There are 2 types of people in the world of cryptocurrency. Those who choose to mine and those who invest. Cryptocurrency is one of the hottest investment opportunities available right now. Cryptocurrency has the potential to substitute the Dollar, Euro or any other currency and become a world currency. Investing in cryptocurrency means, you are playing a role in its quest to become the world currency. It could be Bitcoin or any other cryptocurrency. If you are an investor, you may be wondering “How Much Should You Invest in Cryptocurrencies?” We hope to answer that question in this article.
In short as much as you are willing to lose. For example, if you can afford losing $500, then you should only invest $500.
No one likes to lose money. Investing in crypto is a risky venture. When you invest in cryptocurrency, you should have the attitude “I can afford to lose x amount of money in crypto”. Having a mindset like this can assist you in taking a risk.
Unlike stocks, cryptocurrency is very volatile. You can double your money in a matter of a few hours and at the same time, you could lose half of your money. This is why you should be willing to lose your money in crypto. Because of this volatility, most strategies that work for trading stocks do not work for cryptocurrencies. You should be willing to sell at any given moment.
Investing in cryptocurrency is not always a losing battle. If you do your research, manages your risk, it can be very profitable. Investing in cryptocurrency is more like winning the lottery and less like taking a calculated risk. This is because there is no definite way to determine the value of a cryptocurrency. For example, if you are investing in stocks, you can look at companies’ financial statements to decide if its a good investment. Majority of cryptocurrencies are decentralized. They are not owned or controlled by companies. There are no financial statements to look at. The success of cryptocurrencies depends on the community. The community encompasses developers, miners and those who find use case scenarios for the cryptocurrency. Crypto is still in its infancy, which means fewer people know of crypto and fewer use case scenarios. If you are investing in crypto for the long term, you are speculating. But, saying that, you can still speculate and invest if you know how to determine the value of a coin. We will show you how to do it the right way.
How to Determine the Value of a Cryptocurrency
One factor that determines the value of a coin is the utility of the coin. What is the incentive to hold this coin? For example, take EOS. You can build decentralized applications on the EOS platforms. It has all the functionality and tools needed to build DAPS (decentralized applications) similar to web-based applications. Additionally, EOS is used as currency in the EOS network. Ethereum is similar to EOS. You are able to build DAPS on the Ethereum network as well. To build DAPS, you need to own some ETH as it will be used as “fuel” on the Ethereum network. This gives people the incentive to hold a coin.
There could be other incentives to hold a particular coin. For example, some cryptocurrencies pay dividends for holding that coin. For PoS (Proof of Stake) coins, you are incentivized to hold that coin to receive mining rewards or influence the blockchain with a vote. If a coin has no real use case scenario, do not invest.
Another factor that determines the value of a coin is the scarcity. For example, Bitcoin will only create 21 million bitcoins. Having a fixed number of coins can increase the value of a coin, assuming the demand for that coin also increases. As of now, 17,540,175 bitcoins have been mined. When all coins have been mined, and if bitcoin becomes a global currency, we can expect the price to increase.
The last factor that can assist you when valuing a cryptocurrency is the perceived value of the coin. These are the questions you must ask when evaluating the perceived value:
- Who are the developers? What are their achievements?
- Is the cryptocurrency partnered with credible companies?
- Cryptocurrency’s road map and their vision.
- How big and is it well received by the community?
These 3 factors should assist you in valuing a cryptocurrency. You should not immediately invest in coins others are making money off. Do your research, understand the project, evaluate the value and invest only the amount you can afford to lose. If you do not understand a coin, do not invest.
What Coin Should You Invest In
None of the below written is investment advice. This is my own opinion. Do your own research before investing. Here are my top cryptocurrencies to hold for the long term.
Bitcoin simply because it was the first cryptocurrency. Some see Bitcoin as a store of value and a contender for gold. Anyone who enters the world of cryptocurrency first learns about it through bitcoin. Newcomers ask the question, “What is Bitcoin” and then eventually learn about cryptocurrency. They will always start by owning some bitcoin.
Ethereum is a platform that can be used to build decentralized applications (DAPS) with self-executing contracts (smart contracts). Ethereum can also be used as a payment system. There are so many cryptocurrencies based on the Ethereum blockchain and it grows every year. If bitcoin is to become the global currency, the goal of Ethereum is to replace third parties on the internet. Ethereum plan on becoming a world computer. It is still in its infancy and some say it is going to surpass Bitcoin.
Monero is a privacy coin. Anonymity is something that is valued highly in the crypto space. Monero is cryptographically anonymous. Privacy coins will always hold some value because of its real use case scenarios.
To answer the question “How Much Should You Invest in Cryptocurrencies?”, you should only invest what you’ll be willing to lose. Before you invest, it is best practice to evaluate cryptocurrencies.