You’ve chosen your platform, you’ve linked your bank account and you’re finally ready to buy some crypto. Your only problem is: which cryptocurrency do you go for?
This is a tricky question, and there’s unlikely to be a website in the world that will tell you exactly which cryptocurrencies you should buy, because the answer is extremely subjective. The right investment will depend on your risk appetite, and your financial goals.
However, when choosing which cryptocurrency to invest in, there are some guidelines you can follow, which may point you in the right direction.
Also read: What does crypto have to do with NFTs?
Also read: 3 simple steps to buy crypto in Australia
What’s your risk appetite?
Most cryptocurrencies are inherently volatile.
According to the Government’s MoneySmart site, the value of cryptocurrencies and ICOs depends on speculative factors like its popularity at a given time, the perceived value of the currency and whether it’s easy to trade or not.
Outside of the actual investment risks, there are other risks you need to consider too, like security. Many platforms where you buy and sell cryptocurrencies aren’t regulated, which means there are fewer safeguards for customers if the platform fails or is hacked.
These factors mean it’s likely you’ll be in for a risky rollercoaster ride for the duration of your investment.
But that doesn’t mean all crypto is out of the question.
If you have a low risk appetite, you may, for example, choose to invest in what’s called a Stablecoin.
Stablecoins are cryptocurrencies where the price is pegged to a more stable asset - like a fiat currency (e.g. the USD). This reduces the overall risk of your investment.
Or, if you can weather the ups and downs of a riskier crypto (a high risk appetite), you may choose to invest in something like Bitcoin. Historically, Bitcoin has surged to highs and suffered lows, but overall it’s come a long way.
Do your research
Choosing which cryptocurrency to invest in is similar to choosing a company to invest in.
Research the team behind the cryptocurrency. Are they transparent? Are they experts in the area? Do they have a vision, or a long-term strategic plan? Does the plan or vision align with your beliefs?
Research the underlying technology of the cryptocurrency. Is it innovative? Will it perform better than its competitors? You may not know the answers to these questions immediately, but by doing your research and collating other experts’ opinions, you may be able to make a more informed decision.
Read the white paper. Most cryptocurrencies will have a white paper, which outlines the purpose of the coin, its technology, what the creator’s vision was at the coin’s inception and more. This is a great starting point for getting your head around the fundamentals of the coin. You can also keep it on file as a resource to go back to, and ensure your goals and beliefs still align.
Look at price history
Past performance is not an indication of future performance. However, a cryptocurrency’s price history can give you an indication of how volatile a coin is, how it performs in market dips and how it responds to external factors (like a tweet from Elon Musk).
This links closely with identifying your risk appetite - if the coin has a volatile price history, and you tend to get anxious about volatility, this might not be the right coin for you.