Best Crypto For Beginners: Where To Start?

Cryptocurrency is a hot topic in investment circles, and its popularity has significantly increased in recent years. While some investors view it as a risky alternative investment, others see it as a legitimate option for any investor's portfolio.

Cryptocurrency is a form of digital money that takes the form of tokens or coins. They are almost always designed for payments and transmitting value across a decentralized network of users. Cryptocurrencies are intended to be free from government manipulation and control, although this foundational aspect has come under fire as they have grown in popularity.

Bitcoin is the original cryptocurrency and continues to lead the pack in terms of market capitalization, user base, and popularity. Other cryptocurrencies, or altcoins, have since been created with newer features than Bitcoin, such as Ethereum, which facilitates the creation and execution of smart contracts, and Tether, which is a stablecoin that aims to peg its market value to a currency to reduce volatility.

When considering what cryptocurrency to invest in, several factors determine a good starting point: market capitalization, liquidity, community support, and the technology behind the cryptocurrency. It's important to conduct thorough research and understand how each type of cryptocurrency functions before making any investment decisions.

Understand the basics of cryptocurrency and the risks involved

Cryptocurrency is a digital or virtual currency underpinned by cryptographic systems. They enable secure online payments without the use of third-party intermediaries. Cryptocurrencies are generally based on blockchain technology—a distributed ledger enforced by a disparate network of computers.

Understanding the Basics of Cryptocurrency

Cryptocurrencies are digital or virtual currencies that are secured by cryptography, making it nearly impossible to counterfeit or double-spend. Cryptocurrencies are often referred to as digital coins or tokens, guarded by encryption through blockchain technology. They can be used to buy goods and services or traded for profit.

The use of blockchain technology in cryptocurrencies allows for a decentralised network of users to oversee the currency, rather than a central authority like a government or bank. This means cryptocurrencies generally operate outside of any regulation, giving them a level of independence from government interference or manipulation.

Understanding the Risks Involved in Cryptocurrency

Despite the advantages offered by cryptocurrencies, there are several risks involved in their use and adoption.

• Price Volatility: Cryptocurrencies are highly volatile, and their prices can fluctuate widely and rapidly. This makes them a speculative investment, and their value is uncertain.
• High Energy Consumption: Cryptocurrency mining, particularly for popular cryptocurrencies like Bitcoin, requires a significant amount of energy. This has led to concerns about the environmental impact of cryptocurrencies.
• Use in Criminal Activities: Cryptocurrencies have become popular for nefarious activities such as money laundering, illicit purchases, and ransomware due to the level of anonymity they provide.
• Security and Hacking: Cryptocurrency exchanges and wallets are vulnerable to theft or hacking. Losing access codes or having your device compromised could result in losing your investment.
• Regulatory Risks: The legal status of cryptocurrencies varies across the world, and regulatory changes or crackdowns can affect the market.
• Counterparty Risks: Storing cryptocurrencies in exchanges or third-party custodians exposes investors to the risk of theft or loss by these entities.
• User Risk: Cryptocurrency transactions cannot be reversed or cancelled once sent. Sending to the wrong address or losing passwords can result in permanent loss.

Tips for Beginners

If you're a beginner interested in investing in cryptocurrencies, it's important to understand the basics, the risks involved, and how to protect your investment. Here are some tips to help you get started:

• Understand the Cryptocurrency: Before investing, ensure you know how the cryptocurrency works, its use cases, and how to exchange it. Read the official webpages and independent articles to gain a comprehensive understanding.
• Choose a Trustworthy Wallet: Research and select a reputable cryptocurrency wallet that suits your needs. Protect your wallet and investment at a level consistent with its value.
• Backup Strategy: Have a backup plan in case your device is lost, stolen, or inaccessible. Backups can help you recover your cryptocurrency investment if something happens to your primary device or wallet.
• Stay Informed: Stay updated with cryptocurrency news and market trends to make informed investment decisions.

Research the market trends and fluctuations

Researching market trends and fluctuations is essential for making informed investment decisions in the cryptocurrency space. Here are some instructive guidelines and insights for beginners looking to navigate this aspect of crypto investing:

Stay Informed with News and Analysis:

Keep yourself updated with the latest cryptocurrency news and market analysis. Follow reputable sources that provide insights into trading tendencies, new players, and analytics on recent crypto developments. Stay abreast of reviews and performance analyses of prominent cryptocurrencies like Bitcoin and major altcoins. This will help you make more informed investment decisions.

Understand Market Dynamics:

Recognize the factors that drive market trends and fluctuations. These include technological advancements, regulatory changes, market speculation, and sentiments. For example, the crypto market is highly volatile and susceptible to sentiment-driven fluctuations. The 2017 crypto boom, which led to record highs, was fuelled by speculative fervour and an influx of new investors. Similarly, the Terra Luna Trillion-dollar crash resulted from bearish sentiment and a loss of confidence in the underlying asset.

