Crypto Investment Strategies: Smart Ways To Invest

Crypto is having a moment. With thousands of coins to choose from, investing in the volatile world of cryptocurrencies is not for the faint of heart. In this article, we will explore the best cryptocurrencies to invest in, the best platforms to use, and the risks involved.

Bitcoin's performance and value

Bitcoin is the oldest and most popular cryptocurrency on the market. It was created in 2009 and has since soared to unimaginable heights, gaining the attention of investors, the media, and businesses. Bitcoin's price has skyrocketed as it has become a household name. In May 2016, one bitcoin was worth about $500; as of September 10, 2024, a single bitcoin's price was around $56,902, a growth of 11,280%.

Bitcoin's price is a product of supply, demand, and market sentiment. It was designed to be used as a currency in daily transactions, but it has become far more than a payment method. Investors have used it to store value, generate wealth, and hedge against inflation, and institutions have worked to create Bitcoin investment instruments.

Bitcoin has had a volatile trading history. Its first significant price increase occurred in October 2010 when the value of a single bitcoin started moving past its long-held price of less than $0.10. Since then, it has undergone several rallies and crashes. In 2021, for instance, Bitcoin surpassed $40,000 by January 7 and reached an all-time high of $69,000 in November. However, by mid-December, its price had fallen to $46,211.

Bitcoin's price is influenced by various factors, including its perceived value, supply, and demand. It is also affected by the supply and demand of related securities, such as derivatives created and traded by investors. Additionally, the approval of spot Bitcoin exchange-traded funds (ETFs) in January 2024, which allowed mainstream investors to track Bitcoin's performance without directly owning it, has had a positive impact on its price.

Another factor that affects Bitcoin's price is the halving events that occur roughly every four years, where the rewards for mining Bitcoin are cut in half. The last halving event occurred on April 19, 2024, and historically, within 18 months of previous Bitcoin halvings, the price of the token has rallied fiercely.

Ethereum's potential applications

Ethereum is a blockchain platform that facilitates the development of decentralised applications. It was first conceptualised in 2013 by Vitalik Buterin, who was then conducting research within the Bitcoin community. Ethereum has several potential applications, including:

Smart Contracts

Ethereum is well-known for its smart contract functionality, which enables developers to create and automate several key features. Smart Contracts are a way of transporting anything of value—money, shares, or data—without an intermediary. They allow for immediate transactions and ensure the rules and regulations associated with the contract are automatically enforced.

Decentralised Applications and Finance

Ethereum is the leading blockchain for decentralised applications and finance, providing a platform for developers to create other cryptos. It is the largest player in the DeFi and dApp space, giving it market dominance. Its switch to the proof-of-stake protocol has also made it more energy-efficient than Bitcoin.

Non-Fungible Tokens (NFTs)

Ethereum is a favourite of program developers because of its potential applications with NFTs.

Enhanced Crowdfunding

Ethereum's Smart Contracts offer customizable solutions to contributors and expand the ways in which individuals can contribute to development. They also ensure complete transparency and strict adherence to contract boundaries.

Online Consumer Data Protection

Ethereum can help safely onboard new customers, blending simple identification processes and know-your-customer regulations. It protects user data through a series of cryptographic protocols and allocates responsibilities to "trusted gatekeepers" who have been given clearance to retrieve and authenticate customer documents.

Stablecoins

Commodity-Backed Stablecoins

Commodity-backed stablecoins are stabilised by hard assets such as gold, silver, real estate, or oil. Gold is the most commonly used asset, but some stablecoins may use a basket of precious metals or other commodities. Tether Gold (XAUt) is a popular example of a gold-backed stablecoin, where the gold is held by a custodian in Switzerland.

Fiat-Backed Stablecoins

Fiat-backed stablecoins are backed by government-issued currencies, such as the US dollar, euro, or Chinese yuan. These stablecoins maintain a reserve of the fiat currency as collateral, often at a 1:1 ratio, to ensure the stablecoin's value. Tether (USDT) and USD Coin (USDC) are two prominent examples of fiat-backed stablecoins.

