3 Best Cryptocurrencies to Invest in 2021

Cryptocurrencies have been up-and-coming for the past several years. Hence, many believe it will be replacing fiat currency in the future.

Think about the many benefits of crypto against the US dollar:

  • user autonomy
  • discretion
  • peer-to-peer focus
  • lower bank fees
  • lower transaction fees for international payments
  • mobile payments
  • accessibility

The list goes on…

Could crypto eventually replace fiat currency? So how can we add some crypto to our wallets? And what are the best cryptos to invest in?

In this guide, I rank, review, and compare the best cryptocurrencies in 2021 based on the reputation of the coin, features, competitive advantages, market capitalization, and more.

Let’s get started.

Best Cryptocurrency to invest in

With so many different cryptocurrencies or “altcoins” out there, it can be difficult to pick altcoins for your portfolio.

So, here’s a list of the best cryptocurrency to invest in 2021:

1. Bitcoin (BTC) – The Most Reputable Cryptocurrency

bitcoin png

Bitcoin, a better-known cryptocurrency, is the most reputable cryptocurrency in the market. It was launched in 2009 and is the first cryptocurrency incepted. Furthermore, many altcoins released today are considered a derivative of bitcoin.

As of December 2020, Bitcoin has the largest market cap of all cryptocurrencies at around USD 355.8 billion. For comparison terms, a key performance indicator to look at is bitcoin dominance.

Bitcoin Dominance – How much market share bitcoin has in the market

Bitcoin dominance is currently set around 80.62% and has been the dominant cryptocurrency in the market.

Based on this chart below from BitcoinDominance, there have been times of volatility where altcoins have affected bitcoin’s dominance in the market. However, during 2017, when belief in cryptocurrency was at an all-time high, many developers started creating altcoins.

Today in 2021, the hype has died down. And as the dust settles, bitcoin is considered the dominant pioneer in the industry.

bitcoin dominance chart

Competitive advantages specifically about bitcoin are:

  • Inability to issue more BTC. As many fiat currencies are affected by the government’s monetary and fiscal policies, they cannot manipulate Bitcoin’s supply.
  • Better security. Bitcoin’s network is based on hash rates, a term used to measure the Bitcoin network’s processing power. It is challenging for any entity to coordinate an attack on the BTC network with a high hash rate. I recommend reading this article from TheNextWeb for more details about hash rates.
  • Brand Name. Like Apple is a brand name in the smartphone industry, BTC has created a moat from other altcoins as most people think of bitcoin first when they hear about cryptocurrencies.

Ultimately, BTC is essential to have in your portfolio as it is extremely accessible in our society. For instance, at my workplace, we even have a BTC ATM in the main lobby!

2. Ethereum (ETH) – The “Smarter” Bitcoin?

ethereum pic

Ethereum was initially seen as a cryptocurrency that would overtake Bitcoin as the leading cryptocurrency, as many had considered its technological advantages to be superior.

Ethereum launched in 2015 and is fairly newer than BTC but is more developed regarding the blockchain technology used. Additionally, ETH uses “smart contract” technology, Ethereum’s main competitive advantage over other altcoins.

executed contract definition

“Smart contract” technology allows transactions to automatically execute based on specific terms of the contract or agreement. To compare a Bitcoin and an Ethereum transaction:

  • Bitcoin: Jane buys 10 BTC from John
  • Ethereum: Jane buys 10 ETH from John on December 20, 2020, @12:20PM

This type of transaction is essential in providing more security, as it saves time and prevents any conflicts as the terms have been set. Many big institutions have taken a liking to this cryptocurrency, including JP Morgan, Amazon, Microsoft, etc.

As of December 2020, Ethereum has the second-largest market cap of all cryptocurrencies at around USD 40.6 billion.

3. Ripple (XRP) The Efficient Cryptocurrency Used by Financial Institutions

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Ripple is not only a cryptocurrency but also a platform that allows for an open-source protocol.

What does this mean?

Essentially, the Ripple platform is designed to allow for fast and cheap transactions.

However, it is important to understand the platform Ripple uses – RippleNet. RippleNet is a network of institutional payment-providers that banks and money services businesses use to provide a frictionless experience when sending money globally. This is a unique competitive advantage for financial institutions with a worldwide presence.

As of December 2020, Ripple has the second-largest market cap of all cryptocurrencies at around USD 40.6 billion.

What is Cryptocurrency?

I won’t get into all the details of cryptocurrency, but Cryptocurrency was created to challenge fiat currency, to put it short.

After 2008, many countries realized the problems of having a currency manipulated by governments or individuals. For instance, irresponsible fiscal and monetary policies have led to many currencies’ demise and public disbelief in the currency itself. Today, many countries and reputable institutions have begun to adopt cryptocurrencies, suggesting there may be longevity in these cryptocurrencies.

So what exactly is this digital asset, and why is it beneficial to society?

As defined by Investopedia, “is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”

One important aspect of cryptocurrency is the use of blockchain technology. Blockchain technology has been considered a buzzword, and many companies want to be seen at the forefront of cutting-edge technology. Blockchain technology is fundamental to cryptocurrency and has been seen as one of the most practical uses.

