Types of coins, risks, how to research

In the primary version of our newbie’s information to blockchain and cryptocurrency, we laid down the fundamentals of this rising expertise. Now, it’s time to get you prepared to enter the area. 

Cryptocurrency has emerged as an interesting asset class over the previous few years. “Blue chip” cash equivalent to Bitcoin and Ethereum confirmed their resilience by the pandemic, coupled with the flexibility to bounce again after sharp falls. In 2020, Bitcoin outperformed inventory market indices such because the Dow Jones in addition to secure haven property like gold.

More just lately, crypto has demonstrated its utility throughout occasions of disaster. In March 2022, Ukraine raised virtually US$100 million in cryptocurrency to assist fight the Russian invasion. Although it had grow to be extraordinarily troublesome and time-consuming to ship fiat forex out and in of the nation, transacting in crypto remained easy as ever. 

Given these utilities, there are a variety of the explanation why you would possibly select to purchase crypto right this moment: for simple cross-border transfers, to diversify your portfolio, hedge towards inflation, and even speculate on market upturns and downturns. 

However, earlier than making a pockets and signing up with any crypto platform, it’s vital to first perceive how the market works. 

As the latest market crash has proven us – with the downfall of initiatives equivalent to Celsius and Terra – crypto merchandise aren’t as well-regulated as conventional monetary devices. Losses can come up not simply from market actions, but in addition mismanaged funding platforms. 

To forestall retail buyers from falling sufferer, the Monetary Authority of Singapore (MAS) is being very selective when issuing licences for corporations to supply crypto companies in Singapore.

While such rules will assist make the crypto area safer, shoppers nonetheless have the last word accountability to defend their investments.

In partnership with Luno’s training hub, Luno Discover, right here’s our humble, no-hype information for the last word newbie on how you may hold your funds safe and minimise threat when coming into the world of cryptocurrency:

Developing the suitable mindset

There’s a high-quality line between playing and investing, and it largely comes down to your decision-making course of.

With crypto, it’s simple to be lured in by the hype. Every different day, it appears there are cash which have doubled or tripled their worth. That being mentioned, it’s vital to do not forget that they’ll crash simply as simply. Earlier in January, the general crypto market cap fell by US$205 billion in a span of simply 24 hours. 

Since there’s no method to inform which coin Elon Musk will tweet about subsequent, shopping for in with such hopes isn’t a sound funding technique.

How to really DYOR

Rather than assessing a cryptocurrency’s potential to go viral, buyers ought to research fundamentals as an alternative, beginning with a undertaking’s whitepaper which will be discovered on its official web sites.

• What function does this coin serve?
• Who are the individuals behind this undertaking?
• What does the enterprise mannequin appear to be and is it sustainable?
• What does the undertaking roadmap appear to be?

While doing this research, it’s vital to seek the advice of a range of sources to get the total image. Anyone could make an internet site with a promising roadmap, however these claims shouldn’t be taken at face worth. It is smart to cross reference and get a multi-faceted perspective earlier than investing your hard-earned cash.

Investors ought to take a look at credible info sources – equivalent to Luno Discover – to discover out extra in regards to the cryptocurrencies which they’re all for. 

Along with this, it’s a good suggestion to look out for ask-me-anything (AMA) classes or Twitter Spaces hosted by undertaking groups. Asking questions and listening to the workforce talk about their concepts will help gauge their legitimacy.

Finally, becoming a member of communities devoted to cryptocurrency, like Luno’s Telegram channel, will be one other method to work together with different like-minded buyers, hold up to date on the newest information and  study completely different initiatives within the area. 

Doing research will assist minimise funding threat, however it gained’t eradicate it altogether. For instance, with the LUNA crash, we noticed a well-established crypto undertaking – one of the highest 10 by market cap – lose virtually all of its worth inside a matter of days.

These instances will be powerful to predict and even skilled buyers can get caught out by them. Similar to shares, it’s best to solely make investments an quantity which you’re keen to lose in crypto.

Now that we now have you in the suitable mindspace of all the time figuring out what you’re investing in, it’s time to look into the completely different funding choices accessible within the crypto market.

Which cryptocurrencies must you purchase?

Although the primary cryptocurrency, Bitcoin, was created for the switch of worth, cryptocurrencies have since advanced to have a quantity of different utilities as effectively. 

Among the highest 5 cash by market cap (as of this June) – typically categorised as ‘blue chips’ – there’s Ether (ETH), which was designed to facilitate good contracts. Developers are free to construct their apps on the Ethereum blockchain, whereas utilizing Ether to pay transaction charges.

Then, we now have Binance Coin (BNB), which entitles customers to reductions on buying and selling charges when utilizing the Binance crypto trade.

There’s additionally USD Coin (USDC), a stablecoin that has its worth pegged to the US greenback. Since the worth of one USDC all the time stays shut to US$1, holders are uncovered to a lot much less value volatility than with different crypto cash. Converting to USDC will help customers reduce their publicity to crypto threat with out forcing them to exit the area altogether.

