Welcome to the fourth and final cryptocurrency guide in the series written and produced in partnership with Ledger. These guides will lay out the things you should consider as you enter the world of cryptocurrency investing – including how to buy and store your crypto and, importantly, how to safely take action today.
This final guide will give you an introduction to the most popular cryptocurrencies – and explore how they might fit into a balanced investment portfolio. If you missed the first three parts series, check them out below.
Part 1️⃣: An Introduction to Cryptocurrency
Part 3️⃣: How To Hold Cryptocurrency Safely
What’s popular in the crypto world can change pretty quickly. So to be objective, we’ve looked at cryptos with the highest “market capitalizations” – that’s those whose total value (as measured by the price of one unit multiplied by the number in circulation) is greatest.
Bitcoin was launched in 2008 and it laid the foundations on which a majority of cryptocurrencies now operate. Its anonymous founder(s) – who goes by Satoshi Nakamoto – proposed that “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”. And with the world economy reeling from the global financial crisis, bitcoin’s inbuilt safeguards against double spending, fraud, and false identity were seen as an attractive proposition that could revolutionize payment systems globally.
Use cases: a “safe haven” cryptocurrency, speculation, payments, and transfers of value.
Since the Ethereum network launched in July 2015, its associated currency – called ether – has proven hugely popular. If bitcoin is a digital payment system, Ethereum is all about utility. The Ethereum network has given rise to thousands of decentralized applications (DApps) built and deployed by developers. This programmable blockchain technology has many applications, of which digital currency is only one.
Use cases: decentralized apps (DApps), “smart” banking, and financial services contracts.
Tether is the company behind a “stablecoin” cryptocurrency – USDT – whose value is tied directly to the US dollar. One USDT is worth $1: its value is “pegged” – and backed by real dollars in a bank account. That cash support contributes to the token’s stability.
Tether was designed to bridge fiat and cryptocurrencies. The hope was that its stability, transparency, and low transaction costs could spur greater usage by mainstream financial institutions. Despite its founders best efforts, though, USDT’s value can deviate from its dollar backing.
Use cases: store of value, a hedge against cryptocurrency volatility, and payments.
Although not a coin, we couldn’t leave you without an honorable mention of staking. That’s the process of putting your crypto into a wallet to support the security and operations of a blockchain network – and getting paid for doing so. It’s a popular way for crypto investors to generate a yield from their assets – as a cash saver might with interest paid on money in their bank account.
Use cases: passive income generation, store of value, a hedge against inflation, and supporting operations of a blockchain network.
A typical investor’s portfolio might be 60% invested in stocks and 40% in bonds. And while that sort of diversification might suit most investors, it misses out a major group of assets known as “alternatives”. They include real estate, art, private equity – and, yes, cryptocurrency.
Alternatives are higher-risk propositions than your garden variety stocks and bonds, so you’ll probably find they contribute a small part of your portfolio – if any at all.
To quote one cryptocurrency investment fund manager, “Everyone should have 1-2% of their portfolio in crypto assets; enthusiasts can have up to 5-10%.” and “Anything more than that should be reserved for true experts and devotees.”
In part one of this guide to cryptocurrencies, we gave you an introduction to how cryptocurrencies work – and how you can safely buy them.
In part two, we explored the differences between digital and hardware wallets for storing your crypto.
Part three focused on best practices for storing crypto and avoiding being hacked or jacked.
In this final installment, we’ve given you a rundown of the most popular cryptocurrencies – and explained how they might fit into a diversified portfolio.
Congratulations on taking the time to get smarter on crypto, and good luck – we’ve probably got an exciting few years in store.
This guide was produced in partnership with *Ledger**.*
Check out Ledger’s mini-website at finimize.com.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.