With thousands of cryptocurrencies on the market, it can be hard to decipher between a promising project with long-term growth potential and quick cash grabs that won't last through a bear market. Considering a cryptocurrency's market capitalization, development team, market position and future price potential, we've compiled a list of some of the best cryptocurrencies to invest in for 2022 and beyond.
Typically, altcoins are higher risk investments when compared to Bitcoin, but they often provide higher returns in a bull market. Conversely, altcoins typically depreciate more in bear markets. In general, cryptocurrencies with smaller market capitalization are more volatile than large, more established cryptocurrencies like Bitcoin and Ethereum. The coins on this list are within the top 150 largest cryptocurrencies, and each project has a market capitalization in access of $500 million. To ensure proper liquidity for your trade, it's a good idea to only trade cryptocurrencies with over a $100 million market cap.
- Best store of value cryptocurrency: Bitcoin (BTC)
- Holds the most market enthusiasm: Ethereum (ETH)
- Most promising layer 2 token: Polygon (MATIC)
- Best decentralized application: Sushi (SUSHI)
- Best hedge against ETH: Cardano (ADA)
- Best alternative to Ethereum: Solana (SOL)
- Highest growth potential: Chainlink (LINK)
What are the Best Cryptocurrencies?
The best cryptocurrencies in 2022 are not just currencies, they're native assets to some of the most promising startups and projects in the financial world. Mark Cuban and Andreessen Horowitz both heavily invest in altcoins, specifically decentralized finance (DeFi) investments that have been popular crypto investments this year. Here are some of the most promising VC-backed cryptocurrencies to buy in 2021.
1. Bitcoin (BTC)
The king of all cryptocurrencies, Bitcoin, was 1st and the most well-known cryptocurrency on the market. It also benefits from the largest market cap and is among the most highly traded cryptocurrencies, assuring liquidity to investors. Bitcoin is the king when it comes to retail and institutional adoption. Most altcoins will follow Bitcoin's price trend, so if Bitcoin does poorly, it's likely altcoins will bleed too.
Considering the price of bitcoin is still down from its all time highs of over $69,000, buying now may be a good investment into the future. There will only ever be 21 million bitcoin in existence (with about 15% of this number being lost), so as long as Bitcoin's user base continues to grow, so will the price of the asset. Bitcoin currently has an inflation rate of 1.7%, and this rate halves every 4 years in what's known as the bitcoin halvening.
2. Ethereum (ETH)
As the currency and platform that made smart contracts part of the cryptocurrency market’s vocabulary, Ethereum has seen massive gains since its introduction in 2015. Currently only behind Bitcoin in regard to market capitalization, Ethereum has become one of the most widely discussed cryptocurrency projects in the world.
A consortium of some of the biggest names in the business, including Microsoft, Intel, Chase, and J.P. Morgan are building business-ready versions of the software that drives Ethereum. With momentum and market enthusiasm behind the Ethereum project, there’s no reason to think Ethereum has run its course, and investors should consider Ethereum as part of their cryptocurrency portfolio. Ethereum is available on Coinbase, Gemini and Voyager.
Also, most non-fungible tokens (NFTs) are built using Ethereum's network. So, an influx of NFT buyers could increase the price of Ether. NFTs are bought and sold using Ethereum; the more investors that want to purchase NFTs, the more demand there may be for ETH.
3. Polygon (MATIC)
Polygon is an Ethereum sidechain that is scaling DeFi at a rapid rate. Ethereum's high gas fees have highlighted the networks struggle to upgrade to Eth2. Ethereum co-founder, Vitalik Buterin, has expressed his support for Layer 2 scaling solutions, which handle transactions on a side chain before submitting a batch of transactions to Ethereum's layer 1 blockchain. As a result, users pay significantly less transaction fees and can settle transactions in just a few seconds.
Layer 2 sidechains play a critical role in scaling Ethereum, and Polygon is one of the 1st to do it. Assets must be bridged to the sidechain, so there are some switching costs that will lead to people staying on Polygon for the long-term. Polygon is available on Coinbase and Gemini.
4. Sushi (SUSHI)
Sushi, also known as SushiSwap, started as a decentralized exchange that rivaled Uniswap. Since its inception, its developers have upgraded the application to host a suite of features, with more use-cases coming out soon. What makes Sushi different than Uniswap is that Sushi pays dividends to Sushi token holders. Owners of SUSHI can stake their tokens on the platform to receive 0.05% trading fees from all trades on the platform. This roughly equates to about 10% returns solely from dividend payments.
Aside from the SushiSwap DEX, the decentralized application hosts lending markets, token launchpads and even leverage trading. Sushi plans to launch Shoyu, and NFT platform that will compete with OpenSea, the largest NFT marketplace today. A 2.5% fee will be charged to NFT sellers, which will be paid out to SUSHI token holders in the form of dividends.
