If, like us, you find that the cereal aisle at the grocery store can be overwhelming at times, trying to pick out a cryptocurrency may leave you downright flustered. The digital coin that upended how we think about money — bitcoin — has spawned some 11,000-plus other options, including ethereum, tether, binance coin, and solana. And now, the global crypto market tops $2.7 trillion.
Each cryptocurrency takes a unique spin on decentralized finance, and has its own mission or problem to solve. In theory, there’s a digital coin for everyone, but actually choosing one is the hard part. Here’s how to navigate.
The case for starting with bitcoin
Bitcoin is the most expensive cryptocurrency, with one token worth more than $46,000 as of early January. It’s also the best introduction to the broader crypto space for new investors, according to Chris Kuiper, vice president of equity research at CFRA Research.
“I always start people with bitcoin,” Kuiper says, adding that as the biggest cryptocurrency, there’s more information available about bitcoin for new investors to research. In addition to being a way to store value, other benefits of bitcoin are its limited supply and its likelihood of sticking around, pros say.
There’s also the not-so-insignificant issue of access: You won’t have trouble buying bitcoin through various brokers. Bitcoin is one of the options offered by crypto-focused brokers like Coinbase, Gemini and eToro, and it’s also available through more traditional brokerages, including Robinhood, SoFi Invest and TradeStation.
The case for investing in other large cryptos
Bitcoin is the most mainstream cryptocurrency, so some investors will naturally look for the “next” bitcoin. “Some people think bitcoin is going to be the MySpace of the industry, and something better is going to come along that will be the next Facebook,” Kuiper says. “You can’t unequivocally say that.”
If you decide to venture beyond bitcoin, it’s important to understand the technology behind the crypto asset — along with the risks it may pose to your portfolio, says Matt Schwartz, senior advisor and a certified financial planner with Great Waters Financial.
Whether you’re considering the 10th or 100th largest coin, be prepared for “extreme volatility” in crypto assets that can be akin to gambling, Schwartz says. “It’s very important to proceed with caution.”
Understanding why a token was created in the first place and what problem its founders set out to solve can also help you narrow down your choices. For example, ethereum — the second largest cryptocurrency — has different attributes than bitcoin, including that there’s no supply limit, Kuiper says.
The largest coins are attractive because you can trade them through various brokers, and there is also more research and analysis available to learn more about specific assets.
The case for choosing a crypto fund
Kuiper and Schwartz agree that cryptocurrency investments should constitute only a small portion of your portfolio — about 2%. Doing the necessary due diligence to sort through potentially thousands of various options is overwhelming.
Many investors won’t spend time doing that analysis, which is one reason why David Siemer, CEO of Wave Financial Group, recommends investing in a crypto index fund. Buying several assets can spread out your risk and offer a good introduction to crypto investing, notes Siemer, whose firm manages one such fund: The Wave Select 5 Index.
The Wave fund is made up of the top five largest cryptocurrencies (though it excludes tether and ripple). Another index fund, managed by Invictus Capital, includes the top 20 cryptocurrencies.
Similar to buying an index fund when investing in stocks, a crypto fund offers diversification, simplicity, less volatility and it will also change holdings over time, Siemer says. Even though various cryptocurrencies often move in sync, buying several can spread out risk.
Finally, a fund can help an investor get engaged and interested in the crypto space more broadly, Siemer notes. “If you get really excited about one asset,” he says, “then maybe go down that route and find what you’re passionate about.”