People who were fortunate enough to have bought Bitcoin before it became a major cryptocurrency are now enjoying the fruits of their risky investment. And because of how fast the crypto industry is growing, people are now looking for the next big coin to invest in due to.
While the space is still evolving and experts are still trying to get a better grasp of it, the presence and vocality of big players like Elon Musk is driving general interest in the space. Even local players like Don Jazzy who sometimes display his crypto chart has driven people towards the trend.
The most popular crypto is Bitcoin and it dictates the entire cryptomarket. However, with nearly 6,000 coins in the cryptocurrency market, according to Statista, you need to be careful in choosing the one you want to invest in.
As of September 2021, the ten most purchased coins are Tether, Bitcoin, Ethereum, Binance coin, Ethereum Classic, XRP, Cardano, Solano, USD coin, and Bitcoin cash.
The top five fastest-growing coins according to Oobit are Cardano, Ethereum, DOT, LINK and Bitcoin of which three are among the most purchased coins.
With this in mind, the following are things to look out for before investing in cryptocurrency.
Price of the coin
Most newcomers to crypto are people who have disposable income that they want to make investments with. This means they are probably not coming in with a lot of money because they are still uncertain. The best way to start is by purchasing low priced coins.
The total crypto market is worth about $2 trillion as of August 2021. Bitcoin has about half of the market value. There is, however, a coin for everyone with Dogecoin sells for as low as N100 ($0.24) and Bitcoin with an average of $30,000/N12.3million.
You can buy different low-priced coins and then hold on to them in the hopes that the value increases. Those who are Bitcoin millionaires today had no idea that their seemingly risky investment of then would pay off so much.
The volume of trading on a particular coin shows the interest rate of investors. Whichever coin you see with high volume trades is one you should look out for.
Note that nothing is certain in the world of cryptocurrency so this is a longshot. People emotionally react to changes in the market and so public interest may increase or wane depending on which way the market swings.
The downside to public interest is that it can be manipulated. Just recently, the price of Litecoin spiked because there was an announcement that Walmart would be accepting the coin as payment. The announcement turned out to be fake and the price dipped again. This is known as a “pump and dump scheme”. In simpler terms, it is called market manipulation.
“As the prices rise, the pump creators dump their assets into the FOMO they’ve generated, resulting in a price crash that leaves the new buyers holding a bag of the assets that now have a lower value than they were purchased at, creating significant and often unrecoverable losses,”Douglas Horn, chief architect of Telos Core Developers.
This goes to show that public interest or hype does not necessarily translate to the viability of a coin. Therefore you must observe price and trading for a while before deciding if the public interest rate is normal or a pump.
Coins are mined through technological means. Thus coins are mined into the system and not extracted. The total number of bitcoins that can be mined is 21 million and already about 18 million has been mined already. This leaves just 3 million bitcoins left unmined. In economic principles, utility and scarcity cause value.
Even though it is still a long time before Bitcoin’s run ends, what happens when the supply runs out? In selecting the cryptocurrency to invest in, choose one that has a finite supply as this tallies with a basic law of economics; the lower the supply, the higher the demand.
Other coins that have finite supply are Cardano, Stellar, LINK, etc. An important point to note is that having an infinite supply does not mean the coin is valueless as seen with Ethereum, the second-biggest cryptocurrency. It’s just that some economic principles hold true no matter how much disruption technology causes.
Identify a coin that can be adopted
There have been notable developments in the crypto space, mainly the entry of traditional financial institutions into it. A number of notable traditional financial institutions have started providing crypto-related services in form of investment funds to their clients.
The CEO of JP Morgan and an outspoken critic of cryptocurrency, Jamie Dimon, has nonetheless allowed the bank to include crypto investments as part of its investment offerings. Admitting that clients are interested in digital assets, the bank now offers 6 crypto investment offerings.
Bitcoin was chosen as the legal tender in El Salvador because it is a long-standing coin that has proven its longevity and its capacity to thrive in the traditional financial system. As the biggest coin, it dictates the market.
“The difference in regulatory risk and progress as a means of payment raises an important question: are other coins’ recent success due to good news about them or are they piggybacking on positive sentiment related to bitcoin?”strategic economist Paul Shea
This did not happen overnight. Other coins have to prove that they can also stand the test of time. PayPal’s list of approved cryptocurrency includes Bitcoin, Bitcoin Cash, Ethereum and Litecoin. The firm’s decision to trade these coins shows that they might just be eligible for possible adoption either as a means of payment or legal tender.
Some of the best platforms on which you can carry out your cryptocurrency activities include Binance, Coinbase Exchange, FTX, Luno, etc. In Africa, Yellow Card, Bundle and Dan Holdings are good starting points.
No matter what anyone says, know that there is always risk when it comes to investments of all sorts. It is therefore important to be reasonable and to make other financial plans.
Get the best of Africa’s daily tech to your inbox – first thing every morning.
Join the community now!