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What cryptocurrency to invest in is a question that many beginner traders or holders ask themselves when facing the choice of some 3000 crypto coins and tokens currently available on the market. Even if all of them can be considered cryptocurrencies, in reality, from the technological and legal perspectives they may be totally different. If you have doubts about what cryptocurrency to buy as a speculative object of value or what cryptocurrency to invest in long terms, continue reading this article to learn about the most common criteria of smart choice.
Read the Whitepaper! - What are cryptocurrency whitepapers?
A white paper (or “whitepaper”, as typically used in the cryptocurrency context) is a term that originated in the field of public administration and refers to a document that clearly and concisely explains the policy of an entity. There’s also a “blue paper”, which is the complete version of a whitepaper, and a “green paper”, which is sort of its execution plan.
A whitepaper in cryptocurrency typically means the main mission statement of the company in which the main goals, objectives and means of their pursuit are stated. One of the most famous is the Bitcoin whitepaper, published some 10 years ago as a totally revolutionary proposal. If you’re considering a serious investment in a cryptocurrency project, take your time to read its white paper through and judge not only the quality of ideas, but also how realistic they are, how transparent the company is about its financial situation and legal status.
Study the Roadmap! - What’s a cryptocurrency roadmap?
A roadmap is a detailed document that, as you can guess from the words “road” and “map”, comments on the steps of the whitepaper execution process, sort of a detailed attack plan on the map. Typically, it is presented in the form of an infographic to illustrate the process in a visual way.
In the cryptocurrency world, the roadmap is one of the most important documents as it allows you to trace the consistency of the project you are considering to invest in (or to purchase for speculative trading). Search for the previous versions of the company’s roadmap and compare them with the current one to see how successful it was in pursuing its goal, how realistic was its whitepaper and how consistent it has been or, if inconsistent, to what extent it has been improved.
Try to get in contact with the support.
When you’re approaching a new area of interest that you’re not really familiar with and moreover, that implies investment of your money, it would be wise to make sure that in case you need help, you will actually get it. Most if not all cryptocurrency projects have a typical website where you can read about the company, about the team, check the roadmap and the whitepaper, and finally, get in touch. However, note that on many websites, the only option to get in touch with support is by filling in a form and the better ones have a chat function which is great to ask any burning questions. But it's not enough.
It is just common sense to put your trust only in those projects that openly indicate their physical address and a real phone number, together with the business registration number and a risk warning. Sending a reasonably silly question to the support service may be a good way to test the availability of human support, since in many cases, you’ll see yourself banging your head against a heap of bots with not-so-intelligent AI.
Check social media, groups and cryptocurrency forums!
Among the best cryptocurrency forums, there are Bitcointalk and Reddit, have a look at the community of the cryptocurrency of your interest and by simply reading the discussions, you can get an impression of whether they are happy with its progress or not. Often, people who hang out on a cryptocurrency forum are true crypto enthusiasts who understand the technology well enough to give a weighted opinion.
You will soon realize that there are lots of categories and types of cryptocurrency projects and corresponding assets. It’s not easy to categorize different types of cryptocurrency: there are coins and tokens, tokens can be of different types as well, according to their function: utility and security tokens. Coins are those used mainly for payments. The difference between the utility and security crypto tokens is mainly the following. Utility tokens normally have a function inside the projects, such as powering the transactions, paying miners fees, users’ rewards, they may fuel the functioning of the ecosystem by, for example, motivating the users with digital vouchers and coupons.
“Utility” tokens means that, in a broad sense, they are useful for some specific purposes. Security tokens are typically a product of an ICO (Initial Coin Offering). They are similar in nature to corporate shares, that implies certain tokenholders’ rights and benefits. They may represent an investment in a project, but to be sure of a specific security token, make sure you have read its ICO Whitepaper.
Too much homework? Why not have somebody else do it for you?
Yes, studying cryptocurrency projects might lead you to a conclusion that it’s too much information for a beginner and you prefer to buy Bitcoin and Ethereum only to play securely. But there are many different types of cryptocurrency, lots of them are more technologically advanced than Bitcoin or Ethereum. So, in case you prefer to diversify your portfolio of cryptocurrencies and not to put all eggs in the same basket, there are smart ways of doing so.
One of the smartest solutions for a diversified portfolio on the cryptocurrency market is using indexes. In traditional finance, an index of a market indicates the trend on it. It is calculated by judging the behavior of the most influential assets taken all together. The S&P 500, or simply the S&P, is a typical example of such an index. It measures the stock performance of the top 500 large companies listed on stock exchanges in the United States and is considered one of the best indicators of the US stock market.
If you’re wondering how to diversify a portfolio on the cryptocurrency market with an index, its equivalent would be the LyCI (Lykke Cryptocurrency Index). It indicates the trend on the market by following the top 25 crypto assets weighted by market capitalization. The 25 constituents do not have the same share inside the index, rather each one weighs a proportion which corresponds to it according to its weight on the market, or market capitalization. For example, Bitcoin composes almost 70% of the crypto index given to the massive market capitalization of this asset compared to the others.
The other assets weigh more or less in the index depending on their current performance. This is how the cryptocurrency index automatically restructures on a day-by-day basis and rebalances minute by minute. This means that the crypto index automatically corrects not only the proportion of its constituents in the index, but also the combination of them. If Bitcoin suddenly falls out of favor, it will be replaced by another cryptocurrency so that the Lykke Crypto Index always comprises only the top 25 assets. The index is an informative cryptocurrency tool for beginners and seasoned investors that can help them make investment decisions.
The good news is that you can also purchase the LyCI token that follows the LyCI cryptocurrency index. By purchasing the token, you basically acquire a “title” to possess the constituents of the index, but you don’t have to buy them physically. This saves you a lot of time on single trades and automates your choice of the best cryptocurrencies to invest it. You will always keep in your portfolio the top 25 cryptos, even if you don’t even know which ones they are at this moment, because the index does the recomposition job for you. If you had to do it manually, you would have to track the changes on Coinmarketcap daily, sell what is going worse and buy in what is going better. Which means you would always have to do manual trades and lose your money on spreads each time to buy a single currency. The LyCI token is available only on Lykke exchange, a Swiss-quartered fintech company. It offers a cryptocurrency exchange with 0 fees and a simple ramp on for the cryptoworld in the form of a multicurrency fiat gateway.
By purchasing the LyCI index token you forget about manual portfolio management and invest in the top cryptos in an automated way, a perfect solution for a beginner investor!