Which Crypto to Buy Now?

Oct 27, 2021

A look into one Investor’s Thought Process

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Surely this must be the all-time most popular question of new cryptocurrency investors: Which cryptocurrency should I buy?

I haven’t been investing in cryptocurrency very long, but in the few months since I’ve started, I’ve learned a lot about various coins and strategies.

Part of the decision on which crypto to invest in boils down to: which strategy do I want to follow: 

·     Buy and hold (aka hodl)

·     Trade (aka buy the dips and try to follow the momentum)

·     Or some mixture of the two

Personally, since I can’t predict the future, I am doing a little bit of each: buying some coins to hold for the long-term in hopes that they will go up in value and trading a little bit with some money that I can afford to lose.

So this week I was playing with some trading software which has a backtest button. What I discovered amazed me!

Shrimpy is a software program that can help you place trades, follow trends, discuss trading strategies with other users, track your portfolio, and a lot more. 

One of its offerings is strategy automation. It was this feature I was exploring because I was curious to see how much money I would have made in the last year if I had just bought a few coins and held on.

Everyone knows about Bitcoin and how the whole market of cryptocurrencies seems to move in lockstep with Bitcoin. (Some people call it the King of Cryptocurrencies.)

Ethereum is another popular crypto that many people recommend buying and hodling.

But I was curious about the other coins, so I set up a portfolio of the 5 largest (by market weight) cryptos, excluding Bitcoin, Ethereum, and stablecoins such as Tether. (Since stablecoins are, by definition, supposed to maintain the price of $1 U.S. dollar, it doesn’t make sense to hodl them and hope that they’ll grow in value over time!)

The five top coins after Bitcoin and Ethereum and excluding stablecoins ended up being Cardano (ADA), Solana (SOL), XRP (XRP), Polkadot (DOT), and Dogecoin (DOGE).

Four of the five top coins are variations of blockchain platforms with various strategies users can use to record transactions, build apps, and other crypto activities. (In other words, they are competitors or alternatives to Bitcoin and Ethereum. And since we are still relatively early in cryptocurrency blockchain technology development, it’s probably too soon to tell which of them might eventually become the Google of Blockchain.) I’m unclear what the fifth coin is used for, as many are when the topic of Dogecoin comes up.

In any case, when I put these five coins into the software and set a start date of November 1, 2020, here is what came back:

If I had invested equal amounts of money ($1000) in each of the five coins and held on for the entire year, I could have turned $5000 into $331,250.45!

If I had invested the same amount of money ($5000) but weighted the portfolio by market weight (in other words: larger coins would have more of a percentage of the portfolio and smaller coins would have less), my $5000 would have turned into $378,545.21!

Of course, it’s impossible to know where we are in the cycle of crypto-craziness. If I had bought in May when Bitcoin peaked, I would now have a loss as Bitcoin has dipped yet again.

So perhaps the best strategy is one you can explore at the Dollar-cost Averaging Calculator for Cryptocurrencies: buy a little bit of your favorite coins every day, week, or month to average out your costs over time, thus avoiding the usual pitfall of putting all of your money into the market right before a market correction that wipes out half your value.

In the meantime, I’m starting out with a small position in each of those top five coins, just in case the explosive growth of the last year continues. Perhaps I’ll add to these with the profits of my small trading experiments.

Which coins do you think you’ll invest in?

Read our other article for help on how to choose an exchange for your crypto trading account including some features to look for. Follow along while I open my account.

Choosing an Exchange and Opening an Account at Gemini

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