Crypto-Backed Stablecoins

Crypto-backed stablecoins are backed by other cryptocurrencies as collateral. Due to the volatility of cryptocurrencies, these stablecoins are often over-collateralised, meaning the value of the cryptocurrency held in reserves exceeds the value of the stablecoins issued. For example, MakerDAO's Dai (DAI) stablecoin is pegged to the US dollar but is backed by Ethereum (ETH) and other cryptocurrencies worth more than the DAI stablecoins in circulation.

Algorithmic Stablecoins

Algorithmic stablecoins may or may not hold reserve assets, but they primarily use algorithms and smart contracts to control the supply of tokens to maintain price stability. If the price of the algorithmic stablecoin rises above the target value, the algorithm will release more tokens into circulation to reduce the price. Conversely, if the price falls below the target, the algorithm will reduce the token supply through methods like burning or buybacks. Dai (DAI) is an example of an algorithmic stablecoin that uses Ethereum smart contracts to maintain its peg to the US dollar.

However, it is important to approach stablecoins with caution. They require independent auditors to verify collateral or reserves, and there have been controversies surrounding some stablecoins, such as Tether, regarding the validity of their claims and issues with management.

Some popular stablecoins available on major crypto exchanges like eToro, Coinbase, and Kraken include:

• Tether (USDT)
• USD Coin (USDC)
• Binance USD (BUSD)
• True USD (TUSD)
• Origin Dollar (OUSD)
• Paxos Standard (PAX)
• Gemini Dollar (GUSD)

Binance Coin's uses

Binance Coin (BNB) is the cryptocurrency issued by the Binance exchange. It was created in 2017 as a utility token for discounted trading fees, but its uses have since expanded to numerous applications. Here are some of the key uses of Binance Coin:

Trading Fees

BNB can be used to pay for trading fees on the Binance exchange, as well as on the Binance Decentralized Exchange. Holding large quantities of BNB can also qualify traders for further discounted trading fees.

Transaction Fees

Binance Coin can be used to pay for transaction fees on the Binance Chain and the Binance Smart Chain. It is the native token for these blockchains and must be spent for every transaction made on them, similar to how Ether is used for the Ethereum blockchain.

Payments

Binance Coin can be used to make payments for goods and services, both online and in-store. It is accepted by various merchants, including Monetha and HTC, and can also be used for travel bookings on sites like TravelbyBit, Trip.io, and Travala.com.

Entertainment

BNB can be used for entertainment purposes, such as buying music and game rewards.

Online Services

Binance Coin is also accepted by some online service providers, such as BitTorrent, Canva, and Storm.

Financial Services

BNB can be used for certain financial purposes, such as taking out loans on ETHLend or making investments on Moeda.

Binance Coin has grown significantly since its launch and continues to be a popular choice for crypto investors and traders.

Solana's transaction speed and fees

Solana is a decentralised blockchain platform that prioritises scalability. It is one of the fastest blockchains on the market, with a transaction speed of almost 65,000 per second. This is achieved through the unique Proof of History consensus mechanism, which allows nodes to synchronise time across the network.

Solana's transaction fees are some of the cheapest in the cryptocurrency market, typically costing between $0.003 and $0.030. The average base fee paid for a single non-vote transaction on Solana is $0.02275, or 0.00015 SOL. However, some transactions incur an additional fee on top of the base fee, which ensures that the transaction is prioritised. This additional fee is optional and paid for transaction prioritisation, constituting around 95% of all fees on the network. In the last 24 hours, the average additional fee amounted to 0.00016 SOL, or $0.02433.

Solana's low fees are due to its Proof of History consensus mechanism, which is very efficient and does not require a lot of computing power. Additionally, Solana can process multiple transactions in parallel, increasing throughput and reducing fees. Furthermore, Solana boasts a high block time and block size, which further lowers transaction costs.

Solana's low gas fees and high transaction capacity position it as a strong competitor in the blockchain industry. The long-term prospects of cheap transactions are one of the reasons why Solana is considered one of the best cryptos to buy for the long term.

Frequently asked questions