While the world is trying to cope with the pandemic, the cryptocurrency market is experiencing a new rise. 2020 has been an incredibly successful year for the cryptocurrency market. Many cryptocurrencies have reached new all-time highs, and mining has regained such popularity that it provoked a shortage of video cards around the world.
The 2020 effect only intensified in 2021. The capitalization of the crypto market in the first days of 2021 was able to overcome the $1 trillion and is now approaching $2 trillion. And this is only for the first quarter of 2021. Amid widespread interest in cryptocurrencies, a lot of newcomers and experienced traders are trying to figure out where to invest to get the most benefit.
Of course, if there was the only correct answer to the question of which cryptocurrency to invest in or which strategy to follow, then everyone would abuse this way. In this case, the market would quickly adapt, and then this approach would be less effective. Here are what to consider before choosing your top crypto for 2021.
Look at retrospective but don’t rely much on it
Before thinking about 2021, let’s take a look at last year’s results. If you start researching articles about “the most profitable cryptocurrency to invest in 2020” published early last year, you will most likely find the most popular cryptocurrencies there.
Major cryptocurrencies have large liquidity, they are available on most platforms and can be bought quite easily and conveniently. They are great for beginners who are just starting to discover the world of cryptocurrencies, and also show a decent return. For example, Bitcoin and Ethereum surged by more than 400% in 2020, NEO coin — 100%, Cardano — by more than 500%.
However, these are not the most profitable cryptocurrencies in 2020 in the context of investments. Cryptocurrencies like ZAP, AAVE and STC skyrocketed by more than 6000%, 5000% and 3000%, respectively. You are unlikely to find these coins in guides a year ago since such growth is mostly considered unexpected.
It is important to note that a coin’s past performance does not guarantee the same performance in the future. Predominantly, altcoins that show such explosive growth can be called a one-day wonder. Top cryptocurrencies can show strong growth over a long period. Therefore, the profitability also depends on the term of investing.
Some crypto enthusiasts point out there are cryptocurrencies like Bitcoin that have a kind of cyclical nature. Over its more than 10-year history, the Bitcoin price has demonstrated that it experiences a rally for 1-1.5 years after the halving. Then the period of deep correction goes for 1-2 years. After that, there is an accumulation period that lasts for 0.5-1.5 years and the price consolidates in a certain range. And then it’s time for a new halving.
However, as stated earlier, past performance is not a guarantee of future performance. Even if we take into account that the cyclical nature of Bitcoin at the moment looks reasonable, this does not guarantee that the cycle will not be broken.
Retrospectives can be good at assessing the current state of an asset and its potential, but it is not always a good option for choosing the most profitable cryptocurrency.
Follow the crypto trends to find your winner
If the return of the top-10 cryptocurrencies doesn’t suit you and you want to find your crypto gem, then you should keep a close eye on developments in the cryptocurrency industry.
In the short term, little-known and new coins have the greatest growth potential, and hence profitability. The reason is simple — low liquidity. For example, Bitcoin requires relatively significant interest among market participants and a large amount of funds to rise by 20% but it may take much less effort to jump 100% for a less known coin.
So, if you see that some coin has surged by hundreds of percent, this does not always mean that it has a promising technology or that everyone has begun to use it en masse. Low liquidity can both send the coin to the moon and the seabed.
When trying to find the most profitable cryptocurrency among little-known coins, one should not forget about the risks and the fact that the coin can greatly fall in price. Coins such as ALEPH and KIMCHI lost more than 99% in value in 2020. Besides, if you follow the events in the cryptocurrency industry, you can find a winner among major cryptocurrencies as well.
Choosing the most profitable cryptocurrency depends a lot on your approach. When trading, you should pay attention to the liquidity and volatility of the asset, when investing — to the project features and its prospects. If we talk about mining, then the cryptocurrency price is only one of the factors for assessing profitability. The investment term and the way to benefit from cryptocurrencies are key in choosing a cryptocurrency for 2021.