The Best Cryptocurrency Investments: Forbes' Guide

Cryptocurrency is a hot topic in investment circles, with its popularity significantly increasing in recent years. While some investors view it as a risky alternative investment, others see it as a legitimate option for any portfolio. There are thousands of different cryptocurrencies, which can make it overwhelming when you're first starting in the world of crypto.

Bitcoin is the original cryptocurrency and remains the most dominant player in the market. It has a market cap of over $1 trillion and a price of over $50,000 per coin as of September 2024. Other top cryptocurrencies include Ethereum, Tether, Binance Coin, and XRP.

When choosing which cryptocurrency to invest in, it's important to consider your individual goals, investment timeline, and risk profile. Additionally, due diligence is crucial to ensure that any crypto project is legitimate and secure.

Crypto day trading is a popular strategy, which involves buying and selling crypto assets within a single trading day to take advantage of market volatility. Some of the best cryptos for day trading include Bitcoin, Ethereum, Binance Coin, XRP, and Solana, due to their high liquidity and volatility.

Overall, the cryptocurrency market is evolving, and certain projects stand out for their innovative approach and potential for substantial growth.

Bitcoin's value and market cap

Bitcoin (BTC) is a decentralised, peer-to-peer digital currency, which was the first cryptocurrency to come into actual use. It was created in 2009 by Satoshi Nakamoto, an alias for the person or group of people behind its invention. Bitcoin's price has skyrocketed since its creation, with a single bitcoin valued at around $56,902 as of 10 September 2024. This represents a growth of 11,280% since May 2016, when one bitcoin was worth about $500. Bitcoin's market cap has also increased significantly over the years, reaching a value of 1.17 trillion USD on 17 September 2024, up from 521.93 billion USD a year prior.

The adoption of Bitcoin by corporate giants such as MicroStrategy, Marathon Digital Holdings, and Tesla has also contributed to its value and market cap. These companies view Bitcoin as a reserve asset and have invested millions of dollars into the cryptocurrency. Additionally, Bitcoin's role as a decentralised store of value and its ability to facilitate peer-to-peer transactions without the need for intermediaries have further increased its value and market cap.

In conclusion, Bitcoin's value and market cap have experienced tremendous growth since its creation in 2009. Its limited supply, mining process, and adoption by corporate entities have all contributed to its success. As the first cryptocurrency to gain widespread adoption, Bitcoin has revolutionised the way people send and receive money, creating an entirely new industry in the process.

Ethereum's proof-of-stake validation method

In September 2024, Forbes listed the top 10 cryptocurrencies to invest in based on their market capitalization or the total value of all the coins currently in circulation. Ethereum was ranked second on the list. Both a cryptocurrency and a blockchain platform, Ethereum is a favourite of program developers because of its potential applications, like smart contracts that automatically execute when conditions are met and non-fungible tokens (NFTs).

In September 2022, Ethereum transitioned to a proof-of-stake (PoS) validation method. PoS is less energy-intensive because it removes incentivised mining, making the blockchain more efficient and allowing it to scale better.

To participate as a validator on Ethereum's PoS, a user must deposit 32 ETH into a deposit contract and run three separate pieces of software: an execution client, a consensus client, and a validator client. The protocol then randomly selects participants to propose and vote on new blocks. There are over 400,000 validators on the Beacon Chain, the foundation of Ethereum's future proof-of-stake network.

In PoS Ethereum, time is divided into slots (12 seconds) and epochs (32 slots). One validator is randomly selected to be a block proposer in every slot. This validator is responsible for creating a new block and sending it out to other nodes on the network. Also, in every slot, a committee of validators is randomly chosen, and their votes are used to determine the validity of the block being proposed.

Validators earn what is known as a block reward. In each epoch, there are 32 sets of committees. After a committee is assigned to a block, one random person out of the 128 in the committee is selected as the block proposer. That person is the only one who can propose a new block of transactions, while the other 127 people vote on the proposal and attest to the transactions. Once a majority agrees, the block is added to the blockchain, and the validator who proposed the block receives a variable amount of ETH based on a formulaic calculation.

There are penalties if validators behave dishonestly or go offline. For example, proposing multiple blocks or submitting contradictory attestations results in punishments called slashings, where validators lose a percentage of their staked ETH. The amount of ether slashed depends on the number of validators being slashed around the same time, otherwise known as the "correlation penalty." It can range from 1% for a single validator to 100% of a validator's stake.

Tether and other stablecoins

Tether (USDT) is a popular stablecoin that crypto enthusiasts have used for years to leverage their cryptocurrency trades. Stablecoins like Tether are low-volatility digital assets that maintain a steady valuation. The value of a stablecoin is pegged to a stable asset like gold, a fiat currency, or a commodity, which means the coin attempts to maintain the same value as its peg. Tether's value is pegged to the US dollar, with "1 Tether [being] always...traded for $1, regardless of market conditions".

Tether is the largest stablecoin by market capitalization, accounting for approximately 53% of the total stablecoin market capitalization. Crypto traders use stablecoins like Tether to make transfers between different cryptocurrencies or to move their investments into or out of fiat currencies. Tether also provides steady, reliable liquidity, allowing traders to get in and out of cryptocurrency trades without facing unpredictable losses from volatile price changes.

