Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
Want to know the best cryptocurrency to invest in now? Cryptocurrencies are a volatile asset group and price swings can make or lose you a lot of money in next to no time. Deciding which of the digital currencies to invest in can be difficult. This guide will give you an insight into the crypto-contenders and cut through the jargon to shift the odds in your favour. It will cover:
Before digging into the detail of the top five crypto picks, it’s worth covering what’s at stake and why price moves can be so dramatic.
If any of the five listed digital currencies become the world’s base currency, then buying a stake in the right one now could be one of the most profitable trades ever seen. It is high risk/return. If your selection doesn’t come good, it will likely end up worthless.
The stand-out question is, will the establishment, and all its vested interests be able to withstand the challenge from crypto? Decentralising the global financial system will not be easy, even without super-states such as the US and China looking to ensure they stay on top of the pile.
Secondly, even if the monetary system is ‘liberated’, and crypto rules the world, which one of the coins will be dominant? There are currently more than 5,000 tradable cryptos, and that doesn’t even factor in new entrants which can, and do, come into the market at any time.
Read on as we explore the top five.
Bitcoin is the crypto that all the others have to beat if they are going to have a chance of being the world’s digital currency.
BTC has such a large first-entrant advantage that its market capitalisation is greater than all the other cryptos put together. As of September 2020, the global value of all cryptos was in the region of $350bn. bitcoin was accountable for $198bn of that total.
Founded in 2008, bitcoin has established a position as the crypto of choice for those looking to take a position in digital currencies. Its name recognition means millions have taken the decision to set up an online broker account, such as this one at eToro, and ‘buy a bit of bitcoin’.
If that ‘buying a bit of bitcoin’ had taken place in October 2010 and you had $100 to speculate with, as bitcoin was then trading at a price of 12.5c at that time, you would now be sitting on an eye-watering profit of $8,540,000.
Top-5 Crypto picks — year-to-date price chart:
As a store of wealth, BTC is pre-eminent. The opportunity provided to its challengers is also provided by its relatively poor performance as a means of carrying out transactions.
The length of time bitcoin has been in operation means some of its protocols appear outdated. In the fast-moving tech-space of blockchain architecture, rivals have been able to learn from bitcoin’s journey, improving where they can.
Blockchain payment systems require participants to provide confirmatory signals. As of August 2020, the average confirmation time for a bitcoin transaction was 9.6 minutes. This is an improvement from the 12 minutes average of May 2019 but doesn’t bode well for bitcoin being able to be used to perform as a day-to-day means of making transactions.
This Achilles’ heel has opened the door to rival cryptos, known as altcoins.
Ethereum grew out of a project designed to improve bitcoin’s transaction processing rates. Launched on 30th July 2015, Ethereum is the brainchild of Vitalik Buterin. Buterin was a researcher and programmer working on Bitcoin Magazine who developed a new scripting language.
Cryptocurrencies are strongly associated with the liberalisation and democratisation of the financial markets. They have their own distinct protocols, and bitcoin’s White Paper didn’t allow room for Buterin’s proposal.
Ethereum was launched using crowd-sourced funds and is now a rival to bitcoin. Ethereum’s transaction processing infrastructure is second-generation compared to bitcoin’s. It requires only 30 confirmations from blockchain participants and its estimated processing time is six minutes.
There are other advantages associated with the Ethereum. It was set up to incorporate ‘decentralised applications’, or dApps for short. These operate on decentralised networks instead of centralised servers, reducing the need for downtime and making them more secure.
Ethereum’s market capitalisation is gaining on that of bitcoin. With a value of $40bn and price performance of +168% year-to-date, there is more of a suggestion that 2020 could be Ethereum’s breakthrough year.
Ethereum price chart — Weekly candles 2020:
Ethereum’s share price volatility and price spike have not failed to catch the eye of short-sellers. Trading the coin in CFD format allows you to follow through on plans to sell high and buy low.
Those claiming ETH is over-heating, point to repeated delays of the ETH 2.0 system upgrade. This was due for 2020, but according to insider reports, may be delayed until 2021.
Whereas bitcoin proposes to turn the global financial system upside down, Ripple’s take is to revolutionise the system from within.
The RippleNet framework allows holders of one currency to exchange for another — for example USD to EUR without going through a traditional currency conversion process.
The simple idea has many uses. Most importantly, it has the potential to facilitate conversions spanning both the fiat currency and cryptocurrency communities. The kicker is that XRP will be able to disrupt the current fiat network by challenging existing operators.
Global transfers of fiat currency are currently dominated by the SWIFT system. While this is robust enough, it relies on outdated technology and can take days to settle a money transfer.
Big banks might see cryptos as a threat to their domination of the financial system. But it is equally hard for them to dismiss the possible role for ripple. Not least because ripple’s minimum transaction fees start at $0.01. If you can’t beat them, then at least let them join you.
Ripple’s limited role as a store of wealth is reflected in its price volatility. It doesn’t offer quite as much excitement as bitcoin and ethereum, but considering how high-octane those two can be, that might not be a bad thing.
It’ s also possible to trade ripple at most reputable brokers and IG offers markets in CFD form, allowing traders to take positions without the need for specialist wallets’.
Cardano is a more recently issued crypto and is described by its founder and CEO Charles Hoskinson, as a third-generation cryptocurrency. Even before getting into the granular detail of the coin’s advantages, it’s worth noting the incredible price action.
Between 8th March and 19th July 2020, the price of ADA rose in value by 463%
A lot of the excitement about cardano is based on the token being particularly good at keeping the good features of earlier issued coins but improving on some of the weaknesses.
The well run outfit has recently put through another update and managed it seamlessly. This reflected badly on rival Ethereum, which is still struggling to roll out ETH 2.0.
Cardano was launched in 2017. It is also designed to run dApps and smart contracts. It also benefits from being able to implement ‘Soft Forks’ — a means of breaking the existing block of tokens into different forms.
On the surface, Litecoin looks very similar to bitcoin. It uses proof-of-work consensus algorithm protocols, but implements a different algorithm to secure its blockchain — scrypt. Transaction times are superior to those of bitcoin and mining of the coins requires less electricity from miners.
Litecoin ticks a lot of boxes in looking like bitcoin. Scratch the surface though, and it offers a cheaper and faster way to carry out day to day transactions.
If bitcoin was to suffer some kind of technological meltdown and lose pole position, it’s highly likely that litecoin would be challenging for the top spot.
Trading near $45, the price of LTC is some way off the $300-plus highs of 2018. Other newcomers have stolen the limelight, but LTC still has a lot to offer.
Each of the top five cryptos offer something a little bit different. It’s an interesting world to explore and carrying out your own analysis, and taking a position can also be highly profitable.
However, some caution is needed. Even industry veterans find some of the price moves hard to explain and digital currency can be a risky investment.
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