Long-term vs. Short-term Trends:

Distinguish between long-term and short-term market trends. Long-term trends unfold over extended periods, influenced by fundamental factors such as technological innovations, adoption rates, and macroeconomic events. These trends offer a broader perspective on the potential price trajectories of cryptocurrencies. Short-term trends, on the other hand, occur over days or weeks and are often shaped by news events, market sentiments, and trading activities. They are valuable for traders seeking to capitalize on short-term price fluctuations.

Fundamental Analysis:

Conduct fundamental analysis by examining the underlying business, product, and use cases of a cryptocurrency. Assess the utility and use cases of a crypto asset beyond its role as a token. For example, Ethereum's native token, Ether, is used for settling network fees for smart contract transactions, decentralized applications (dApps), decentralized finance (DeFi), and NFTs. Evaluate the practical use and community support behind a token.

Technical Analysis:

While controversial due to the market's volatility, technical analysis (TA) can provide insights into short-term price movements. Candlestick charts, moving averages, support and resistance levels, and indicators like the Relative Strength Index (RSI) and Fibonacci Retracement levels can help identify potential trading opportunities.

Timing is Crucial:

Timing your investments is essential. Recognize the difference between bull and bear markets and invest accordingly. The current market, for instance, is generally booming, which is a factor to consider when deciding whether to invest in cryptocurrencies.

Review Price Data and Tokenomics:

Analyze the price history of cryptocurrencies to gauge how interest in a project has evolved over time. Examine the tokenomics, or the distribution, circulation, and total supply of a cryptocurrency, as this influences its overall price over time. A higher number of tokens in circulation typically requires greater demand to drive up the price.

Legality and Regulatory Environment:

Be mindful of the legality and regulatory environment surrounding cryptocurrencies. Different jurisdictions have varying stances on crypto investments and ICOs. Stay informed about regulatory developments that can impact the market, such as the approval of crypto-related ETFs by financial regulators.

Assess the growth potential and unique features of each crypto

When considering the growth potential and unique features of each cryptocurrency, here are some key points to note:

Bitcoin (BTC)

Bitcoin was the first cryptocurrency, and it offers a solid foundation for crypto investment due to its reliability and consistent growth. It has a vast market capitalization, currently valued at over $1 trillion, and its value has experienced a substantial surge over the years. Bitcoin also has high liquidity and broad acceptance as a form of payment.

Ethereum (ETH)

Ethereum is both a cryptocurrency and a smart contract platform, enabling the creation and execution of decentralized applications and smart contracts. It has the second-largest market capitalization after Bitcoin and is favoured by program developers. Ethereum's ERC-20 token standard has become a popular format, and its versatility makes it an ideal starting point for beginners interested in the broader applications of blockchain technology.

Tether (USDT)

Tether is a stablecoin, meaning its value is pegged to fiat currencies like the US dollar. This makes it less volatile than other cryptocurrencies and thus attractive to investors cautious of extreme price fluctuations. Tether's price is directly tied to the US dollar, and it facilitates timely transfers from other cryptocurrencies back to US dollars.

Binance Coin (BNB)

Binance Coin is a utility cryptocurrency that serves as a payment method for fees on the Binance Exchange, one of the largest crypto exchanges globally. It offers discounted trading fees for users who employ the token for payment. Additionally, Binance Coin's blockchain supports the operation of Binance's decentralized exchange.

Solana (SOL)

Solana is a blockchain platform that supports decentralized finance (DeFi) applications, decentralized apps (DApps), and smart contracts. It is known for its exceptional speed in processing transactions, making it attractive to both institutional and individual investors. Solana also guarantees low transaction costs while maintaining scalability and fast processing.

DigiToads (TOADS)

DigiToads offers a unique blend of entertainment and investment, making it ideal for beginners. It provides a gamified experience with its TOADS token and a play-to-earn universe. DigiToads also stands out for its commitment to environmental sustainability, pledging a portion of its profits to charities focused on reforestation and rainforest conservation.

InQubeta (QUBE)

InQubeta is a cutting-edge cryptocurrency project that operates on the Ethereum network. It focuses on crowdfunding for AI startups, allowing investors to acquire NFTs representing fractional ownership in these startups using the QUBE token. InQubeta's deflationary nature, where a percentage of each transaction involving QUBE is removed from circulation, increases the token's scarcity and potential value over time.

