Cryptocurrencies are becoming more popular by the day, and many new investors want to know:
What's the best cryptocurrency to invest in?
If you have decided that you want to jump into this rapidly growing market, then there are some very important things that you need to understand.
In this guide, you will learn how to choose the best cryptocurrency investment for you. We will also analyze a few hot currencies, to kickstart your research.
Keep in mind that this guide focuses on long-term investing strategies and NOT active trading.
If you want to get started with active cryptocurrency trading, you should read this post.
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The Best Cryptocurrency to Invest in is…
Anyone who tries to tell you that the “X” cryptocurrency is the absolute best cryptocurrency to invest in, probably has a very large vested interest in it.
In reality, there are will mostly likely be several big winners in cryptocurrency. It's like the dot com boom, where companies like Microsoft, Oracle and Google ultimately became blockbuster investments.
But you only made money in those investments, if you understood why they were good investments AND you had a reason to keep those investments for the long term.
Otherwise there would have been a big temptation to sell them as soon as you made a little bit of profit.
If you don't understand what a cryptocurrency does or why it's valuable, then don't invest in it. Many of these cryptocurrencies are going to be a passing fad.
Like these things…
There will be a select few cryptocurrencies that will be great investments. Bitcoin has already shown us the potential.
But the majority of coins will fade into obscurity.
Since nobody knows which ones will be huge winners and which ones will be epic fails, we believe that the best investment strategy is to have a portfolio of currencies.
Putting all of your eggs into one basket is a recipe for disaster.
You don't have to understand every single technical detail of each currency. However, you should read a lot about a currency that you want to invest in and make a very informed decision.
That is the only way to find the best cryptocurrency investments. We will give you a few examples of the research that we have done, at the end of this post.
…so stick around.
How to Buy Cryptocurrency
Where you buy your cryptocurrency will depend on which cryptocurrencies you want to invest in. If you are only interested in the big three, then you don't have to open a trading account.
The big three cryptocurrencies are:
A site like Coinbase is all you need. They don't offer any trading capabilities, but they do make it easy to purchase these coins with a credit card or bank account.
If you want to buy smaller cryptocurrencies, then that is when things get a little more complex. Some cryptocurrencies are only listed on select exchanges.
So you will have to do your research to see where you can buy that cryptocurrency. For example, if you want to buy IOTA, you will need to open a trading account at Bitfinex because that is the only exchange where it is currently traded.
Then you have to transfer those Bitcoins to your Bitfinex account. Once those coins have been transferred, you can use that balance to purchase IOTA.
Other websites like ShapeShift and Changelly can help you trade Bitcoins to another type of currency, without setting up an account. The coin options are limited, but if a coin is available, they can save you the hassle of setting up an account.
Alright, now that you have purchased some cryptocurrency, it's time to store it somewhere safe.
How to Store Cryptocurrency for a Long-Term Hold (Cold Storage)
Before we get into actual investing strategies, let's talk about keeping your investment safe. You should NOT hold cryptocurrencies at an exchange or in an online wallet for an extended period of time.
But exchanges and online wallets can be hacked and poorly run exchanges can even fold. So whenever humanly possible, get your coins into a wallet that you control.
These options are called “cold” storage because they can be taken offline and therefore aren't “hot.”
Here are your four cold storage options:
1. PC Wallet
In our opinion, a wallet on your computer at home is not a good option for cold storage. This is because your computer can get a virus, your hard drive can crash or your computer can get fried by a power spike.
If you are going to store a significant amount of your cryptocurrency on a home computer, it is a good idea to only use that PC for cryptocurrency storage. You can get a cheap laptop from eBay and use that as your storage computer.
This is safer because that computer won't be connected to the internet all the time and you won't install any other programs that could contain viruses.
Unfortunately, some cryptocurrencies can only be stored in a PC wallet, so you don't have a choice in those situations.
But if you do have an option, we would highly recommend that you pick one of the following two options…
2. Hardware Wallets
This is the best balance between convenience and security. A hardware wallet is a device that has the bare minimum of software that provides security and allows the device to store cryptocurrency.
Many of these devices look like a memory stick.
A hardware wallet that is very popular right now is the Ledger Wallet. It has a tiny screen that allows you to control the device.
