common scams is the Little Black Book of Scams. For information on how to order this free booklet from the Commission for Financial Capability, please see here.
Just to reiterate, when it comes to ICOs BitPrime cannot assist you. We only sell coins that are already trading on the secondary market. If you want to know more about what this means, see this article.
Part Two: What Strategies Are There For Buying Crypto?
Now that you have an understanding of what to consider before choosing which cryptocurrency to buy, let’s take a quick look at some common investment strategies.
Dollar Cost Averaging
This strategy involves buying a fixed amount of cryptocurrency at regular intervals, akin to a regular savings plan. You don’t have to worry about what the current market trends are. You simply purchase to accumulate your chosen cryptocurrencies over time, regardless of price.
Dollar cost averaging has to be the simplest investment strategy ever thought of. It works particularly well for those who are too busy to, or just don’t want to, learn how to read market charts. You end up buying more crypto when the price is low and less crypto when the price is high. Regardless, you total crypto holdings gradually increase over time.
Lump Sum Investing
This is the exact opposite of Dollar Cost Averaging. Instead of regular, incremental purchases, you buy a lump sum all at once. This strategy is perfect for when you've identified a buy price you like, or if you have a good amount of savings you want to invest.
Having a balanced portfolio is one means of balancing your risk versus return. Usually, it involves dividing your investments across the board (often equally); diversifying your portfolio.
Traditionally, this would be between equities and securities. However, with crypto, it is buying multiple currencies.
A balanced portfolio strategy is sometimes described as semi-aggressive (compared to more conservative approaches), and more suited to mid-term investors.
Crypto Index Funds
Index funds are a type of passively managed fund more suited to hands-off investors. Different index funds operate in different ways but essentially, money is put into the fund and managed according to the set rules of the fund, no matter what the market is doing.
The idea behind the practice is to provide a lower-fee, lower turnover (how often assets are bought and sold) investment option.
In the traditional stock markets, index funds tend to perform well. Bear in mind that the crypto market is still very new, so experts say it is likely too early to draw conclusions on the performance of crypto index funds.
Actively Managed Funds
Actively managed funds (aka hedge funds) are typically only open to investors meeting certain requirements (e.g. annual income of X amount). They work similarly to index funds in that they have a fund manager overseeing investment in adherence with set rules.
Active funds seek better performance than the market index based on analytics and the manager's judgement. Whether this is realised or not is another matter.
Actively managed funds are generally considered higher risk than passively managed (index) funds.
Top Investment Tips
Concluding Thoughts on What Crypto to Buy
You don’t need to understand every technical detail of the cryptocurrency you are interested in. But, you should have at least a basic understanding of why it exists, and who’s behind it. At the very least read the coin’s one-pager, but the full whitepaper is recommended if you can.
I would advise that you also check out any related Reddit threads, Medium posts, and the latest news articles too. After all, one can never have too much knowledge! We’ve compiled a list of some of the sites the staff here at BitPrime use, which you can check out here.
Finally, as a gentle reminder, perform your own due diligence before buying. Do this in the same way as you would if you were investing in a business. Read expert’s opinions for or against the crypto, but draw your own conclusion.
At the end of the day, nobody knows for certain what currency will do well in ten or twenty years, but we can make educated guesses. 😊
Are You Ready to Start Buying Crypto?
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Disclaimer: The above references an opinion and is for informational purposes only. Do not take this as personalised financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.
Images courtesy of Shutterstock unless stated otherwise.
Last updated: 04/11/2018