Cryptocurrencies are in essence, digital money. The difference between cryptocurrencies and other forms of digital money, like central bank digital currency, are that cryptocurrencies use blockchain technology to make them safe from counterfeit or double spend.
Due to their widely reported security, self-custody aspects, and ‘digital gold’ comparisons, the popularity of cryptocurrencies is skyrocketing. Cryptocurrencies surge to the mainstream is so great that it has left brand new investors weighing up which is the best cryptocurrency to invest in 2021.
In this blog we’ve narrowed down the 7 best cryptocurrencies to invest in for new investors, and we’ve included one to watch. If you’re looking to start a career in trading cryptocurrency markets meanwhile, take a look at our funded cryptocurrency trader programme.
How to invest in cryptocurrency
When investing in cryptocurrencies it’s worth doing your research as so many now exist. To help, take the following four factors into consideration:
Longevity shouldn’t rule out new cryptocurrencies which could be just as profitable in the long term as their predecessors. But when newly investing, historical data can provide a more comprehensive comparison at seeing how the currency is performing and how users have interacted with it
Just like a currency’s longevity, a track record also gives an investor an idea of how the currency is performing during its tenure. If prices are stable year on year, it’s a good indication that there is a slow but steady growth rate. If the currency is gaining traction and becoming more valuable, it’s an even better indicator that you could become profitable quicker. If the currency’s value is dwindling off however, it could be a sign to be wary.
All cryptocurrencies are powered by technology, and this can be a great indicator of the success of your investment. If the platform in which the currencies transactions are hosted is quick, secure and can handle large amounts of traffic without drop outs or slow transaction speeds, it’s likely a winner.
Check too that your investment is secure. Most crypto currencies will use blockchain technology. Whilst blockchain technology does encrypt your information and the currency itself, it does not entirely prevent cyberattackers from stealing information and your money. However, if the worst were to happen it does make it easier to track your investment and recover it in the case of an attack or fraud.
Technology is at the heart of modern day trading. Get ahead of the game and find out which programming languages traders should learn here.
Most cryptocurrencies have a lively and engaged community. It will be very useful to join the community of the cryptocurrency you are interested in to gauge how members of the community are currently viewing the project/company. This will help you avoid those cryptocurrency projects which have behaved poorly in the past and help you to navigate to projects with supportive community members. No community activity or negative discussions regarding a project should be seen as warning signs.
Lastly a climbing, or steady adoption rate is a sign that the cryptocurrency has better liquidity. This means that trading, selling or spending will be much easier in the future. A slow adoption rate meanwhile could be a sign that trading, selling or spending in the future could be either far off, or made more difficult – if the currency is to even achieve that ability.
The 5 best cryptocurrencies to invest in in 2021:
Using our above factors, here are the five best cryptocurrencies for new investors in 2021. We’ve also included a bonus currency to watch which also meets all of our criteria too.
- Bitcoin (BTC)
If you were to ask anybody to name a cryptocurrency, there’s a 90% likelihood someone would name Bitcoin. Bitcoin is the market leader in cryptocurrencies having established itself in 2008, and gained significant traction, popularity and value ever since.
Advantages of investing in Bitcoin:
- Bitcoin is the market leader and enjoys a profitable growth and adoption rate year on year making it a stable investment option.
- It has a limited finite supply of 21m coins. No further coins can be created after this point, which makes it digitally scarce.
- It has a higher price, market cap and volume than any other cryptocurrency and represents 40% of the cryptocurrency market cap (at time of writing).
- The lightning network allows transactions to be completed much faster than using the native bitcoin blockchain to make it far more usable on a daily basis.
- Businesses across the globe are starting to accept Bitcoin as a viable payment option, including Tesla who announced it recently.
Disadvantages of investing in Bitcoin:
- Bitcoin’s value does fluctuate. Some months can be particularly volatile for Bitcoin investors with the value soaring or dropping by the thousands every month. Though it’s worth bearing in mind that cryptocurrencies are a longer term investment, if you haven’t got the personal safety net should such a fall happen, it may be worth avoiding Bitcoin (and cryptocurrencies more generally).