As this post is being written, they are currently out of stock because it is very popular. So you may need to look at several different online retailers before you can find a place to purchase it.
There are other wallets like the Trezor.
The wallet you use will depend on the currency you want to store. Wallets are only designed to hold specific currencies, so be sure to do your research before you purchase.
The Upsides to Hardware Wallets
Hardware wallets can be plugged into your computer and your funds can be quickly accessed with a PIN or security phrase. Even if someone gets ahold of your wallet, they can't access your funds without the code.
Since hardware wallets only have software related to storing cryptocurrencies, the risk of hacking is low. Some wallets also give you the ability to backup your wallets to an online account.
The Downsides to Hardware Wallets
Like all electronic devices, hardware wallets are susceptible to power spikes, water and hacking. If you do use cloud backup, that can also be another account that could be hacked.
Also be sure to use a wallet that is water resistant. You don't want to cry over spilled milk…literally.
3. Paper Wallets
This is a secure option because it is totally offline.
Paper wallets are created by software and printed on paper. They give you an easy way to store your public and private keys.
You can think of it as a fancy way of writing down your password.
These wallets usually have QR codes that you can easily scan to get the public and private keys. If you had to type in those keys, it would take too long and you would probably make a mistake.
That could cost you a lot of money. 🙁
Many wallet designs also give you a way to hide your private key. You can also buy tamper resistant tape so you know if someone has peeked at your key (pictured above).
There are several solutions out there for the more popular currencies.
Here are links to a few examples:
Always check the security of a paper wallet generator before using it. Read below for details.
The Upsides to Paper Wallets
Paper wallets cannot be hacked or lost to a power spike. Since they are totally offline, they cannot be compromised by a virus.
You can also easily create multiple wallets, so all of your money is not in the same wallet. They are easy to transport and one wallet can store as much money as you care to keep on it.
The Downsides to Paper Wallets
There are a few downsides to all of this security.
First, these wallets are essentially bearer bonds. So whoever has possession of the wallets is the owner of the currency in those wallets.
This is because the private key (or password) that is required to access the funds in the wallet is also printed on the wallet. So if you do create paper wallets, keep them in a secure place, like a safety deposit box.
Next, if you print your paper wallet on regular paper, with inkjet ink, then prepare to lose your investment.
Seriously, that is the worst idea ever.
It may be tempting because it is a very cheap solution. But liquid, a small child and fading are all enemies of this el cheapo approach.
If you are going to store your currency on paper, be sure to use a laser printer because the ink is waterproof.
Be sure to buy as “dumb” a printer as possible.
That means that it cannot be WiFi connected and does not have a large internal memory. Both of these things can potentially be hacked, so it is best to keep it as low tech as possible.
Also use high-quality synthetic paper like this, which is compatible with laser printers. These “papers” are essentially made of plastic and cannot be torn with your bare hands.
Yeah, I didn't believe it at first either.
But it's legit! I couldn't rip the paper.
Obviously, the paper can be burned though.
Finally, you have to be careful how you create paper wallets. A shady coder could create a wallet generator that secretly transmits the private key of the wallet back to the creat0r.
This would allow them to steal your funds as soon as you transfer money into the wallet. Do some research online to find out which wallets are safe.
Not all cryptocurrencies have an option to store your wallet on paper. So if you really want this capability, be sure to research your storage options before buying a currency.
4. Brain Wallets
A “brain wallet” refers to the technique of memorizing a mnemonic recovery phrase that will give you access to your cryptocurrency wallet. This phrase is not written down (in a true brain wallet), so you are the only one who can access your funds.
The passcode usually consists of a long list of short, random words.
Here's an example:
Not all cryptocurrencies give users the ability to do this.
While this is probably the most secure option on this list, it is also the easiest to “lose.” If you forget your passcode, your money is gone forever.
Brain wallets might be a good short-term solution, but I would not recommend them for cryptocurrency investing. Imagine trying to remember your passcode when you are 80 years old.
Not gonna happen 🙂
There is also a solution called Cryptosteel, which allows you to create a physical backup of your phrase. Since it is made of metal, it's waterproof, fireproof and lockable.
Fundamental Analysis of Cryptocurrencies
Since there are still a lot of unknowns when it comes to the use cases of cryptocurrencies, it is very important to really understand every cryptocurrency you invest in.
