Once your grandparents start asking you what Bitcoin is, you know it’s become pretty popular. And while Bitcoin certainly has plenty of upsides, many people are wondering how they can invest in other cryptocurrencies to get ahead of the curve and possibly become rich. Or at the very least, people are curious as to how they can diversify their financial portfolios with a bit of crypto exposure beyond Bitcoin. And in either case, you have plenty of options to wade through.
Why Cryptocurrency?
We’ll assume you’re already fairly familiar with the basics of cryptocurrency, what it is, and how it works, so we won’t go into a ton of detail here. But in order to increase your chances of making a smart investment, it is helpful to remember why we invest in crypto.
- Decentralized. Cryptocurrencies exist independent of any world governments. This makes it a healthy hedge against inflation-prone currencies like the U.S. dollar.
- Private. While all transactions are recorded in an immutable ledger on the blockchain, cryptocurrency is incredibly private. The identity of the sender and receiver are obscured and replaced by long, unique codes. Only cash provides this same level of anonymity.
- Scarce. As you know, cryptocurrencies have a finite supply. And it’s this fixed supply that gives it similar characteristics to precious metals like gold and silver. Unlike the U.S. Dollar or British Pound, which can be printed off at will, digital currencies will see supply remain steady (while demand inevitably increases).
- Versatile. There’s so much you can do with crypto. You can buy and hold long-term, you can day trade, or you can even use it as your bank account to buy and spend.
Keeping these advantages in the back of your mind, you can perform a smart and intentional search, as well as more thorough due diligence.
How to Analyze and Vet the Options
Cryptocurrency prices are driven by multiple levers. Factors like media attention, the prospect of regulation, political developments, large scale economic volatility, differences in the underlying tech development of the token/coin and even idiosyncrasies within individual coins can cause prices to shoot up, drop down, and bounce around.
As you consider Bitcoin alternatives, here are some different factors to analyze:
1. Price
Price is less of a factor than you may think, but it’s still something to consider.
Almost every exchange allows you to buy fractional shares of a cryptocurrency. So if Bitcoin is hypothetically at $10,000, you could buy one-tenth of a Bitcoin for $1,000. But you could use that same $1,000 to buy hundreds or thousands of full coins of other cryptocurrencies that are priced below a dollar. It all depends on how much you want to diversify.
2. Prospects
What are the prospects for a particular coin? In other words, what are the experts saying? Listen to sources, read as much information as you can, and learn to evaluate financials and other signs. You want to invest in coins that have their best days ahead, not ones that are fizzling out.
3. Supply
As mentioned, most cryptos have a predetermined supply. Once that maximum is reached, no new tokens will ever be produced. Assuming demand increases over time, this paves the way for some serious appreciation. Make sure you understand the supply of any coin you’re investing in – it’ll give you a clearer picture of the future trajectory.
4. Risk Level
Regardless of whether you’re investing in stocks, real estate, or cryptocurrency, you need to understand your risk level. How much are you willing to lose? And how much can you stomach losses in order to potentially enjoy some gains?
Bitcoin is by far the safest bet right now - simply based on its volume, backing, age, and media exposure - but there are other well-known coins that are relatively stable, too. Options like Etherum (ETH), Litecoin (LTC), and Ripple (XRP) are popular.
5. ICO Offerings
Much like companies on traditional stock exchanges, new cryptocurrency companies tend to introduce their coins to the marketplace via an Initial Coin Offering (ICO). This is your chance to get in on the ground floor. But it’s also the riskiest time to invest.
If you feel confident in your ability to scout out opportunities and understand what sets good companies apart, ICOs can prove to be lucrative. Just make sure you’re also diversifying with more established coins, too.
Be Smart and Calculated
While there are some who disagree, all cryptocurrencies are speculative at this point - especially outside of Bitcoin. So it’s important to be smart and calculated in your decision making. Talk to a variety of sources, gather opinions, and remember to diversify (both inside and outside of crypto). There’s so much opportunity, you just have to learn when and where to call your shots.