Trading 101: Crypto Guide for Novices - Choosing Tokens to Start your Crypto Journey
- While this offers more than enough opportunity to diversify one's portfolio, it can easily confuse a newbie investor. With hundreds of tokens being released almost daily, here's our comprehensive guide on choosing a token for novices.
The popularity of the crypto industry has surged over the past couple of years. According to Coinmarketcap, the market capitalization of all the cryptos combined has grown from $131.1 billion in January 2019 to over $1.4 trillion in July 2021, with over 7,000 cryptocurrencies in circulation. While this offers more than enough opportunity to diversify one's portfolio, it can easily confuse a newbie investor. With hundreds of tokens being released almost daily, here's our comprehensive guide on choosing a token for novices.
Always Have BTC in Your Portfolio
When it comes to the crypto market, Bitcoin is king. Bitcoin could be compared to growth stocks. Several financial regulators globally, including the US SEC, have classified BTC as an asset. You can always count on it to appreciate in the long term despite its short-term fluctuations. Over its lifetime, BTC has gained over 804,000% from $10 in 2011 to highs of over $64,000 in April 2021.
Bitcoin’s price increase from 2011 to 2021. Source: BTC-USDT trading
Over the past year, it has gained over 770%! Suffice to say; you cannot go wrong with Bitcoin. Although cryptos are inherently volatile, BTC is often less volatile and often considered the trendsetter for the crypto market. However, as in line with the doctrine of not putting all your eggs in one basket, you should also diversify your portfolio. That's what we'll look into next.
Look Out for Legit ICOs and IEOs
Initial coin offerings (ICOs) and Initial Exchange Offerings (IEOs) have become the most common method by which new crypto projects are introduced into the market. While we've had some successful ICOs and IEOs in the past, most scammers use ICOs as their weapon of choice. The most reliable way of investing in new crypto projects is by spotting potentially successful IEOs and ICOs. You can always find the next crypto gem by checking the KuCoin Spotlight Center.
The quickest way of spotting a scam ICO is if there are ‘guaranteed returns’ on your investment. When it comes to cryptos, there is no such thing as a guaranteed return on investment. If you are new to cryptocurrencies, you are better off investing in mainstream cryptos and avoiding ICOs that don't seem legit.
Consider Crypto Lending
The mainstream explosion of DeFi has unlocked unlimited earning potential for newbies, who only want to earn passive income from the crypto market. Since DeFi is built on the Ethereum platform, you should consider investing in tokens that are ERC-20 compatible.
Crypto lending is also an ideal way of earning passive income while maintaining your crypto portfolio. You can earn interest by lending your cryptos via several crypto lending platforms or crypto exchanges. KuCoin offers daily interest rates of up to 2%. Crypto lending has become rampant with the growth of crypto derivatives. This way, your portfolio earns interest while you hold for the long haul.
Only Invest in Crypto Projects That Have Utility
When considering which token offerings (ICOs, IEOs, IDOs) to invest in, always consider the purpose of the crypto project. The ability to generate a token on Ethereum (ETH) has existed since the invention of Ethereum and is not a new phenomenon compared to DeFi. Over time, so many different variants of tokens have emerged. From utility tokens sold via an Initial Coin Offering (ICO) to non-fungible tokens (NFT) to the governance tokens widely used in the DeFi space or even meme coins, the Ethereum community has already experienced all sorts of token experiments. It is already possible today that token holders of DeFi protocols will share in the revenues of a DeFi project.
If you are new to cryptos, you are better off investing in well-established and mainstream cryptos. If you'd want to invest in something exotic, then you better be ready to do some serious due diligence.
Take Ethereum, for example. Its massive success can be attributed to its contribution to the kick-starting and furthering development of decentralized finance. Ethereum gave crypto developers globally a platform to build their own decentralized applications. Ethereum gave us smart contracts! By some measure, every altcoin brings some utility to the DeFi ecosystem. For example, the crypto community is continually addressing problems with scalability, absolute privacy, and interoperability. These issues can be used as a yardstick to measure the usefulness of an altcoin. If it doesn't address at least one of them, then do not bother investing. Chances are, you'll be parking your fund in dud crypto.
Lastly, Avoid the Hype!
When it comes to investing, it is not a good idea to jump into the buying frenzy. Fear of missing out (FOMO) could end up being the difference between you picking winning crypto to invest in and sticking with joke crypto. We live in the age of sensational media headlines, which may seem like a call to action. Whenever you see such sensational headlines, master all the courage you can to avoid falling into the FOMO rabbit hole.
We have witnessed random cryptos being pumped by celebrities to capture global media attention as an investment-worthy token, only for them to end up being utter scams. The problem with such media hype is that the value of the cryptos tends to be overvalued. Whenever you see an unknown cryptocurrency being hyped, be cautious, especially if such tokens aren't proven in the DeFi community. They could be run-of-the-mill pump and dump schemes. This is when crypto is hyped by those who own them to inflate the price. Once people start buying, and the price goes up, they sell their cryptos in the market, leaving unsuspecting investors with dud cryptos and massive losses.
If you are a novice crypto trader or investor, it is crucial to follow the above things to find success in this space. There are many other things to consider, but following these would be a great starting point. Along with the coin selection, choosing the right exchange to trade or store those coins is equally crucial. Therefore, make sure to pick a credible crypto exchange on which you can confidently rely. KuCoin is one such affordable, novice-friendly exchange that is doing great things in this space. Please do consider checking them out. All the best!
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