So let's take a look at the major fundamental factors that you absolutely must understand about any currency you buy.
What Problem is the Cryptocurrency Solving?
This is the most important factor in determining if a cryptocurrency will have long-term value or not. I always tell people that they should think about cryptocurrencies as tech stocks.
What problems does the company (cryptocurrency) solve? Is this something that has real-world value, or is it just a nice idea?
Also consider the development team and who is running the show. Do they have a long-term vision for the currency? What do users think about the currency?
By asking these simple questions, you will start to uncover which currencies may be valuable in the future and which ones will crash and burn.
But that's just the beginning. Here are some other things that you have to consider.
What is a Blockchain?
As you do your research into the different types of currencies out there, you should understand the basics of how a blockchain works and why it is so revolutionary. Almost all cryptocurrencies are based on the blockchain technology that has made Bitcoin popular.
It is basically a database that is downloaded to every computer on the network. So if you are a miner or you have a PC wallet, you will have a copy of the blockchain for that currency.
This database stores all of the transactions that have ever happened in the currency. Therefore, even if one copy of the database is hacked, it won't match up with the other copies and the change will be ignored.
What's the Advantage of The Cryptocurrency?
Even if a cryptocurrency does solve a problem, there might be other cryptocurrencies out there that solve the same problem.
…and they might do it better.
So before you invest in a currency, research the competition. It can be tempting to think that the currency you have found will be the solution that disrupts an entire industry.
But it might actually be the worst solution available.
Some things to look for:
- Go through the website, does it look professional? Does it make sense?
- Is the team experienced?
- Try out the software, if possible, to see how well it works
- Read the whitepaper on the currency
- Are there potential security issues?
- And more
Total Float and Maximum Supply
Just like with stocks, you have to take the float and maximum supply into account, when making long-term cryptocurrency investments.
One thing that makes Bitcoin such a valuable commodity is the fact that only 21 million coins will ever be created. Once it’s all mined, there will be no more supply and demand will determine price.
The supply of Ripple is also limited. However, the maximum number is 100 billion coins! That is one of the biggest reasons that price has stayed so low.
Ether on the other hand, will have an unlimited supply. The same amount of Ether will be produced every year. As time goes by, that amount will become a smaller percentage of the total outstanding supply of Ether.
But this ever-increasing supply should keep the price fairly low, especially in relation to a currency like Bitcoin.
These are the types of supply dynamics that you have to understand about each currency.
How hard is it to buy this currency?
If a currency is available on big exchanges that many people have access to, then it has much more potential to increase in value. The easier a currency is to buy, the more likely it will benefit from hype or favorable news.
However, just because a currency is not widely available, does not mean that you should avoid it. That might actually be a really good thing.
When a currency is hard to get, that also means that it might be undervalued. So if you have done your research and you really like a currency, figure out a way to get some.
The extra work might be worth it.
Wallet and Storage Options
Another characteristic of a cryptocurrency to consider the options for storing the currency. Are they easy to use?
…or are there multiple solutions that work well?
Remember that the average person is not technically savvy enough to do a lot of crazy command line steps that were required to store and move many currencies in the past. So the more options the public has to easily store a currency, the more likely they are to buy it.
Why would a decentralized and community-owned cryptocurrency need marketing? Well, the same reason why Apple still needs to market their high-quality products.
There are countless cases of great ideas that lost out to lower quality ideas, simply because of bad marketing.
Before you invest in a currency, take a look at how well the team is marketing it. Check their Twitter account and any other social media channel.
Also find out if key online influencers are promoting the currency.
Good marketing can make all the difference in the success of a cryptocurrency.
Technical Analysis of Cryptocurrencies
Once you have a few currencies that you want to invest in, it's time to find a good place to get in. Since you are looking for a longer-term investment, you are only looking for good spots to buy.
Luckily, cryptocurrencies are currently heavily long-biased at the moment.
So it can pay to look for this…
The Only Chart Pattern You Need to Know (For Now)
On a cryptocurrency chart, you are simply looking for a point where price appears to be forming a support level. It's even better if price consolidates for a period of time.
I call the ideal pattern a Baseball Cap.
Here's an example of a chart that is currently showing this pattern. As you can see, it looks like a pointy cap with a bill on the right.