“Blue chips” are well-established cash which have a tendency to be much less risky than rising crypto initiatives. They usually have a big pool of consumers and sellers, that means any motion taken by a single investor isn’t probably to have a lot impact on the value of the coin. While this minimises draw back threat, it additionally reduces the potential for exponential good points.

Those with a better threat tolerance would possibly take into account cryptocurrencies with a decrease market cap. These may embrace respected initiatives equivalent to Solana or Cardano, each of which have positioned themselves as rivals to Ethereum’s good contract ecosystem.

The apps constructed on high of these blockchains typically have their very own cryptocurrencies – referred to as crypto tokens – which customers can even put money into. For instance, Uniswap is a decentralised crypto trade constructed on the Ethereum blockchain. It has its personal token, UNI, which provides holders the suitable to vote on future updates to the app. 

There are a quantity of such apps which function on blockchain expertise, providing a spread of utilities in areas together with decentralised finance (DeFi), blockchain gaming, and the metaverse.

Finally, these trying to make extraordinarily dangerous performs can go off in search of even smaller cryptocurrencies. These have a tendency to be newly launched and never but listed on fashionable crypto exchanges. Such cash have lots of room for development given their low market cap; nevertheless, this comes paired with a scarcity of liquidity. Since the cash aren’t well-known, the client pool is small and the cash will be powerful to offload.

Some small cap initiatives supply actual utility whereas others would possibly merely be based mostly on web memes or viral tendencies. Either method, these are some of the riskiest investments to be made in crypto, they usually typically don’t repay. Since the inception of cryptocurrency, almost 2,500 coins have failed out of an estimated 10,000 which have been in existence.   

Much such as you’d divide your conventional investing portfolio between property equivalent to shares, bonds, and actual property – all of which include various ranges of threat – the identical can apply to crypto. Ultimately, your threat tolerance and funding technique will go a good distance in deciding which cash you select to purchase.

Choosing the suitable platform

After finishing your research and creating an funding technique, the ultimate step is to really select a crypto platform. There are a quantity of platforms accessible for customers in Singapore, however the selection should be made rigorously.

Hacking is a prevalent concern within the crypto area, with over US$1.2 billion stolen within the first quarter of 2022. Crypto exchanges have typically been focused by hackers as they retailer a big quantity of funds of their respective wallets. 

Apart from hacks, there have additionally been instances the place exchanges have mismanaged funds and blocked withdrawals, due to their lack of liquidity.

Many attempt to search for the most affordable charges when trying to find a platform, however the most cost-effective might not imply the most effective. To keep away from taking up further dangers that aren’t readily obvious, new buyers ought to look into the platforms’ safety observe data – their safety measures, historical past of hacks, and strategies of storing funds – earlier than opening an account.

Currently, a number of platforms are working beneath exemption from the Payment Services Act (PSA), whereas the MAS stringently reviews their application to be licensed within the nation. To have an additional layer of confidence, shoppers ought to select an trade that has both obtained a licence, or obtained an in-principle approval for one.

For customers trying to purchase crypto utilizing fiat (i.e. home or overseas forex), equivalent to USD or SGD, it’s worthwhile to inspect trade charges or search for a platform that enables you to deposit your most well-liked forex straight.

One of essentially the most underrated issues, in our opinion, is the person expertise. Responsive customer support can save you numerous of stress when investing. There are occasions when blockchain transactions can fail or take longer than normal to course of, leaving you questioning the place your cash went. Such cases are made simpler once you’re ready to attain out to your crypto trade rapidly and discover out what’s happening along with your trades.

User expertise can be decided by the interface. It is usually a selection between two – practical and daunting, or easy and simple. Some individuals might desire a no-fuss app which will be accessed utilizing a cell phone in a matter of seconds and some faucets. Others would possibly desire a platform which gives superior buying and selling charts and historic knowledge about completely different cryptocurrencies.

Last however not least, transaction charges. These can vary from wherever between 0.1 per cent to upwards of three per cent. Some platforms entice customers by charging zero transaction charges for a restricted quantity of time and introducing them afterwards. Do additionally look out for hidden charges equivalent to bank card charges and huge spreads. It’s greatest to remember of this earlier than signing up.

At the top of the day, there is no such thing as a proper or mistaken reply right here – so long as you discover one which fits your wants and funding methods.

With that mentioned, you now have every thing you want to begin investing in cryptocurrency. To study much more, keep tuned for our subsequent version the place we’ll look into NFTs, DeFi, and extra. In the meantime, you may as well head over to Luno Discover for every day crypto updates, and subscribe to Luno’s Telegram channel for small doses of blockchain data. 

This article is a component of a six-part collection to a no-hype newbie’s information to crypto. You can try the opposite articles right here:

– Part One

This partnership between Vulcan Post and Luno is for educational purposes only. Luno Singapore has been awarded in-principle approval from the Monetary Authority of Singapore (MAS) under the Payment Services Act 2019. Cryptocurrency is a high-risk investment. The value of cryptocurrency can fluctuate significantly and you may lose the capital you invest. Before investing, we urge you to educate yourself about cryptocurrencies and to familiarise yourself with the risks involved, which are detailed in Luno’s Risk Warning.

Featured Image Credit: Golden Capitalist