How to Pick a Cryptocurrency to Invest in (5 Steps)
How to choose a cryptocurrency to invest in 2021 – a recipe from an expert
Not only bitcoin is worthy of investment
The secret to success is diversification
Before starting work, you need to answer a number of questions
Choosing an asset for investment is not an easy task, especially if you have no experience. Investors often go online to look for answers. Unfortunately, many of the recommendations that can be encountered on the Internet are ineffective, and in some cases even dangerous..
To solve the problem, the BeInCrypto editors asked a professional crypto-investor, head of the trading department of Aravana Capital Management Valdis Waldorfs share recommendations.
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Investment recipe “five questions”
The expert is confident that before making a decision on investment, each investor must answer himself a few questions. So you can define the goal and the tools to achieve it. The list of questions that, according to Valdis Wooldorfs, an investor needs to answer, is presented below:
- What jurisdiction are you in, and what problems you may have after buying a cryptocurrency?
- What taxes will be there, do you need to declare assets, and how to declare them?
- What tools will be used to make the purchase and reverse withdrawal (bank, e-wallets, payment systems, or something else)?
- Which exchange is preferred?
- Where to store cryptocurrency?
The expert noted that for his many years of experience with cryptocurrency, in his practice there were only 2-3 times when he could recommend some separate undervalued coin. For the most part, in his opinion, the market is either growing and some assets are growing faster, or it is falling with its outsiders..
“If you have a question about what to buy, then you do not have a clear plan. Therefore, you are not a professional, which increases your chance of losing significantly. An independent study of the peculiarities of cryptocurrencies is too long a journey and not everyone will be able to afford it, “Valdis Waldorfs noted, hinting at the need to listen to the advice of professionals.
To his clients and friends who are poorly versed in the market, he said, he recommends index investing. The answer to the above five questions is the first phase of the plan.
The next step is to decide on the amount of investment and divide it into several parts. According to Valdis Wooldorfs, the optimal breakdown is as follows:
- 30% in bitcoin (BTC);
- 10% in Ethereum (ETH);
- 5% in Litecoin (LTC);
- 5% in Bitcoin Cash (BCH);
- 5% in Chainlink (LINK);
- 5% in Cardano (ADA);
- 5% in Binance Coin (BNB) and further down the list – from most to least liquid.
To determine the rating of the cryptocurrency, according to the expert, the world famous resource CoinMarketCap is suitable.
Top 10 cryptocurrencies – leaders in the CoinMarketCap resource capitalization rating, as of December 29, 2020
“With the help of the CoinMarketCap resource, you can choose what to invest in. However, I do not recommend dropping below the 50th place in the rating. An exception is if you are familiar with the project, ”the expert explained.
Features of investments in cryptocurrency 2021
Valdis Waldorfs drew attention to the fact that BTC has reached a new all-time high. The rest of the cryptocurrencies, however, are far from their peak values. The expert also noted that in 2017 (during the period when Bitcoin reached the previous maximum near the level of $ 20 thousand), the situation was diametrically opposite.
Three years ago, the analyst explained, BTC managed to grow from $ 6 thousand to $ 20 thousand (3x (threefold growth)), and some cryptocurrencies, such as LTC and XRP, made 10x in the same time.
“It is difficult at the moment to project an accurate forecast for coins, but buying bitcoin near the maximum values is perhaps the most reckless decision that can be made (see 2017 and what happened afterwards),” Valdis Wooldorfs said.
The choice in favor of index investing, according to the expert, will allow market participants to get the average value of the cryptocurrency growth. He considers this approach to investing to be effective..
More tips on which coins to invest in in 2021 are in our material..
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