I'm not recommending this specific cryptocurrency, but it does have a sweet Baseball Cap pattern.
The reason that this formation happens is because of the pump and dump nature of cryptocurrencies right now. Many of these price moves are unsustainable, so price has to come down to a level that makes sense.
When you start to see price finding a “floor,” this can be a clue that it could be gearing up for another sharp rise. Here's another example on the Bitcoin chart.
Obviously, there will be different variations of this pattern, but it is something that you should look out for. This video will explain it in more detail.
Of course, there are no guarantees in trading.
Even if price makes this formation, it could still head lower. But by waiting for price to fall back down to a reasonable support level, you save yourself some money by not having to sit through a major drawdown.
Now that you know the pattern to look out for, here are portfolio building strategies that you can use to increase your holdings.
Cryptocurrency Investing Strategies
Here are the investing strategies that we will go over in this section:
- Dollar cost averaging
- Balanced portfolio
- Unbalanced portfolio
- Profit reinvesting
Dollar Cost Averaging
Some people on the interwebs promote this type of strategy heavily.
…and it's not the worst idea that we have ever seen.
But I personally think that it's an incredibly lazy approach and even a small amount of additional work can greatly increase your returns.
Dollar cost averaging is when you buy a fixed amount of cryptocurrency at regular intervals. You don't even look at the price, you just buy to accumulate it for investment purposes.
For example, let's say that you like the long-term prospects of Litecoin. On Coinbase, it's easy to setup a schedule to buy a certain amount of Litecoin every month.
You could setup a schedule where you purchase $50 of Litecoin on the first day of every month. Here's what it would look like.
Who this Strategy is For
If you are extremely busy and want to participate in cryptocurrencies passively, then this could be the strategy for you. You may forget to check the charts and want it all automated.
But quite frankly, that's just being lazy.
Yes, dollar cost averaging would have worked very well over the past year. But that is only because we saw a historical jump in prices, across almost all cryptocurrencies.
As currencies become more actively traded, dollar cost averaging becomes much more risky.
Downsides to this Strategy
For the small amount of time that Litecoin has been actively traded, we have seen huge percentage drops in price. One example is the drop marked here with the arrow.
It went from $38.95 to $19.36, a drop of about 50%!
If you had bought $500 worth of Litecoin and saw it drop to $250 in a matter of a few weeks, would you still stay in?
But most people I know would freak out, and rightfully so. That's not good risk management.
It's a much better investment to try to get in near $19.36 because that minimizes your downside. Could it drop more?
However, you just eliminated about $20 of downside, simply by waiting for a better place to get in.
In this strategy, you would purchase the same dollar amount of each currency that you are investing in.
So if you are investing in:
- XRP (Ripple)
…and you have $1,000 to invest, you would allocate $250 to each currency. Any subsequent investment would be divided equally between the four currencies.
You would wait for the price to form a Baseball Cap (as described above), before you buy each one.
Who this Strategy is For
If you want to build a diversified portfolio of coins, but you aren't sure which ones will do well, then this is the strategy is for you. It gives you exposure to a few currencies that have the best chance of succeeding…at a good price.
Downsides to this Strategy
With this buying strategy, you would fail to maximize your investment in the currencies that will outperform the rest. But since you can't be absolutely sure of which ones will be successful, this strategy gives you good diversification.
To take advantage of the currencies that you think will do the best, you could use the Unbalanced Portfolio Strategy. In this strategy, you would allocate every investment by how well you think each currency will perform.
For example, if we use the same portfolio as above, you might have the following allocations:
- Bitcoin (60%)
- Monero (25%)
- XRP (10%)
- Dash (5%)
If you think that Bitcoin will perform the best over time, then it would make sense to invest a majority of your money in it.
Each subsequent investment would be distributed according to these predetermined percentages.
…and of course, you would not buy each currency until you see a Baseball Cap. 🙂
Who this Strategy is For
This is for investors who have done extensive research into currencies and have a very good idea of which ones will perform well. The preset percentage allocation to each currency can change over time, but be sure that you have a very good reason to make the change.
Downsides to this Strategy
The only downside is that you could get the allocation wrong and invest too little in the best performing currency. So only use this strategy if you are reasonably sure of your predictions.
If not, then the Balanced Portfolio Strategy would be best.
