Since the inception of cryptocurrencies a decade ago, this growing asset class has taken the financial world by storm. Currencies such as Bitcoin have provided many benefits to people worldwide, especially those in countries whose fiat currencies are hyperinflated. As a result, investors are increasingly acquiring blue-chip cryptocurrencies such as Bitcoin and Ether. However, newer investors might wonder what to consider before investing in blue-chip cryptocurrencies.
While investing in crypto can be highly rewarding financially, there are many aspects a new investor should be aware of before jumping in.
Crypto prices have skyrocketed over the past few years, giving investors mind-boggling returns. Even after the recent decline, the price of Bitcoin is nearly 400% of what it was a year back. However, if you are new to the crypto sphere, you might be overwhelmed by the choices and information available.
So if you are a new investor looking to become a part of the crypto ecosystem, investing in blue-chip cryptocurrencies is a secure way to enter the market.
The Upside Of Blue-Chip Cryptocurrencies
One of the most straightforward and solid investment strategies is a long-term buy-and-hold. Investors apply this method to blue-chip cryptocurrencies. The term blue-chip comes from poker, where the blue chips have the highest value. Traditionally, blue-chip is a well-established and financially sound platform (or company) with a long record of stable and reliable growth.
A few notable characteristics of blue-chip cryptocurrencies include:
- Blue chips cryptocurrencies are coins with a high market cap. Examples include Bitcoin, Ether, Ripple (XRP), Cardano (ADA), etc.
- These coins are generally less risky compared to lower market cap coins.
The main benefit of investing in blue-chip cryptos is that it allows you to gain exposure to the entire crypto market without needing to spend too much time trading or managing your portfolio.
Top Blue Chip Cryptocurrencies To Invest In:
1. Bitcoin
As the first-ever cryptocurrency created, BTC has the longest track record in the whole crypto space. Moreover, price movements in the crypto landscape are largely dependent on BTC’s movement.
Bitcoin enjoys a first-mover advantage and has a large market cap. The coin also has a fixed supply of only 21 million BTC. The scarcity, popularity, and valuation of BTC make it the preferred blue-chip crypto.
Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
2. Ethereum
As the second-largest cryptocurrency in terms of market cap, ETH has arguably the most number of use cases today. This robust and revolutionary platform supports 70% of the altcoins available in the market. It also has the most decentralized applications (dApps) built on top of it.
The Ethereum network uses smart contracts for participants to secure agreements with each other. The Ethereum Virtual Machine (EVM) is used to monitor smart contracts by removing the untrusted code. Ethereum's vast use cases and advanced tech makes it a blue-chip cryptocurrency worth investing in.
Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
Main Considerations Before Investing In Blue-chip Cryptocurrencies
1. Volatility
Investing in blue-chip cryptocurrencies is the best way to learn about them. However, in this high-risk high-reward market, investors must have an appetite for extreme volatility. For example, Bitcoin smashed through $50,000 in February, but with the May 2021 crash, it recorded an overnight fall of over 30% in price. Therefore, investors must understand that although Bitcoin and other blue-chip cryptos are steady, the market is still volatile.
2. Diversify portfolio
It is not a good idea to have all of your investment capital poured into one asset. Investors need to diversify their crypto basket to spread the risks evenly. A smart diversification across multiple coins ensures that if one coin goes through a rough patch, buying blue-chip coins can help you in recovering the losses. Many investors like to follow a 6:3:1 strategy which implies investing 60% in Bitcoin, 30% in Ether, and 10% in other altcoins. This ratio varies across investors based on their priorities.
3. Market influence
When buying cryptos, even the blue-chip ones, the investment should be based on research and not FOMO. If the latter is driving your crypto investments, you could miss out on safeguarding your wealth.
It is important to remember not to just go by what others tell you. Instead, you must evaluate the merits of the investment case yourself and buy blue-chip cryptocurrencies based on the research.
Bottom Line
Blockchain is in its infancy, but that is changing faster than ever before. While the primary purpose of cryptocurrencies is to offer anonymity, security, and a reliable global financial network, they also provide a lucrative opportunity for investors. As for what to consider while investing in blue-chip cryptocurrencies, remember the pointers mentioned above.
Investing in cryptocurrency differs from traditional investing in several aspects. First, investors must thoroughly understand cryptocurrencies as an asset class and how it differs from other asset classes beforehand. Second, you must ensure you are not compromising your family’s well-being or risking your future by investing all of your money in crypto. Finally, investment should be made to the extent permissible by your risk appetite.
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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.