So, you want to get into crypto. Which coins should you buy?

So, you want to get into crypto? Which coins should you buy?

The five major fiat currencies in the world are USD, EUR, YEN, CHF, GBP. These account for almost all the world’s international trade. In many parts of the world one or more of these currencies are readily accepted, even if the local currency is mandated by the government.

According to Coinmarketcap, there are 5787 cryptocurrencies and tradable tokens out there. Quite a few are jokes or scams. Some have been abandoned by their developers. Many have so few users and so little trade that they can barely be said to exist at all. At most, only a tiny handful, maybe only one or two, could ever possibly succeed. How should a newcomer choose?

Let’s start with some basics: what is your aim here? Do you want to make some money? Or are you “in it for the technology”? Rule one: be clear about why you’re getting in. In other words, what do you want to get out of this? Be super clear about your exit strategy, whatever it may be. And stick to it.

Next, risk: Crypto is a new and highly risky asset class. Out of 5800 coins, most of them (and possibly *all* of them) will go to zero. How would you feel if your stake was gone—really gone—lost forever? Do not put in more than you are prepared to lose.

But prices are rising along with the animal spirits. You want in. Which coin should you buy?

If making some money is your aim, then perhaps the central consideration is *liquidity*. If you don’t understand what the word liquidity means in the financial context, take 30 minutes and find out. In short, imagine you decide to sell your car – at the exact same time that most people with your model are selling theirs too. Lots of competition and relatively few buyers = low price. Or let’s say you want to buy a house in a particular (and popular) neighborhood, but there’s only one property for sale. The seller can name their price. Poor liquidity means you pay too much for something on the way in, and you sell it too cheap on the way out.

While you’re researching liquidity, look up the notion of *opportunity cost* too. This is the idea that when we spend money on X we cannot then spend that same money on anything else. Which assets are you not investing in? Could there be a better bet?

There is also the so-called founders’ effect, and the concept of the *evolutionarily stable strategy*, not to mention any number of cognitive biases to watch out for.

Cut to the chase: a large fraction, at least, of your investment should be in those coins with the best liquidity—Bitcoin and Ethereum. Together these two coins account for the vast majority of all crypto trading and liquidity provision (excluding stablecoins, which do not appreciate). No matter how brilliant you think other systems might be (and a few really are), they are very, very unlikely to unseat either Bitcoin or Ethereum. If you’re savvy and skillful (and lucky) you might do well trading minor coins, which can have very high price volatility, but remember that most traders lose money. The biggest wins are almost always made by those who buy and hold, and who cash out at a pre-determined point.

Finally, take your time, listen to some old hands, and ask questions here, especially if you suspect a scam. There are some really great people on this board (some of whom will disagree with at least some of what I’ve just written). A diversity of honest and experienced opinion can only help you. I would also recommend the Youtube channels of Benjamin Cohen
and Andreas Antonopoulos
as a start. Good luck.

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