Analyse the technology, community support, and liquidity behind each crypto

When it comes to investing in cryptocurrency as a beginner, it is essential to analyse the technology, community support, and liquidity behind each crypto option. Here is an analysis of these factors for some of the popular cryptocurrencies:

Bitcoin (BTC)

Bitcoin, the first and most well-known cryptocurrency, offers a solid foundation for beginners due to its reliability and consistent growth. It is widely accepted as a form of payment, making it highly liquid. The robustness of its blockchain technology and widespread adoption underpin its appeal to new investors. Additionally, the increased number of trusted Bitcoin exchanges has enhanced its liquidity. However, transacting in Bitcoin may come with extra costs and time delays, impacting its overall liquidity.

Ethereum (ETH)

Ethereum is both a cryptocurrency and a smart contract platform, making it an ideal starting point for beginners interested in decentralised applications and ERC-20 tokens. It facilitates the creation and execution of smart contracts, powering many decentralised applications and DeFi projects. Ethereum's versatility as a platform for various tokens and applications opens up a more expansive crypto universe for beginners. However, it is important to note that Ethereum is less regulated and susceptible to market manipulations, which can impact its liquidity.

Tether (USDT)

Tether is a stablecoin, meaning its value is pegged to fiat currencies like the US dollar. This makes it less volatile than other cryptocurrencies and attracts investors who are wary of extreme price fluctuations. Tether had the highest 24-hour trading volume on 17 March 2024, indicating strong liquidity. Its market cap was smaller than Bitcoin's, but its high trading volume gave it more liquidity.

Binance Coin (BNB)

Binance Coin is the cryptocurrency of one of the largest crypto exchanges, Binance. It can be used for trading, payment processing, and travel bookings. Since its launch in 2017, it has expanded its use cases and can now be traded or exchanged for other cryptocurrencies. Binance Coin's price has grown significantly, and it is available on major exchanges, indicating better liquidity and a broader investor base.

Solana (SOL)

Solana is a cryptocurrency designed to support decentralised finance, decentralised applications, and smart contracts. It uses a unique combination of proof-of-stake and proof-of-history mechanisms to process transactions quickly and securely. Its native token, SOL, powers its operations. Solana's launch in 2020 started with a low price, but it has since grown significantly. Its availability on major exchanges and high trading volume contribute to its liquidity.

DigiToads (TOADS)

DigiToads is a unique cryptocurrency that blends gaming and investment, offering a gamified experience with its TOADS token. It stands out for its play-to-earn universe, where users can raise, train, and battle digital companions. DigiToads also has a strong focus on environmental sustainability, pledging a portion of its profits to charities for reforestation and rainforest conservation. Its presale allows buying TOADS at a discounted rate, offering growth potential for early investors.

In summary, when analysing the technology, community support, and liquidity behind each cryptocurrency, beginners should consider factors such as the reliability of the blockchain technology, the acceptance and usage of the crypto, the availability on major exchanges, trading volume, and the potential for growth. These factors will help determine the liquidity and stability of the investment, reducing risks and providing a more stable foundation for beginners in the crypto space.

Consider your financial goals, risk tolerance, and investment horizon

When considering investing in cryptocurrency, it is important to evaluate your financial goals, risk tolerance, and investment horizon. These factors will help you determine the appropriate investment strategy for your needs and ensure that your investments align with your financial goals and risk tolerance.

Financial Goals

Your financial goals refer to the specific objectives you hope to achieve through your investments. These may include short-term goals, such as saving for a down payment on a house, or long-term goals, such as retirement planning or funding your child's education. It's important to assign specific dollar amounts or percentages to your financial goals, as this will help you track your progress and make appropriate investment decisions.

Risk Tolerance

Risk tolerance is the degree of risk that you are willing to take on in your investment portfolio. It is influenced by various factors, including your age, income, financial situation, investment experience, and personal preferences. To assess your risk tolerance, you can use a risk tolerance questionnaire, which will ask about your financial situation, investment experience, and risk preferences. Based on your responses, you will be assigned a risk tolerance level, such as conservative, moderate, or aggressive. Understanding your risk tolerance will help you choose investments that align with your comfort level.

Investment Horizon

Your investment horizon refers to the length of time you plan to hold your investments. This can significantly impact your risk tolerance, as a longer investment horizon typically allows for a higher risk tolerance. For example, if you are investing for retirement, which is several decades away, you may be willing to tolerate more risk in pursuit of higher returns. On the other hand, if you have a shorter investment horizon, such as saving for a down payment on a house in the next few years, you may prefer lower-risk investments to protect your capital.

By considering your financial goals, risk tolerance, and investment horizon, you can make informed investment decisions that are aligned with your financial aspirations and risk tolerance. It's important to regularly review and adjust your investment strategy as your circumstances, goals, and risk tolerance may change over time.

Frequently asked questions