Cryptocurrencies refer to digital money that a central government does not manage. It’s based on blockchain technology with Bitcoin being the most widely used. More options are becoming available as the digital currency continues to gain popularity on Wall Street. There are over 19,000 cryptocurrencies currently on the market.
Although you can use cryptocurrency for purchases, most people view it as a long-term financial investment. However, investing in cryptocurrency is risky due to volatility. This was evident by the recent fall of stable coins and other cryptocurrencies pegged to the U.S. Dollar. Before you invest in cryptocurrency, it is important to understand what you are getting into.
1. Bitcoin (BTC)
Bitcoin is the oldest cryptocurrency. With a market cap and price that is much higher than other crypto investments, it’s clear why Bitcoin is the leader.
Bitcoin is accepted by many businesses, making it a smart investment. Visa, for instance, accepts bitcoin transactions. After a four-year hiatus in cryptocurrency transactions, Stripe will allow customers to accept bitcoin payments. The largest banks are beginning to include bitcoin transactions in their offerings.
Although Tesla only accepted bitcoin briefly, it may accept it again if mining it becomes environmentally friendly. Blockstream and Block (formerly Square) are taking the first step towards that end. Blockstream and Block launched a Texas bitcoin mine that will be powered entirely by Tesla’s Megapack battery and solar array. CNBC reported on April 8.
Fortune reported that Bitcoin received a boost when Luna Foundation Guard announced that it would lend $1.5 billion to the Luna Foundation Guard in bitcoin and terra USD in May. This was in order to stabilize the cryptocurrency.
There are risks involved in investing in Bitcoin
The value of bitcoin fluctuates a lot. The price of bitcoin can fluctuate a lot, with fluctuations as high as thousands of dollars in any given month. This has certainly been the case so far in 2018, as bitcoin prices have been correlated with the Nasdaq. CNBC reported that this contradicts previous assumptions about bitcoin as a hedge against inflation.
Avoid bitcoin if you are worried about wild fluctuations. These fluctuations are not too worrying if you remember that cryptocurrency can be a smart long-term investment. The current low price could also be a good opportunity to buy.
The price of bitcoin is another reason to consider investing in it. A single bitcoin can cost more than $30,000 so most people cannot afford to buy entire bitcoins. This is a problem for investors who don’t want to buy a fraction of bitcoins.
2. Ethereum (ETH)
Ethereum allows developers to create and deploy their own cryptocurrency. Although Ethereum has a lower value than bitcoin, it is still a superior cryptocurrency to other alternatives.
It was created years after other cryptocurrencies. However, its unique technology has allowed it to outperform them all. It is currently the most widely used blockchain and second-largest cryptocurrency after bitcoin.
The upgrade “The Merge”, which is scheduled for August, will make Ethereum even stronger. The August upgrade will make Ethereum proof of stake-based consensus. This will decrease the number and eliminate mining. Merge will also reduce Ethereum’s energy consumption.
Although ether isn’t as widely accepted as bitcoin, many traditional companies are now adopting ether. According to The Wall Street Journal, Fidelity is increasing its tech workforce in order to provide Ethereum custody services and trading services for its customers.
There are risks involved in investing in Ethereum
Although the Ethereum platform uses blockchain technology, there is currently only one “lane” to conduct transactions. Transactions can take longer to process if the network is overwhelmed. Transaction fees can also be high. CoinDesk reported that the blockchain’s gas price, the amount of Ethereum required to perform a transaction on the Ethereum Blockchain, rose 13% in March because of the high demand for block space.
Security is also a problem. A hacker exploiting a security vulnerability in 2016 led to the loss of more than $50 million of Ethereum. In May, the Ethereum network was hit by a security problem due to the launch of a new blockchain. Users weren’t affected as the test network for that blockchain was not yet operational. The blockchain will be more secure with the final Merge upgrade.
3. Binance Coin (BNC)
After years of relatively low prices, at least according to cryptocurrency standards, Binance Coin began to rise at the beginning of 2021. It jumped from $38 on January 1, 2019, to $683 in May, an all-time high.
Binance coin has been a stable and reliable investment option due to its long-term performance. It is the native token of Binance, which according to CoinMarketCap, is the largest cryptocurrency exchange in the world. Binance.US has the version that U.S residents must use. Despite its many functions and success in the Binance subprojects, binance coins are still volatile.
Investors who trade often should be aware that Binance temporarily suspended withdrawals and deposits for certain networks, such as Polygon and Solana. It was doing upgrades. Airdrops, which are based on the percentage of users who have deposited money, didn’t change with the latest one that took place on April 8.
Risks associated with investing in Binance Coin
Binance coin is unique in that it was developed by a company and not a group of tech developers. It’s also the native currency on the largest cryptocurrency exchange. Binance coin’s dedication to maintaining a strong Blockchain has won over many skeptical investors, but some remain skeptical about this cryptocurrency and its potential security risks.
4. Cardano (ADA)
Cardano’s network is smaller, which appeals to investors for many reasons. Cardano transactions take less energy than those on larger networks like Bitcoin. Transactions are therefore faster and more affordable.