5. Solana (SOL)
One of Ethereum's top competitors, Solana, has seen exponential gains in 2021. From lows around $1 leading into 2021, Solana is now trading over $100. There are billions of dollars in cryptocurrency locked on its blockchain, making Solana one of the largest blockchains for decentralized finance. Many investors are using Solana's blockchain for both NFTs and DeFi.
The main benefit of Solana over other smart contract blockchains is its focus on scalability. Solana uses a proof of stake consensus model alongside proof of history to process thousands of transactions per second. Plus, transaction fees on Solana are about 99% less expensive than Ethereum's, making it a great option for retail traders that don't have the capital to pay 3-figure gas fees on Ethereum.
6. Chainlink (LINK)
Chainlink (LINK) is an Ethereum token that powers the Chainlink decentralized oracle network. This network allows smart contracts on Ethereum to securely connect to external data sources, APIs, and payment systems.
Chainlink entered the market in 2014 under the name SmartContract.com. Shortly after its launch, the name changed to Chainlink to better represent the its core market.
Chainlink set up a strategic partnership with Google in 2019. The agreement secured Chainlink’s protocol within the Google smart contract strategy. This move was seen as a major win by investors as it allows users to connect to Google’s 2 most popular cloud services. Chainlink is available on Coinbase and Gemini.
Best Cryptocurrency Exchanges & Brokers
The best cryptocurrency exchange for you depends on your needs as an investor. Regardless of whether you're a long-term holder or a day trader, an exchange's security should be among your top priorities. U.S-based exchanges provide high security, typically offering 2-factor authentication and cold storage for your digital assets.
Among the cryptocurrency exchanges on the market, Coinbase, Gemini and Webull are some of the best places to start investing in crypto. Gemini is unique because it let's you earn interest on your cryptocurrency positions just for holding the asset; if you're a long-term holder, this is a great strategy to accumulate more coins. Coinbase has the best user interface of the 3 choices, and its Coinbase Learn program pays investors in crypto for learning about blockchain technology!
The 1st cryptocurrency was Bitcoin, invented in 2009 by an anonymous developer named Satoshi Nakamoto. The market doesn’t know the true identity of Satoshi Nakamoto, but the groundwork laid by the invention of Bitcoin paved the way for other digital currencies.
It also led to the growing acceptance of cryptocurrencies as both an investment opportunity and as a medium of exchange, a way to securely transfer money from one currency owner to another digitally and without the use of traditional banks or financial institutions.
Cryptocurrencies are designed to function as money, an alternative to the fiat currencies of the world, many of which are in various stages of erosion through inflation or are at risk of government seizure. Greece, a country with a 45% income tax rate, seizes over 900 bank accounts per day.
The island nation of Cyprus, a budding financial center, suffered the consequences of Greek debt defaults, forcing Cyprus’ government to seize depositor’s funds to remain solvent. Venezuela’s inflation rate is currently over 46,000%, which creates a financial crisis that threatens the survival of families in the country. Cryptocurrencies offer a hedge against inflation, especially in countries like Venezuela.
Advantages of Cryptocurrencies
Cryptocurrencies offer several advantages when compared with traditional banking, money transfers, and fiat currencies.
- Privacy. Many cryptocurrencies are designed with privacy in mind and obscure the identity of the sender and receiver of cryptocurrency funds. Only cash provides similar anonymity. It's important to note that some cryptocurrency, like Bitcoin and Ethereum, are only pseudo-anonymous. Once one is able to attach a cryptocurrency address to your identity, they're able to view all the transactions you've made with that crypto address.
- Decentralization. Cryptocurrency owners use a wallet to access their currency and receive or send funds from a specific wallet address that uses a secret key for access. Some also use an exchange to store currency, although the practice brings additional risk. The record of the currency exists on the blockchain with a copy stored on every full node, a computer that keeps a ledger locally and syncs with other computers online. Your money isn’t in a single bank, or even several. The decentralized nature of cryptocurrency ledgers makes cryptocurrencies less vulnerable to seizure or localized risks, like fires or hardware failures. The data isn’t just stored off-site, it’s copied worldwide to all full nodes.
- Scarcity. Bitcoin has a fixed supply. Currently, nearly 19 million Bitcoin have been mined. However, only 21 million Bitcoin will ever exist. It’s built into the code for the currency. The fixed supply gives Bitcoin and other cryptocurrencies similar characteristics to gold, silver, or other precious metals that have historically been used as money. Unlike U.S. Dollars, British Pounds or any other fiat currency, after the full supply is in circulation, the supply will never grow, devaluing the currency’s buying power.
- Smart contracts. Some cryptocurrencies have a unique feature that can’t be duplicated with fiat currencies. Ethereum is among the best examples with its robust support for smart contracts” essentially programs that live on the blockchain and can be used to manage transactions as well as many other uses, some of which we may not have yet imagined. At a base level, these contracts can be used to replace arbiters or escrow and other financial services. Since smart contracts live on the blockchain, they're an immutable and secure way to handle money.