- Bitcoin is a proof-of-work blockchain which requires significant energy to be used to mine new bitcoins and validate transactions. Some people argue that this use of energy is actually harming the environment. Others argue that this is actually helping accelerate the innovation within renewable energy as miners seek to lower their costs of electricity.
- Ethereum (ETH)
Ethereum is the second largest cryptocurrency after Bitcoin, and it’s a network that allows developers to build on top of the ethereum blockchain to use the benefits of its network.
Advantages of investing in Ethereum:
- Ethereum has become a popular currency because of the platform-based blockchain. Developers can use the platform to create their own currencies for other purposes, secured by Ethereum’s blockchain technology.
- Ethereum supports smart contracts, like dApps (apps that exist in blockchain), and other Decentralised Finance (DeFi) projects which means it can be used in a majority of different sectors such as medical, financial and gaming. This is one of the major benefits of Ethereum and the main driver of the it’s price growth in recent times.
- Ethereum’s supply is not capped, which is unlike Bitcoin. Transactions in Ethereum automatically come with self-executing contracts and possess fast transaction times.
- Ethereum is adaptable and can evolve based on how the community uses it and can keep up with blockchain innovation.
Disadvantages of investing in Ethereum:
- Just like Bitcoin, Ethereum is also partial to wild fluctuations in price. Only recently Ethereum’s value crashed to 30% below its all time high. Usually if Bitcoin is to crash, Ethereum will also experience the same volatile slumps which can be off-putting and nervy for first time investors.
- Ethereum is struggling with network congestion at the moment with high gas fees (transaction fees) and sometimes slow transactions. Ethereum are fixing this through a number of upgrades in 2021 which will relieve some of the congestion on the network and lower fees.
- Binance Coin (BNB)
Binance Coin is a cryptocurrency that first reached its peak in 2017, months after it was launched from Binance. Interestingly enough Binance Coin is an Ethereum success story, having been launched and developed on the platform before moving into its own blockchain.
Advantages of Binance Coin:
- Despite reaching its peak in 2017, plateauing and then decreasing, Binance Coin recovered the year after and ever since has maintained a steady, but gradual, trend upwards. This is largely due to the projects being built on the Binance Smart Chain, many of which have been built as a copy of those on the Ethereum blockchain.
- Binance Coin provides fast transactions and has one of the lowest fees in the industry at 0.1% for all investors and traders. Binance Coin is also capable of processing around 1.4 million transactions a second.
- Binance Coin is already ready for the real world: It is able to be used as a payment method across cryptocurrency credit cards, select online purchases, on travel services, entertainment services, and bank transfers. There are apps which allow users to pay friends and go halves on bills using Binance Coin.
Disadvantages of Binance Coin:
- Binance doesn’t accept deposits or withdrawals using traditional payment methods, such as bank transfers and PayPal, unlike other platforms. This barrier often makes it near-on impossible for beginners to start crypto trading.
- Binance Coin has been the target for regular cyber attacks. An unsuccessful attempt was prevented in March 2018 which looked to overwhelm the system, but a year later in May 2019 the attempt was successful and Binance Coin lost $40 million. The team does take security seriously, but it is worth bearing in mind for investors.
- It’s own blockchain is still relatively new and has not stood the test of time like Ethereum or Bitcoin.
- Litecoin (LTC)
Established in 2011, Litecoin attempted to differentiate itself from Bitcoin by boasting of being able to complete transactions up to four times faster than Bitcoin. In 2017, it successfully completed a Lightning Network transaction which took place in less than a second.
Advantages of Litecoin:
- If Litecoin are able to continue expanding their use of the Lightning Network for fast transactions, the value of Litecoin could increase dramatically. Litecoin is also already quick, able to process transactions in 2.5 minutes compared to Bitcoin’s 10.
- Litecoin has lower transaction fees compared to other cryptocurrencies, making its adoption much smoother and the lower cost barrier more appealing to new investors.
- Litecoin is incredibly easy to trade. Many trading platforms (including us at Alphachain Academy!) support Litecoin with investors able to buy and trade over 90 crypto pairs of LTC. Because of its lower price compared to other currencies, zero transaction fees and significantly lower volatility levels, Litecoin is an attractive and securer option for beginners in the cryptocurrency sector.