Essentially, cryptocurrency is a secure issuance of currency that is backed by many individual computers utilizing blockchain technology making it inherently difficult to hack.

Pros and Cons of Cryptocurrency

There are many pros to cryptocurrency and are not limited due to specific altcoins having their own inherent advantage. Some key pros are:

  • Accessibility to everyone. It is easy for anyone to trade cryptocurrency around the world, albeit some countries have banned cryptocurrencies.
  • Low transaction costs – For those of you using e-transfers and paying $1 for those transfers, cryptocurrencies can provide cheaper transaction fees as there is no need for traditional financial institutions to serve as a trusted third party.
  • Inflation is unlikely – For cryptocurrencies with a fixed supply, more of the crypto can’t be created, so this counteracts the possibility of your crypto having weakening purchasing power.
  • Transparency – Because transactions are recorded on the blockchain, almost all transactions can be viewed by everyone on the crypto network.
  • Portability – It is effortless to exchange cryptos as it can be done digitally or in-person.

Some cons to cryptocurrency are:

  • Cannot be recovered – If you happen to lose a cold wallet with crypto, it cannot be recovered again, and because of this, there are some crazy strategies people have tried to recover their cryptocurrency. I.e., Hypnotherapy helps you recall where you misplaced your cold wallet, supercomputers used for brute force attacks, etc.
  • Subject to market fluctuations – Throughout the past few years, BTC has had some extremely volatile highs and lows, and it can be difficult for someone to price how much BTC they have accurately. However, as the crypto market becomes more efficient with market makers and more competitive brokers, this will soon change.

A pro and con to cryptocurrencies are transactions cannot be traced. This can be a pro as it gives you the freedom to buy and sell without the source of your funds being traced. For instance, say you live in a dictatorship country, and the government bans you from spending more than $2000/month – highly unlikely, I know. However, if this does happen, you can use cryptos to purchase goods and services as the government cannot track crypto transactions.

On the other hand, this can be a con as it is much easier for illegal activity to occur. For instance, if you receive your income in cryptocurrencies, authorities cannot track your income and ensure you are paying appropriate income taxes. This is one key reason why some governments have banned cryptocurrencies in their countries.

However, with developing regulations and appropriate controls in place, this could soon be overturned.

Cryptocurrency vs. Stocks

So, what should I invest in – Cryptocurrency or Stocks?

Both are extremely risky asset classes, but understanding the two asset classes’ underlying value is essential to managing your portfolio’s risks. The underlying value is based on the company, whereas the underlying value for the cryptocurrency is a bit more arbitrary.

So, we can take a look at what fiat currencies are backed by…

For fiat currencies, the currency is typically backed by a nation’s government based on its political and economic situations. For instance, before 1971, most of the world’s currencies were backed by gold; however, it was abandoned by Nixon in 1971, causing the US dollar to no longer be converted into gold.

Today, currencies are based on the petrodollar system causing most currencies to be pegged to the USD since the US and Saudi Arabia agreed to set oil prices in US dollars. Ultimately, the fundamental underlying of cryptocurrency is its importance in day-to-day retail and B2B transactions.

Now that you have a general understanding of the fundamentals of stocks versus cryptocurrency, it’s up to you to research the valuations of a company for a stock and the increasing use of cryptocurrency.

How to Invest in Cryptocurrency?

To invest in cryptocurrency, you need first to have a crypto wallet, and this can be set up in either a cold wallet or in a hot wallet (crypto brokerage).

The difference between a cold wallet and a crypto wallet held in a crypto brokerage is if it can be connected to the internet. This is essential as crypto wallets connected to the internet can be hacked if the brokerage has weak security or if your computer gets a virus from the internet.

I recommend one cold wallet based on its reputation and reviews in the industry’s cryptocurrency – Ledger Nano S.

The Ledger Nano S, developed by Ledger, has been at the forefront of cold wallets in the cryptocurrency industry and has been around since 2014! It is super secure, supports more than 1500 coins and tokens, and has fairly great protection against physical damage. For a more detailed review, check out this article by Bitdegree.

In terms of crypto brokerages, I currently use two brokerages to store my cryptocurrency:

  • CoinBase: I have been using CoinBase since 2018 and have had no issues buying/selling cryptocurrencies on their platform.
  • Binance: I like Binance as I use their app for speculation bets as there is the option to purchase BTC perpetual swaps.

Join Binance today, and you can get up to a 10% discount on your next deposit here.

Conclusion

Investing in cryptocurrencies is considered by many to be highly risky and possibly a Ponzi scheme. Still, with proper due diligence and research, you can eliminate those risks and be an early adopter in this industry.

I hope this guide has given you some insight into the cryptocurrency industry, as well as for cryptocurrencies, you can add to your portfolio. Please feel free to comment if I’m missing anything or if you know any up-and-coming cryptocurrencies!

Disclaimer: This article contains affiliate links that I may receive a small commission at no cost to you. Nevertheless, these are cold wallets and brokerages I use and highly recommend.

Author

  • syao scaled

    Stephen Yao is a writer, ex-Deloitte financial engineer with expertise in the life insurance, pension, and capital markets industry. He lives in Toronto, Ontario, and writes about personal finance and career fulfillment.

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