Tether's stability comes from its currency reserves. The company claims to hold dollars and other assets that are equal to or greater than the total number of USDT in circulation. In other words, for every one Tether token in circulation, the company claims it owns one dollar in its reserves, either in cash or cash equivalents like short-term bonds or time deposits.

Tether issues several other stablecoins backed by different assets, including gold, the euro, the UK pound, and the Chinese yuan.

Tether has faced controversies regarding liquidity and the adequacy of its reserves. In 2019, Tether's website claimed the stablecoin was backed by reserves in traditional currency, cash equivalents, and sometimes other assets from affiliated entities. However, as of 2022, the company did not offer much clarity regarding its reserves, stating only that "All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves." Adam Carlton, CEO of crypto wallet Pink Panda, says that Tether's history of transparency about how the coin is backed has not always been clear or consistent. Other crypto experts say it is somewhat accepted that Tether isn't fully collateralized in the crypto marketplace.

Despite these controversies, Tether remains a popular choice among crypto traders. Tether's price slipped below its peg to $0.9485 in market moves related to the collapse of TerraUSD (another stablecoin) in May 2022 but has since rebounded close to its 1-to-1 dollar parity.

While Tether is a useful store of value, it doesn't make much sense as an investment because it isn't meant to increase in value. One USDT should always equal one dollar.

Binance Coin's volatility

Binance Coin (BNB) is a utility cryptocurrency that can be used to trade and pay fees on Binance, one of the largest crypto exchanges in the world. It can also be traded or exchanged for other forms of cryptocurrency, such as Ethereum or Bitcoin.

Since its launch in 2017, Binance Coin has expanded beyond its initial use case and can now be used for trading, payment processing, or even booking travel arrangements. Its price has risen dramatically, from $0.10 in 2017 to around $520 in late September 2024, representing a gain of over 500,000%.

As with other cryptocurrencies, Binance Coin exhibits high volatility. Volatility, in the context of finance, refers to how quickly and to what extent the price of an asset changes, and it is often used as a measure of the investment risk associated with an asset. Cryptocurrencies, due to their digital nature, low regulation, and smaller market size, tend to be far more volatile than other asset classes. This higher volatility can lead to large returns over short periods, attracting investors to the cryptocurrency market.

The Binance Volatility Index (BVOL) is a measure of the expected 30-day implied volatility derived from tradeable crypto option prices. It aims to capture the market sentiment regarding expected volatility by incorporating a wide range of option strikes. Additionally, there are volatility indexes for major cryptocurrencies like Bitcoin and Ethereum, which provide insights into the risk associated with these assets.

Crypto day trading strategies

Day trading in the crypto world is a fast-paced and dynamic endeavour, offering endless opportunities to traders. The crypto market operates 24/7, allowing traders to react to news, trends and price changes in real-time.

• Arbitrage: This strategy involves taking advantage of the price differences of a cryptocurrency on different exchanges. For example, if Bitcoin is trading at $30,000 on Exchange A and $30,150 on Exchange B, an arbitrage trader would buy on Exchange A and sell on Exchange B, profiting from the price difference. This strategy requires speed and careful planning, and an understanding of transaction fees and tax implications.
• Technical Analysis Trading: Technical analysis is the practice of predicting future price movements based on historical market data, primarily price and volume. Traders study charts, particularly candlestick charts, to identify patterns and trends that indicate potential buy or sell opportunities. Technical analysis helps identify trends, momentum and potential reversals in the market.
• News-Based Trading (Market Sentiment Analysis): Crypto markets are highly sensitive to news and global events, which can cause significant price swings. For example, positive sentiment around an expected ETF saw Bitcoin's price increase by 80% over six months. Traders can use social media analytics and sentiment indicators to gauge market sentiment and predict its next move.
• High-Frequency Trading (HFT): HFT involves making a large number of trades in fractions of a second, using algorithmic trading programs. It aims to capitalise on small price movements, accumulating profits over many small trades. Beginners can access this strategy through automated trading platforms, but it requires a solid understanding of the market and technology.
• Scalping: Scalping involves making numerous trades throughout the day, aiming for small gains from each trade. Traders should look for cryptocurrencies with high liquidity and low spreads to ensure quick execution of trades and lower costs. A clear strategy with set entry and exit points is crucial for this method.
• Range Trading: This strategy involves identifying a cryptocurrency's typical price range and buying at the lower end (support level) and selling at the higher end (resistance level). This method suits beginners as it offers a structured approach, but traders must be vigilant and adjust their strategy if the market breaks out of the range.
• Momentum Trading: This strategy involves identifying cryptos with significant movement in price and trading volume, and trading with the expectation that this trend will continue. Beginners can use tools like the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) to identify momentum.
• Swing Trading: Swing trading involves holding onto a cryptocurrency for several days or weeks to capitalise on expected medium-term market shifts. This strategy suits beginners who cannot commit to the fast pace of day trading. Traders should use technical analysis to spot potential trends and patterns, such as 'head and shoulders' or 'cup and handle', in candlestick charts.

When choosing a cryptocurrency for day trading, consider factors such as liquidity, volatility, market capitalisation, market sentiment, and your own goals and risk tolerance.

Day trading crypto offers the potential for high profits, flexibility, and a variety of trading strategies. However, it also comes with significant risks, emotional stress, a steep learning curve, and the temptation to overtrade. A well-thought-out strategy, clear understanding of the market, and awareness of one's risk tolerance are crucial for success.

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