The digital age of investing has taken the world by storm in the last decade. This digitization isn’t exclusive to brokerage firms or trading platforms but also a form of asset known as cryptocurrency. These digital currencies shot up in popularity in 2017, flooding the market and giving a wide variety of choices for traders. In this guide, we explain how to know which crypto to invest in by outlining three of the most popular cryptocurrencies, their fundamentals and how to safely enter the crypto market.
- Not all cryptocurrencies are made equal
- Entering the market safely
- Crypto market volatility
- Low-risk trading
Interact with the underlined words and green dots to get additional details and explanations.
Explanations and definitions of terms.
Not all cryptocurrencies are made equal
The first thing to understand about cryptocurrency is that they are all created on the basis of a technology called blockchain. The interesting aspect of this technology is that it is a digital ledger on which transactions are permanently recorded, creating new cryptographic blocks for information storage based on the cryptographic hashes of previous blocks. This level of security and permanence of data has found strong use cases in verification, borderless transactions and value exchange that doesn’t require the involvement of a bank.
Understanding the purpose of a cryptocurrency is imperative to quantifying the asset’s value and potential volatility. While many crypto tokens are created to fulfill a specific purpose, there are also many that have no function and are not backed by anything of value (such as fiat currencies or metals). Wading through lists of newly minted or growing assets is a dangerous and risky environment to begin in. For this reason, we recommend beginning with crypto assets that have the largest market capitalization.
This cryptocurrency acts as the baseline for price movement across the entire crypto market. It is the first and most well-known cryptocurrency, and at $369.9 billion, it has the largest market capitalization in the market. Whether or not Bitcoin is a store of value remains a hot debate due to its limited supply of 21 million Bitcoin, expected to be mined to completion in about 100 years. Often referred to as “digital gold,” the preeminent coin is so influential that all other cryptocurrencies are referred to as altcoins.
💸 Best strategy
The crypto market maintains a somewhat distant relationship with traditional economic markets, this is especially true for its largest measuring stick, Bitcoin. Technical analysis tools such as moving averages, MACD and RSI and crypto-related news are our best recommendations for successfully trading on this coin.
For news related to crypto, check out Olymp Trade Insights
Considered by some as the little brother of Bitcoin due to its code being a copy of the Bitcoin source code, this asset maintains value through its use as a cash alternative. Litecoin is an accepted form of payment by millions of merchants, and facilitates quick, borderless transfers.
💸 Best strategy
Litecoin is a bit different to Bitcoin in terms of fundamental analysis, while technical analysis tools such as moving averages and Bollinger Bands for calculating entry and exit points remain the most efficient. At the same time, it’s worth looking into the fundamentals of Litecoin as well. Thanks to the partnership between BitPay and point-of-sale device provider Verifone, Litecoin is now accepted at all Verifone’s 36 million merchant devices across the United States, as well as online merchants. Further mass adoption and global acceptance of cryptocurrencies as a whole may lead to a stronger long-term forecast.
Second to Bitcoin in market capitalization, Ethereum is the most functional of the three major coins covered here. Perhaps the most interesting due to its use of smart contracts and flexibility for DeFi apps and ERC-20 tokens to be built upon it. Many of the world’s most brilliant experts believe the properties of this technology are revolutionizing modern business practices. However, it is important to remember that Ethereum is a utility blockchain and predominantly a solution for Web3 projects and businesses. In 2022, Ethereum switched its consensus mechanism in what it called “The Merge,” resulting in quicker block creation time and preparing the network for further scalability updates.
💸 Best strategy
The sky’s the limit with this cryptocurrency. Ethereum’s fundamentals are essential to keep an eye on, as the blockchain has a multitude of different use cases, from verification to bankless transactions to asset creation and much more. It is the main supporting pillar of the NFT sector, and its team is constantly pushing the boundaries of how quickly the blockchain can process and store information, developing new methods of compressing data and lightening the load on the network. This gives a large pool of empirical data to follow day to day in the news — not only in Ethereum’s progress on the scalability front, but also how its methods are being developed upon in the blockchain and DeFi sector.
Entering the market safely
Trading cryptocurrency as a beginner can be daunting when looking at the prices of each one. Prices can range from several hundred to tens of thousands of dollars for the purchase of one token.
