Best Safe Crypto Bets: Where To Invest?

Cryptocurrencies are a hot investment that is gaining mainstream adoption. With more than 20,000 different cryptocurrencies on the market, it can be challenging to know which are the safest to invest in. The safest cryptocurrencies to invest in are those that have been around for a while, have a high level of adoption, and are backed by major companies.

Some of the safest cryptocurrencies to invest in include Bitcoin, Ethereum, Binance Coin, Cardano, and Dogecoin. These cryptocurrencies have been around for several years, have a large user base, and are backed by major companies such as Visa, Mastercard, and PayPal. They also have a high level of liquidity, making it easier to trade, sell, or spend.

It's important to remember that investing in cryptocurrencies is risky due to their volatility and regulatory scrutiny. It's crucial to do your research and only invest what you can afford to lose.

Bitcoin

While Bitcoin is a popular and valuable cryptocurrency, it is important to consider the risks associated with investing in it. Here are some key things to keep in mind:

Volatility

Exchange Failure

Crypto exchanges, where many investors store their Bitcoin, can fail or be subject to cybersecurity risks. Notable examples include the bankruptcy of FTX and FTX.US in 2022 and the crash of Mt. Gox in 2014. In such cases, users may face challenges in recovering their funds, and it could take years for any payouts to be made.

Wallet Security

It is recommended to store Bitcoin in a separate crypto wallet, preferably a cold wallet, which is an offline storage device. Cold wallets help protect against online theft but come with their own set of risks. For example, losing your password or seed phrase, or misplacing the physical device, can result in the loss of your Bitcoin. Additionally, there is a risk of physical theft or accidental disposal of the cold wallet, as in the case of a man in Wales who accidentally threw away a hard drive containing 7,500 Bitcoin.

Scams and Fraud

The increasing popularity of Bitcoin has led to a rise in scams and fraudulent activities targeting investors. The Federal Trade Commission reported that nearly 7,000 people lost $80 million to Bitcoin schemes in a six-month period. These scams often use fake testimonials and cryptocurrency jargon to appear credible, promising enormous returns. Additionally, phishing scams and fake crypto wallets or applications are also prevalent, aiming to steal users' passwords and personal information.

In conclusion, while Bitcoin has established itself as a prominent cryptocurrency with significant value and widespread adoption, it is essential to approach investing in it with caution. The volatile nature of its pricing, the potential failure of exchanges, the security risks associated with wallets, and the prevalence of scams are all factors that investors should carefully consider before making any investment decisions.

Ethereum

However, it is important to note that Ethereum exhibits high volatility. Before the COVID-19 pandemic, the daily return volatility of Ethereum was 4.34%. During the pandemic, this increased to 10.96%.

Binance Coin

• To act as a 'discount token' to pay for fees on the Binance Exchange.
• To act as fuel for the Binance Smart Chain.

One of the most unique aspects of Binance Coin is coin burning. Binance destroys coins in what they call a 'burn', ensuring that the value of the asset rises steadily. This is mentioned in the Binance white paper, which states that every quarter, Binance plans to destroy Binance Coin per trading volume on the Binance trading platform. The burn is done using a smart contract, and it is impossible to return the coins once they are destroyed.

While Binance Coin is not going to replace Bitcoin as the leader of global digital currency, it was one of the big winners in 2021. Binance Coin is considered one of the safest cryptocurrencies, mainly due to its relative stability.

Stablecoins

The most popular kind of stablecoin is a fiat-backed stablecoin, which is tied to currencies such as the US dollar. The entity behind a stablecoin will usually set up a "reserve" where it securely stores the asset or basket of assets backing the stablecoin. This reserve serves as collateral for the stablecoin, meaning that whenever a stablecoin holder wishes to cash out their tokens, an equal amount of whichever asset backs it is taken from the reserve.

There are three main types of stablecoin collateral:

• Fiat-collateralized stablecoins: The most common type of collateral for stablecoins. The US dollar is the most popular among fiat currencies, but companies are also exploring stablecoins pegged to other fiat currencies.
• Precious metals-collateralized stablecoins: Some cryptocurrencies are tied to the value of precious metals such as gold or silver.
• Crypto-collateralized stablecoins: Some stablecoins are backed by other cryptocurrencies. Because the reserve cryptocurrency may also be prone to high volatility, such stablecoins are generally over-collateralized, meaning the value of the cryptocurrency held in reserves exceeds the value of the stablecoins issued.

There is also a more complex type of stablecoin that is collateralized by other cryptocurrencies rather than fiat. MakerDAO, a well-known stablecoin issuer, uses a service called "Vault" (formerly known as a Collateralized Debt Position), which locks up a user's cryptocurrency collateral. Once the smart contract knows the collateral is secured, a user can borrow freshly minted dai, the stablecoin.

A third variety of stablecoin, known as an algorithmic stablecoin, isn’t collateralized at all. Instead, coins are either burned or created to keep the coin’s value in line with the target price. For example, if a stablecoin drops from a target price of $1 to $0.75, the algorithm will automatically burn a tranche of coins to introduce more scarcity, pushing up the price of the stablecoin.

Some popular stablecoins include:

• Tether (USDT): One of the oldest and most popular stablecoins, launched in 2014. It is one of the most valuable cryptocurrencies overall by market capitalization and is pegged to the US dollar at a 1:1 ratio.
• USD Coin: A stablecoin launched jointly by cryptocurrency firms Circle and Coinbase in 2018 and pegged to the US dollar.
• Dai: A stablecoin on the Ethereum blockchain, created in 2015 and pegged to the US dollar. It is backed by ether, the token behind Ethereum.

Cardano

In the future, ADA will also be used as a governance token, allowing holders to vote on changes and upgrades to the Cardano platform.

Frequently asked questions