With a new bull market being nearly evident, many investors are looking into cryptocurrencies as a way to make quick profit. The “mania” of 2017 is back once again, this time with a new wave of coins coming into the scene, and a record of new investors joining cryptocurrency exchanges.
This is exactly what we will be exploring in this article. After reading this post, you will know whether it is best to invest in Bitcoin or some of the most promising altcoins. Before we proceed, let us give a brief introduction to both terms.
Bitcoin vs Altcoins – Defining the terms
- Bitcoin is the first and most popular cryptocurrency. Developed by Satoshi Nakamoto 11 years ago, the coin has managed to become one of the best investment options in the cryptocurrency markets. Currently, Bitcoin holds 56% dominance of the complete crypto markets and is the most promising option for an eventual global currency.
- Altcoins are all other cryptocurrencies. They can be more or less popular, with a strong or weak community and with a lot or no money making potential. There are more than 7000 established altcoins in the market but only a few of them are really worth considering. Keep reading to find out which ones to pay attention to.
Where you should invest in
Investing always comes with its own set of risks. However, if you manage to understand your character, goals and financial situation, you will be able to better understand which coin(s) you should invest in. Here are some factors you should keep in mind.
1. Risk tolerance
Do you get stressed easily? Or are you emotionally unaffected from the direction of the market? Risk tolerance is an important factor to consider as it will help you keep a level-headed approach no matter the market conditions. Here is a rule of thumb:
- If you are a person with undeveloped emotion intelligence, avoid investing in high risk coins. Instead opt to invest only in Bitcoin and Ethereum, which are the two most popular cryptocurrencies, and potentially some exchange tokens (like BNB or SRM). The latest tend to hold onto their value very well, no matter the market conditions.
- On the other hand, if you can control your emotions and invest based on logic, you could allocate a small part of your portoflio for high risk-high reward opportunities. These include smaller coins with a promising future and a hyped up community (e.g. DeFi projects).
2. Time preference
Time preference referrs to the timeframe that you are able to leave your coins in their wallet (HODL) until they become more valuable. There are many different timeframes and strategies to consider when it comes to time preference and it often boils down to whether you are looking to make money faster (riskier) or slower, based on the eventual increase in demand (safer).
- If you have low time preference and are able to hold onto your coins for a longer timeframe, consider investing in Bitcoin. The popular cryptocurrency will near-certainly increase in value due to it reward halvings which occur once every four years. The demand for the popular cryptocurrency is increasing and all you wil need to wait for is an increase in adoption.
- If you have high time preference, you might find more value in swing trading or position trading. This can be done by investing in several different altcoins for a short duration of time, often with leverage (virtual multiplier of funds) and is considered a lot riskier than simply holding onto your coins. Over 90% of traders that attempt to make smaller but more frequent profits end up losing money.
3. Trading experience
Continuing on swing and position trading, you need to consider how experienced you are as a trader. Do you have prior experience trading in the stock markets? Do you know how to recognize trends and patterns in cryptocurrency charts? If so, altcoins may be a good idea. Simply with for a dip to occur, buy the token, ride it all the way up to a new local high, and sell with profit. This strategyhas made many people a lot of money during the latest bear market but is also considered very risky.
If you don’t have a lot of trading experience, it is best to simply buy and hold onto your Bitcoin. In most cases, long term investors end up being more profitable than traders who take unnecessary risks.
4. Starting capital
Finally, it is important to talk about the starting capital of an investor. The more you choose to invest, the more risk you choose to undertake. However, this also means that your profits could be a lot higher than someone who trades with a small account. Here is a rule fo thumb that you should keep in mind, especially if you are new to investing:
- If you are investing a significant amount of money, it is best to stick with safer options that have low volatility. These include Bitcoin, Ethereum, and most exchange tokens.
- If you are starting a trading account or simply want to gamble the market, then you could attempt to invest in altcoins with small market caps, a strong team and real use case.
Choosing whether you want to invest in Bitcoin or altcoins depends on many different factors. As we discussed in the post above you should consider the following before you choose tomake a purchase:
- How tolerant are you to risk?
- How long are you able to (or want to) hold onto your coins?
- Are you experienced in trading and reading charts?
- What is the capital size you are looking to use for investment purposes?
The answers to these questions will determine which coin(s) you should invest in. Always remember, however, that the crypto markets are risky, no matter which coin you choose to buy. As such, invest only what you can afford to lose.