Starting Up Your Crypto Portfolio
With the introduction of new and varied types of crypto, it has become harder to choose a starting point. Winging it is not an option - if you make a poor choice, you’re losing money.
Objective research and a solid knowledge base are needed to make a secure investment.
Unlike stocks, a cryptocurrency holder needs to be both economically and technologically literate. Learning some general terms can reduce the initial confusion and help you get started on your search.
What Can You Invest In?
First and foremost, it’s important to distinguish crypto coins from tokens.
Each coin operates on its own blockchain, serving as the central currency, whereas tokens are merely hosted there.
Since blockchains are decentralized, people need to be enticed to keep them running. Crypto coins act as that reward.
Their value is based mainly on the popularity of a given blockchain and processing costs.
New coins don’t appear often, and they’re a risky venture, because a blockchain needs to attract hardware owners - not just investors. Older currencies tend to stabilize in value.
Most crypto coins are similar in function and utility, due to the role they need to fulfill. Examples include BTC, ETH, and BNB.
On the other hand, tokens can be anything. They can have different uses, conditions, and limits. For this reason, tokens can derive their value from many other factors, including real-world utility.
A lot depends on the economic model chosen by the developers. And, most importantly, token projects are easier to start than a whole blockchain.
Dozens, if not hundreds of new and ambitious tokens pop up every month. There’s a caveat - the vast majority fails.
Criteria to Check
Naturally, your main priority should be ROI.
When deciding which asset to buy, check its price history and determine the factors that have influenced it, or could affect it in the future. For instance, a token could be tied to a service.
If the service shuts down or becomes obsolete, demand will plummet. But even tokens that have a purely monetary function can incentivize purchases and holding, while discouraging dumps.
To provide an example, we’ll take a look at Scrooge Token (SCRG). The tokenomic model of this project attracts buyers by promising high stability.
It has been designed to minimize the risk of panic dumps, by rewarding holders for every transaction in the system. Tech audits were used to confirm and indicate that the asset is unlike stocks, a cryptocurrency holder needs to be both economically and technologically literate.
Learning some general terms can reduce the initial confusion and help you get started on your search.
Each coin operates on its own blockchain, serving as the central currency, whereas tokens are merely hosted there. Most crypto coins are similar in function and utility, due to the role they need to fulfill.
On the other hand, tokens can be anything - they can have different uses, conditions, and limits. They can derive their value from many other factors that can be hard to guess. As result, the token is currently experiencing a continuous, predictable rise in value.
High liquidity is a positive for currencies. Faster transactions provide easier access and conversion possibilities for your funds. This also results in more operations, reinforcing the value of a given coin or token, and making participation easier for smaller investors.
Of course, no crypto discussion would be complete without mentioning the dangers. DeFi scams are notable, because they exist on a technical level.
Unlike ordinary fraud, no rule-bending is necessary - the action may already be baked into the rules. Alternatively, there’s the mundane market manipulation - pumps culminating in rug pulls.
All things considered, the most insidious threat to your finances is… volatility. Collective behavior can drive prices into the ground, security, and legitimacy notwithstanding. Such is the nature of crypto.
Taking a look at the community around any given coin or token can help to determine whether it’s bound for success or failure.
Some losses can accumulate and creep up on you, even if you’ve managed to avoid all the scams. It’s easy to mistake crypto gains for pure earnings - but the truth is, there’s usually a tax and an ever-changing conversion rate, either of which may diminish your victories. The investment plan must be thought through, from start to finish, with no detail left unscrutinized.
The Bottom Line
Cryptocurrency may be daunting, but the benefits and the profit potential are undeniable. This field has proven, at the very least, that it’s comparable to the stock market.
Come tomorrow, maybe DeFi will replace it.
Whatever the case, we hope that you stick with the winner and make it through. Best of luck!