- Cost of transfers. The cost associated with cryptocurrency transfers can be a pro or a con, depending on the type of currency, the type of transfer, and the speed of the transfer. Bitcoin, for example, can become expensive if you need fast clearance for a transaction. In some cases, costs are less problematic for less time-sensitive transactions. Other types of cryptocurrencies, such as Litecoin, are fast and inexpensive to transfer, leading to increased adoption of Ripple-based transactions and related technology by financial institutions.
Disadvantages of Cryptocurrencies
Cryptocurrencies come with a list of considerations that can help investors make safer investments. Since the blockchain industry is still in its infancy, most cryptocurrencies are highly volatile. This being said, some cryptocurrencies, like stablecoins, offer low risk investments with higher returns than riskier investments like real estate.
- Market adoption. Awareness for Cryptocurrencies is growing, but most of the focus has been on Bitcoin. Relatively few retailers accept cryptocurrencies for payment, but there are a few. Overstock.com announced in 2017 that they would accept cryptocurrencies as payment. Payments will be limited to Bitcoin, Ethereum, Litecoin, Dash, and Monero, giving the other 1,500+ cryptocurrencies the cold shoulder.
- Obsolescence. As many as 1,000 cryptocurrencies have failed already, with more to surely follow. As a general rule of thumb, the smaller a coin's market cap is, the more likely it is to fail. Some things to consider when gauging whether or not a project will be successful is its user base, technical developments, and whether or not the project has competition within the cryptocurrency space.
- Abandoned cryptocurrency projects. Most of the investment money for cryptocurrencies is focused on a relatively small group of coins. Without investor interest, projects can get abandoned, leaving investors with essentially worthless digital coins.
- Regulation risk. As it pertains to cryptocurrencies, regulation risk has two sides. In the U.S., cryptocurrencies are not regulated at a federal level, leaving states the option to introduce rules and regulations regarding cryptocurrencies or the blockchain technology that serves as the backbone for cryptocurrencies. On the other hand, some investors and finance experts have expressed concern over future regulation for cryptocurrencies, which could cause a drop in demand or eliminate demand altogether.
- Liquidity risk. Investors and lesser-known cryptocurrencies may find fewer buyers, creating challenges when looking to exit a position.
- Volatility risk. Few investment classes can rival cryptocurrencies when it comes to price volatility. Prices can rise or fall dramatically in a single day, making or breaking fortunes.
- 3rd-party risk. Mt. Gox, a Bitcoin exchange based in Japan, and the leading exchange worldwide in 2014 was hacked, leading to a loss of nearly half a billion dollars in Bitcoin. In total, an estimated 850,000 Bitcoins belonging to investors went missing, ultimately forcing the exchange into bankruptcy.
- Secure keys. Cryptocurrencies are often kept in a digital wallet, which is secured by a long code or a long series of words. Unlike your bank account or investment account, there is no recovery process available if you lose your password. Without your password, your cryptocurrency wallet and its contents are no longer accessible.
Features to Look for in Good Cryptocurrencies
- Adoption rate. Cryptocurrencies are highly speculative investments in the biggest gains are sometimes found among newly introduced coins or coins whose technology has found the market, as was the case with Dogecoin. More cautious investors may choose to look at adoption rate, focusing portfolio investment on cryptocurrencies that are currently used in real-world transactions.
- Market cap. In many ways, the market cap for a given cryptocurrency goes hand-in-hand with liquidity. Fledgling cryptocurrencies may not ever find the market, preventing investors from exiting the position profitably.
- Promising new technology. Ethereum and Polygon both owe their stratospheric gains in 2017 to the innovative technology built into their respective platforms, differentiating both cryptocurrencies from the crowded market of often similar offerings.
- Security or anonymity features. Technology such as smart contracts, found in Ethereum and several other cryptocurrencies make transactions more secure by enabling a set of rules for each transaction. Some cryptocurrencies like Monero place a strong focus on anonymity, obscuring the identity of the sender and receiver of funds.
- Industry utility. Ethereum and Polygon are again good examples of cryptocurrencies with utility beyond a simple medium of exchange. Ethereum is the base layer of the decentralized finance revolution, and Polygon is the layer 2 where transactions and smart contracts can execture at scale.
Final Thoughts on Top Cryptos
Cryptocurrencies and decentralized financial products are still in their formative years. If you’re new to cryptocurrencies, you may be better served by investing only risk capital and by building a portfolio of widely traded cryptocurrencies. Initial coin offerings can be tempting, particularly with the parabolic rises common to ICOs. Almost as common is a precipitous fall following the ICO.
More established currencies help to prevent some of the volatility and provide better liquidity than found with newly minted cryptocurrencies. It’s important to learn where a cryptocurrency can be traded and how big the market is for that cryptocurrency.
Many early investors have found themselves without a viable way to exit the position. If cryptocurrencies are here to stay, some very good opportunities are likely to exist among the most commonly traded currencies, while also minimizing risk due to abandoned projects or lack of liquidity.
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