Cardano’s “hard fork” was an upgrade to functionality that enabled smart contract deployment. It was launched last year. The network is experiencing increased activity which could lead to an increase in the price of its coins.
Cardano Investments: The Risks
Cardano might not be able to compete with larger cryptocurrencies despite having a stronger network and smart contracts providing more functionality. Fewer adapters mean fewer developers. Investors who desire a high rate of adoption won’t find this appealing. Although the platform has ambitious plans such as launching an incubator to help Africa achieve its potential as a major economy, it remains to be seen if it can fulfill those goals.
5. Polygon (MATIC)
Polygon was developed by a team of developers who made important contributions to the Ethereum blockchain platform. According to CoinMarketCap, Polygon is designed to scale Ethereum and develop infrastructure. It expands Ethereum into multi-chain systems, improving transaction speed and verification speed.
The Binance and Coinbase cryptocurrency exchanges have backed Polygon. MATIC is the token that supports Polygon’s payment services and transaction fees. It also acts as a settlement currency.
AMB Crypto reported that Zo World launched its non-fungible token on April 9th, which could help MATIC prices. The assets can be purchased by individuals who also acquire Zo Metaverse real property. CoinTelegraph reports that Polygon is being used by an Indian state government to issue caste certificates in order to deliver government benefits to more than 1 million low-income residents.
According to Polygon’s blog, Polygon hosts 19,000 decentralized apps — an increase of 500% over October last year. Polygon supports the tether stable coin as of last week. This could help the network’s growth in the future.
Polygon: The Risks
CoinDesk reported that Polygon had disclosed late last year that it had fixed a vulnerability that could have put $20 million worth of its coins in danger. Polygon was notified by a hacker who discovered the vulnerability and put it in writing. The fix was implemented within two days. Polygon was left with $1.4 million in debt after black-hat hackers stole over 800,000.
6. Tera 2.0 (LUNA)
According to CoinMarketCap, the Terra Classic blockchain used stable coins, which are coins that were pegged to fiat currencies like the U.S. Dollar, South Korean won, and the International Monetary Fund Special Drawing Rights currencies, to power global payment networks. The stable coins’ prices were stabilized by its native coin, now LUNC.
Terra suffered a sharp decline in May due to volatility in stable coins and general skittishness on cryptocurrency markets. This halted the cryptocurrency’s strong year.
Terra rebranded as Terra Classic (LUNC), and launched Terra 2.0(LUNA) in an attempt to stabilize its ecosystem. Terra Classic has taken the original network’s name and its LUNC coins can trade separately from Terra 2.0’s LUNA.
Terra 2.0: The Risks
CNBC Make It spoke with Matt Hougan from Bitwise Asset Management who stated that Terra uses LUNC in order to stabilize its stable coins’ value. This puts it “in the middle of the shock absorption processes.” Hougan stated that Terra’s stable coins could lose their pegs to fiat currencies if they fail to do so. This risk was realized when UST “depegged” multiple times in early May. It caused terra’s prices to plummet. Although the new LUNA has yet to be tested, it could well be worth your attention
7. Avalanche (AVAX)
Avalanche, a relatively new layer one blockchain, is a blockchain that enhances the base protocol to make it more scalable. Binance described it as a “layer one”-type blockchain. According to CoinMarketCap, it was created by Ava Labs, Cornell University computer scientists, and Emin Gun Sirer (a former professor in cryptographic research).
While Ethereum’s nodes must validate every transaction, Avalanche can validate transactions on its three blockchains independently. Avalanche is, therefore, more scalable and can handle large transactions at a faster rate of up to 6.500 transactions per second. U.S. News reported that it is becoming more popular among Ethereum projects.
Bloomberg reported that Terra’s reserve currency was an avalanche. It will be used to create its own UST stable coin. Luna Foundation Guard, a non-profit organization supporting Terra, planned to purchase $100 million worth of avalanche in that effort.
AVAX started trading in 2020 in a 24-hour initial coin offer. Over the past year, its price fluctuated between a low of $9.34 and a high of $146.22. The coin is currently trading at $24.91 as of June 1.
Avalanche Investing: The Risks
Sirer introduced cryptocurrency in 2018 via white paper. It was launched in 2020. Avalanche has a very short history making it a more risky investment.
8. Chainlink (LINK)
Chainlink is a network that allows secure transactions between blockchains and external data sources, events, and payment methods. The developers believe smart contracts will become the dominant form of digital payment according to CoinMarketCap.
Benzinga reported that Chainlink has a strategic partnership with Google, which uses Chainlink’s protocol for connecting users to its cloud service. According to Securities.io, the project’s advisors are Eric Schmidt, DocuSign co-founder Tom Gonser, and Jeff Weiner, former CEO of LinkedIn.
Chainlink is also used by Truflation, a decentralized finance company to create an inflation index that will replace the consumer price index. CoinDesk reported that the CPI measures inflation with survey data. Truflation’s index uses price data and the CPI’s calculation method. Truflation is more precise, transparent, and resistant to censorship than the CPI.
Chainlink Investing: The Risks
Chainlink, despite its utility and support by major players, has seen the same volatility as other cryptocurrencies. Its value dropped from $20 to $7.10 per month on January 1 to just under $20 by June 1.