Once you have a solid portfolio of currencies and you are in profit, you can start to branch out to other currencies that have good potential.
For example, let's say that you bought 3 Ether coins for $52 each. As I write this, Ether is at $368.
So your total profit is:
3 x $52 = $156
3 x $386 = $1,158
$1,158 – $156 = $1,002
Now, let's say that you really like the potential of the Ripple Network. You could take half of that $1,002 profit and invest it in XRP.
By using this strategy, you can leverage your gains to make higher returns and diversify your portfolio.
In order to get the most out of your current profits, you should look for times when price goes parabolic. This type of price action is unsustainable, so it's best to cash out some of these gains, before price drops again.
Remember to lock in your profits, so you can keep your money readily available to take the next trade.
…and look for the Baseball Cap. 🙂
Who this Strategy is For
Reinvesting your profits is a great strategy for investors who only want to make a very limited investment in cryptocurrencies. If you are skeptical that cryptocurrencies will actually survive, then only expanding your portfolio when you see results, is a great way to grow your initial investment.
Downsides to this Strategy
You might miss out on great investments if you have to wait for your current portfolio to show you a profit. In addition, you are taking money away from currencies that are actually showing a profit.
The next investment may not be as good, so don't spread yourself too thin!
Cryptocurrencies Analysis Examples
Alright, enough theory…let's take a look at some specific examples. Here's our analysis of a handful of the most popular coins out there.
This is not a complete list, but my intent is to give you an idea of some of the characteristics that you should research in cryptocurrencies. Keep in mind that this analysis was valid at the time this article was first written, but things may change by the time you read this.
Use this analysis as template for doing your own research. It should not be considered timely analysis.
(Yes, I personally own Ether)
At the time that this guide was first written, we consider Ether the most “stable” altcoin investment. Of course, this is totally relative and completely our opinion.
The entire cryptocurrency market is very volatile and Ether can still have it's ups and downs. But overall, we like the prospects of Ether.
Ether is the currency that is used on the Ethereum Network. The network hosts applications for crowdfunding to completely democratic autonomous organizations.
This function alone sets Ethereum apart from many of the cryptocurrency projects out there.
Transaction time with Ether is fast and the amount of Ether produced every year will remain the same. So the value of the network will have to increase over time, in order for the currency to appreciate.
One thing that could cause the value of Ether to drop is if there are a lot of shady ICOs that launch on the network. Since it's easy to build a token on top of the Ethereum blockchain, it can be tempting for companies to raise money by creating a coin that has no real value.
The Ethereum team is solid, but they do have total control of what happens to the project. Other cryptocurrencies require a democratic vote from users to determine future actions.
This total control could be a good thing or a bad thing. It just depends on how you see it.
There is heavy resistance at the $400 level and major support at $150. Everything in between is not so obvious. There is a support level forming at $280, but I wouldn't consider it a great level to buy.
Either a drop down to near $150 or a breakout and retest of $400 would probably be the best buys, given the current information available on the chart.
(No, I don't personally own Monero)
Monero is a private financial transaction currency that has recently seen a huge spike in price.
But don't go chasing the train.
Again, wait for the dip. 🙂
Although Bitcoin transactions were originally thought to be private, detailed analysis of the blockchain can trace some transactions.
Totally private transactions can give a currency a much desired characteristic, fungibility. This simply means that one coin is has the exact same value as every other coin.
Doesn't all money have the same value?
Not if people know where that money came from.
What if the government found out that you deposited a $100 bill into your bank account that were from a drug deal? Well, on top of being investigated for your involvement in the crime, the money would be confiscated.
…essentially making the bills worth zero.
So the $100 bill in your account is worth much less than any other $100 bill in circulation.
But if all transactions were private and nobody knew where that $100 came from, then it is still worth $100. Exactly the same as any other bill.
On the surface, private transactions seem like a great idea.
Until you think about the primary use case.
What group of people would benefit the most from private transactions? People doing illegal shit, of course.
Dark web, Silk Road, Alpha Bay, type stuff.
So if governments are going to target cryptocurrencies to ban, which ones would they go after? Our guess would be the private transaction currencies.
That's just our opinion, of course.
It might not come to that.
