Investing in a cryptocurrency can be a wild ride filled with extreme volatility, as crypto values may see significant value increase one day, and then drop the next. That can make it especially challenging to build a solid crypto portfolio.
Bitcoin offers a great example of the volatility of crypto. Bitcoin prices rose to nearly $17,000 per coin in 2017 before plunging to less than $3,500 per coin by the beginning of 2019. But as of April 2021, prices had skyrocketed to more than $58,000 per coin.
In many cases, current prices for cryptocurrencies may seem high, especially compared to where prices were several years ago. Despite those relatively lofty prices, there are still many investing opportunities in the crypto market that may produce solid returns.
First, there are the potential opportunities for growth for cryptocurrencies at large. Around 90% of Americans are at least somewhat familiar with cryptocurrencies, according to a recent Harris Poll as reported in Bloomberg, and even big businesses will accept crypto as a form of payment these days.
Any investor interested in building the best crypto portfolio for themselves would be wise to remember that even as crypto usage becomes more popular, it can still be a very volatile investment. As of early 2021, cryptocurrencies remain largely unregulated in the United States, too, although that could change in the near future.
With that in mind, potential crypto investors may want to learn as much as possible about investing in cryptocurrency before putting their money on the line.
Crypto Investing Basics
Ready to invest in crypto? One gut check: make sure you can answer the question “what is cryptocurrency?” before you put your money toward this asset. Here’s a quick review:
• Cryptocurrency is a digital currency used in financial transactions between individuals or entities without going through a bank, or another third party.
• Depending on the specific cryptocurrency, units are sometimes known as tokens, and they’re sometimes referred to as coins—you may have also heard the term “altcoins.”
• Tokens or coins are stored in a “wallet,” accessible with public and private keys that allows users to interface with others.
• Investors can purchase tokens, or shares of tokens, on major online crypto exchanges by connecting a bank account and going through a verification process similar to opening an account to trade stocks or other securities.
Different Types of Cryptocurrency
There are hundreds of cryptocurrencies out there, and together they are worth trillions of dollars (today, anyway). There are a few top dogs in the crypto world, however, and those include Bitcoin, Ethereum, Ripple, and Litecoin.
By far the largest cryptocurrency with a market cap of around $1 trillion, Bitcoin was the first crypto to hit the market more than a decade ago, and is the most well-known cryptocurrency.
With a market cap of more than $300 billion, Ethereum is another large, popular cryptocurrency. Also known as Ether, its main application involves its platform— which allows for the building of decentralized applications, and the creation of smart contracts. Ether is used to run applications on the platform, and is also a method of purchasing other cryptocurrencies.
Ripple, or XRP, is yet another popular cryptocurrency with a market cap of about $60 billion. Ripple was created by banking institutions as a low-cost way to conduct large financial transactions.
When it came to market in 2011, Litecoin was one of the first alternative cryptocurrencies. It tends to offer faster transaction times than other leading digital currencies, which makes it attractive among investors.
A crypto portfolio may contain one or more of these cryptocurrencies, in addition to some of the countless other smaller currencies that are available and have much smaller market caps.
How to Build the Best Crypto Portfolio
It pays to do one’s research before building a crypto portfolio—especially if you want to put together the best crypto portfolio for your individual goals and risk tolerance. (Reminder: crypto investing is considered high risk!) Here are some ways to get started:
• Keep tabs on current crypto values. CoinMarketCap and Live Coin Watch might be good places to start to see what cryptocurrencies are available, and the values at which they’re trading.
• Read crypto white papers. See if the crypto company has put out a white paper or other research report, like the Bitcoin white paper published in 2008. These reports may explain how a cryptocurrency works, what it’s designed to do, and a roadmap for the currency.
• Pay attention to how a currency is (or will be) used. What gives it value? A currency that ultimately has no concrete use—or that may have been created as a meme or joke—may not be very valuable in the future.
• Follow news and events involving cryptocurrency. Even among the most established currencies like Bitcoin, things can change fast, and the news cycle can affect values. Staying up to date may help investors make informed decisions about buying and selling going forward.
• Consider stop losses. Because the cryptocurrency market can be volatile, it may be a good idea to set some guardrails around your investments, such as stop loss orders. Stop losses are orders to sell an asset when it falls to a certain price. Setting stop losses on cryptocurrencies may help protect investors from taking too big of a hit to their crypto portfolio’s value, should prices drop.
There are hundreds of cryptocurrencies on the market right now, some large and well-known, like Bitcoin and Ethereum, others with smaller market caps and less public recognition. It’s up to the individual investor to research the different cryptos and put together a portfolio that suits their needs and investing personality.
Ready to start buying and selling cryptocurrency? With SoFi Invest® you can trade Bitcoin, Litecoin, Ethereum and more with as little as $10 to start—and manage your portfolio right from the mobile app.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.