Fortunately, Olymp Trade allows you to earn from the movement of cryptocurrency quotes without investing in them directly. You don’t need to buy Bitcoin itself or any other expensive cryptocurrency. You can invest from as little as $1 and trade in FTT or Forex modes. In addition to the three cryptocurrencies mentioned here, the Basic Altcoin Index is available in FTT mode on Olymp Trade. This composite index reflects the trading dynamics of 70 popular altcoins. Among other things, this index can be used as a tool for analyzing and predicting crypto market behavior.
A popular tool for gauging the state of the crypto market is the Fear & Greed Index, which is based on the idea that when the market is experiencing mass fear, the intrinsic value of assets is higher than their current value. Conversely, when the market is experiencing mass greed, assets are priced over their intrinsic value. Due to the fact that speculation on utility, adoption, regulation, and supply and demand plays a large role in influencing cryptocurrency prices, the Fear & Greed Index is one of the most useful tools in determining the state of the overall crypto market as well as individual tokens.
Fundamentally, considering that cryptocurrencies have begun transforming the state of modern finance since their inception, and that multiple global enterprises including JP Morgan and Goldman Sachs have begun integrating blockchain systems into their internal processes, it is clear that blockchain technology and digital assets are here to stay, which reflects well on the long-term viability of cryptocurrency as an investment.
Crypto market volatility
Over the years, cryptocurrencies have edged closer and closer to mainstream adoption and regulation. When the crypto market was just starting out, token prices were mainly influenced by utility and large-scale transactions. In recent years, however, they attracted the attention of large financial firms, with Tesla and 50 other publicly traded companies currently holding massive quantities of Bitcoin. These large purchases have brought the price movements of Bitcoin (and thus, the entire crypto market) closer in alignment with the traditional financial markets than it used to be. This means that the price of Bitcoin no longer solely relies on the state of the crypto and DeFi sectors, whale transactions or utility, but a whole host of new factors that also influence the traditional markets, including recessions and global disasters. For example, the Bitcoin price suffered along with the traditional financial market during the crash that resulted from the beginning of the COVID-19 pandemic in March 2020.
Regardless, compared to traditional assets, cryptocurrencies can still be incredibly volatile, with losses or peaks of 10% in value being just another day in the crypto market. In contrast, such a change in price in the span of one day for a company’s stock would be devastating and generally stem from a clear-cut reason. While such volatility can put off some investors, it presents good opportunities for scalp trading, which has become popular since the rise of the crypto market.
Read more: Scalp trading in crypto: The complete guide
Now that you’re more familiar with what to know before investing in cryptocurrency, you should have an easier time of discerning how to know which crypto to invest in as well as the fundamental reasons behind the quick changes in sentiment and volatility that characterizes the cryptocurrency market. We recommend studying the best indicators for crypto trading and bolstering your existing knowledge with the essential types of cryptocurrency. Having a strong grasp on both these topics will arm your trading decisions with invaluable knowledge.
The most responsible way to enter the cryptocurrency market is to do so in a zero-risk environment. Olymp Trade offers a free demo account to everyone interested in honing and training their technical skills. There is no better way to prepare your strategy and collect the data you need for success before making trades in the live market. With our extensive library of news, tools, expert analyses and educational resources, starting trading has never been simpler.
Join Olymp Trade now and start trading crypto like a professional 📈Start Here
Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
An asset that retains its utility, value and purchasing power, no matter the market conditions.
Analyzing current and historical market data to identify price trends and predict price movements.
A cryptocurrency payment service provider.
An autonomous mechanism built into a blockchain that executes code based on: “If A, then B.”
A standard for creating and issuing tokens on the Ethereum network. They can have smart contracts written into them and be sold as assets.
The next generation of the internet and part of the incoming Fourth Industrial Revolution. It is largely based on blockchain technology and supports self-sovereign finance and identity.
A protocol that governs how a blockchain’s new blocks are formed and validated.
Non-fungible tokens. Cryptographically unique digital assets typically used for proving ownership that have found their use in copyright protection for digital artists, online avatars, online communities and the verification, tracing and sale of real-world items or assets.
Fixed-time trades. A type of trading where assets are traded within a fixed time range.
A type of trading when traders buy and hold an asset for a short period of time, from one to five minutes.