But we see that as the biggest risk to investing in these currencies. Other private currencies include:
Among these private coins however, Monero does have an advantage. The developers have provided a way for users to give a third party a way to view a transaction, without giving away the private key.
So if you believe that a private transaction currency has a future, then Monero might be the best bet. But we personally feel that potential government regulation is too big of a risk to take.
The big figure of $100 seems like it will be a good support level to buy, but it is too soon to tell. If price can base around that level, like it did at around $30, it might be a good place to get in.
(Yes, I personally own IOTA)
IOTA is still largely unproven. It's use case is still probably about 5 years from being practical.
But it does have one big thing going for it, the database it uses to store transactions. Every other coin out there uses some version of blockchain technology or are built on top of the blockchain of another cryptocurrency.
IOTA uses an entirely different database structure.
Instead of using a blockchain, they use something called The Tangle. This type of database is different in that it is able to verify transactions faster, it can facilitate nano transactions and it can do zero-cost transactions.
The use case for IOTA is payment transactions between Internet of Things (IoT) devices. Developers of this currency want to enable IoT devices to make micropayments to each other, as well as to traditional bank accounts.
An example of where this might be useful in the future is pizza delivery. Suppose that you are sitting in your car at the park, with some friends.
Everyone is hungry, but nobody feels like leaving the park, since it is such a beautiful day. If Amazon has their way, drone delivery will work for packages and it will also work for ordering pizza to remote locations.
So you use your phone to place an order and in 30 minutes your piping hot pizza arrives. The great part is that you only get charged when the drone verifies delivery to the right person.
This scenario sounds great, right?!
But there are some big technology challenges associated with making this happen. First of all, transactions with Bitcoin can take 30 minutes, or more.
This is because multiple participants on the network have to verify the transaction. Would a drone be able to hover for 30 minutes before delivering the pizza?
Of course not. The pizza would get cold and the drone would probably run out of batteries.
A drone also would not be able to store the entire Bitcoin blockchain. The storage device would be too heavy.
This goes for any other IoT device.
On top of all this, there might not be an internet connection available.
IOTA technology could solve this. The drone could communicate with nearby IoT devices to verify an IOTA transaction. The verification process would be fast and very cheap to process.
To learn more, visit the IOTA website.
After a huge run up, price has cooled down and we are starting to see a level of support form at about $0.50. Since this currency has only been around for a little while, it's tough to say where the best buy level will be.
But if price consolidates at this level, it could signal a good basing pattern that we would need for another Baseball Cap pattern.
(I own BTC, but only when I have to exchange it for other coins)
What about Bitcoin?
Almost everyone has heard of Bitcoin.
…and the price is still going up. At least when this article was first written.
But the big question is: Will Bitcoin be a good future investment?
Nobody knows for sure. However, if you are looking for a high return on your money, this probably isn't the currency for you.
Sure, price will probably go up a lot more from here. But on a percentage basis, the potential return gets lower by the day.
Even if Bitcoin gets to $10,000, like some people predict, that would “only” be a 107% gain (based on today's price). Meanwhile, coins like Ether have the potential to go up 3 to 5 times the current price.
Smaller coins can go up much more.
That is why I'm currently not an investor in Bitcoin. We believe that there is much more opportunity elsewhere.
Bitcoin has two big things going for it…
One is first-mover advantage.
Since Bitcoin was the first cryptocurrency to gain widespread popularity, it has been used for many cryptocurrency payment solutions. Everything from international remittance to online gambling sites.
While there have been complaints of slow transaction times, the fact that so many people are using it, means that it will not go away any time soon.
The other advantage is a very limited supply of coins.
There will only be 21 million coins ever made. Simple supply and demand tells you that limited supply means it will only get more valuable, as time goes by. Of course, this is assuming that there is still a demand for it.
BTC/USD is currently showing a steady trend and there doesn't seem to be a reason to believe that price will drop anytime soon. There is a strong support level at about $2,000 and minor support levels at $3,800 and $4,380.
The cryptocurrency landscape can change quickly, so be sure to do your homework before investing money in a cryptocurrency. However, we hope that this guide has helped you understand what to look for in a long-term investment.
Remember, never risk money that you cannot afford to lose. It can be easy to get caught up in the cryptocurrency hype.
…and there is a lot more hype to come!
If you have any cryptocurrency investing questions, leave them below…
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