Disadvantages of Litecoin:
- There’s been some loss of credibility surrounding Litecoin. Charlie Lee, the creator of Litecoin, sold nearly all his holdings in the currency in 2017 which led to mass exodus and losses in value due to fears surrounding its longevity.
- Litecoin is falling behind the technological advancements of Ethereum and other blockchain currencies, which may impact its future value.
- Ripple (XRP)
Ripple is a cryptocurrency particularly enticing to investors because it differentiates from other currencies by providing fast, and secure, international transactions. Whilst traditional international bank transfers can take up to 10 days, with Ripple the transaction takes only seconds.
Advantages of Ripple:
- Ripple is fast, and particularly appealing to those trading internationally. With transactions taking seconds instead of days, Ripple is incredibly valuable for global investors and is likely to only increase as an asset.
- Ripple is currently trading at only $0.26 per cryptocoin. A smallish payment of $50 would result in an investor receiving more than 200 coins.
- Ripple is thought to have a long term, optimistic and profitable future. In 2018 Ripple hit its ATH of $3.10, but market analysts strongly believe it will break the $1000 barrier within ten years, if not before. So its low price and optimistic outlook make Ripple a low-risk option whose potential could pay dividends.
Disadvantages of Ripple:
- It’s limited. All of Ripple’s XRP coinage has already been mined, which means no more coins will be released to the market. Whilst limited coinage might seem like a value-driver in the case of Bitcoin, the limited supply of Ripple has led to its developers continuing to hold onto a substantial percentage of them. Ripple chairman, Chris Larsen, currently holding a third of all XRP tokens for example. This is detrimental as it counteracts the idea of decentralisation – a core philosophy in cryptocurrency.
- Ripple was mostly designed for the banking and finance industry, as opposed to being a way to change how people exchange money and store value. This has led to it not being as decentralised as other currencies, and it is often viewed as not a “pure cryptocurrency” in the eyes of investors which could have detrimental effects on its value in future.
- Ripple the company are known for selling vast amounts of cryptocurrency in the market supressing its price. As a trader/investor, you should be aware of this dynamic in this market, which is not seen in some of the other markets (Ethereum, bitcoin)
We’re excited to announce that we’re one of the first proprietary trading firms to reinstate Ripple (XRP) Trading in the UK. Read more about our announcement here.
Cryptocurrency to watch: Dogecoin (DOGE)
Dogecoin is a cryptocurrency that was initially started off of the back of an internet meme. Its creators decided to use the meme as inspiration to create a currency that was instant, fun, and free from traditional banking fees.
Dogecoin has mostly remained on the outskirts of cryptocurrency, loved only by its dedicated community, but most recently in April 2021 has seen a surge in popularity bringing it to the attention of wider investors and promotion by Elon Musk, among others.
Related Reading: A Traders Recap of what happened to Gamestop
Dogecoin’s surge is in part caused by the initial public offering (IPO) by cryptocurrency exchange platform, Coinbase, which occurred on April 14. DOGE’s initial price on April 14th was valued at $0.10, but just two days later on April 16th hit its all time high of $0.45 (up 400%) and traded a volume of nearly $70 billion in the following 24 hours. Dogecoin’s market capitalisation is now valued at around $50 billion, more than banking conglomerates Barclays and Lloyds, and has resulted in it being named the fifth-highest-valued cryptocurrency.
Reasons for new investors to watch this currency are obvious:
- Dogecoin’s value has so far increased more than 7,000% year on year to date, making it a valuable and profitable asset for sale and trading in the future.
- Dogecoin has celebrity backing in the form of Elon Musk, who regularly encourages traders to place market-moving bets on Dogecoin
- Dogecoin is volatile, but it’s profitable volatility is fuelled by its reactions to real-life events. Headlines, tweets and celebrity endorsements can surge Dogecoin value because its main audience are the ones staying ahead of these types of media movements. One tweet from Elon Musk, for example, can send DOGE’s value skyrocketing.
Looking to start investing in Cryptocurrency?
Look no further than Alphachain Academy. Using our funded cryptocurrency trader programme, traders can trade all of the above crypto currencies. We teach our traders how to identify patterns and trading opportunities with the goal of placing profitable trades, which are aligned with the parameters set out in each trader’s bespoke trade plan. Click here to start your journey with us.