Much has changed since Bitcoin dominated the headlines at the turn of 2017-18. Cryptocurrency trading has now become a popular activity for individuals and institutional investors. In general, however, there are two main reasons why many people are not interested in cryptocurrencies:  1) the reality of the revolutionary change that cryptocurrencies and blockchain technology bring us, and 2) the potential to make an unprecedented amount of money in the short- and long-term. These two reasons go hand in hand, but the second reason seems to prevail.

Because cryptocurrencies are relatively new, small-cap assets (at least compared to established investment assets such as gold or silver) they are still highly volatile. This simply means that it is possible to earn profits when trading cryptocurrencies that is not possible in traditional markets. But with the potential profit, there is also a growing risk that the price will move in the opposite direction from what we want and that there will be sudden losses in trading, which can sometimes be in high volumes. That said, some cryptocurrencies can grow by hundreds of percent a day so that they will be corrected by half their price the next day. Orientation in cryptocurrency trading is, therefore, incredibly tricky, but if you follow at least these few basic rules, you are well on your way to becoming a profitable cryptocurrency trader.

Which cryptocurrency should I buy?

If we wanted to describe the cryptocurrency trade in two words, we would probably use the phrase “Wild West.” There are currently more than 5,000 cryptocurrencies, and this number is increasing every day as new projects enter the cryptosphere. Very few of them are regulated in any way, and other speculations have made it difficult for the general public to accept them. In the last few months, we have analyzed the 500 most essential cryptocurrencies and found that fewer than 50 of them were viable investments. Only about 30 of these were still economically active, with sufficient liquidity. Many of these 50 are found in the TOP 200 cryptocurrencies, according to CoinMarketCap. So it is not very bold to assume that of the remaining 4,500 cryptocurrencies, there are not many that are worth the attention or even an investment. In statistical terms, this means that less than 0.01% of cryptocurrencies are worth the investment. But how can you tell which cryptocurrency is good? How should you evaluate which cryptocurrencies are worth your investment?

How do I find out which cryptocurrency is suitable for investment?

1. Listing on cryptocurrency exchanges

Is the cryptocurrency listed on any of the cryptocurrency exchanges with a good reputation, such as Binance, Coinbase, Kraken, Bybit, or Gemini? If not, it’s essential to discover why. Some newer projects are listed on 1-2 smaller cryptocurrency exchanges, and the more well-known ones are usually listed later, as they have higher standards set for listing. Why do these standards differ for large and small exchanges? That is the right question to ask, and there are two answers. First, it is the management of large stock exchanges themselves. Binance CEO Changpeng Zhao, like the Winklevoss brothers, the owners of Gemini, adopt cryptocurrencies as a matter of the heart. That is why they are careful and do not want to include a large number of low-quality coins on their stock exchange, which would damage their reputation. Therefore, they do in-depth research of the cryptocurrencies before listing. Second, regulatory roles are a factor. Stock exchanges such as Coinbase, Kraken, Bybit, or Gemini take extraordinary measures to ensure that their work does not deviate from the law’s limits, especially the laws of the United States. However, this does not apply to other exchanges from different parts of the world, of which there are more than 200. On the contrary, these groups are looking for a competitive advantage over established exchanges such as Bybit by risking and flipping even less well-known and proven cryptocurrencies. If traders want these, they have to buy them from them, and the stock exchange will subsequently earn on fees associated with trading.

2. A team of developers

The second thing we need to look at in our analysis is who is actually behind the development of the cryptocurrency. Is it a recognized expert from the development community? Or is it some unknown programmer or someone with a turbulent history? Take the Basic Attention Token (BAT). The ecosystem for BAT tokens is the Brave browser, which is known for its focus on privacy and which was developed by Brendan Eich, co-founder of Mozilla and  creator of the Javascript programming language. Although BAT may not be at the top of the CoinMarketCap rankings or even in its TOP 10, if we look at the team of developers behind it, we can see a solid background and strong IT personalities, led by Brendan Eich. This gives us at least some certainty that the team will ditch the project after the first withdrawal of funds.

3. Use

In our opinion, too many cryptocurrencies are failing in this area. Regardless of other indicators, in the end, the long-term financial potential of the cryptocurrencies will be determined by their usability and ease of use or adaptability. There are currently too many cryptocurrencies on the market that have no particular purpose or are not very attractive to the end-user. Despite a clear use-case, some are outperformed by the competition because they don’t offer much extra or came on the market at the wrong time — usually too late or in a bear market — when not many people are interested in using cryptocurrencies.

Then we have a lot of cryptocurrencies, which try to be just “a little better Bitcoin” or “a little faster Ethereum.” However, the fact is that if these projects are not built on radically better sources than their competitors, these projects do not have much chance of success precisely because cryptocurrencies such as Bitcoin and Ethereum have gained a reputation for themselves, many years of operation, as well as the largest and most experienced teams of developers. The emerging cryptocurrencies that want to compete with these cryptocurrency market giants must bring something truly groundbreaking that would be worth the long-term investment.

4. Partnership

The number of brands that have a partnership with a particular cryptocurrency or its developers may be the best and only indicator you can use to evaluate your analysis reliably. Someone else already did proper research on the legitimacy of the cryptocurrency before concluding this partnership. The best example is probably Chainlink, which has partnerships with tech industry giants such as Google, Microsoft, and Oracle.

Thanks to these partnerships, Chainlink is one of the best-valued cryptocurrencies in the last year, and it still seems to have a lot of room for growth ahead of it. However, with published partnerships, you need to be a little more interested in their type. Some may not even relate to their function, but perhaps it was just an agreement when buying the company’s hardware or software. Therefore, partnerships published on the websites of various cryptocurrencies cannot be trusted entirely without verifying this information and putting this information into context. If you are unsure, be sure to look at other characteristics of the cryptocurrency before investing in it.  

5. Economic activity

Is the cryptocurrency you want to invest in economically active? Does it have sufficient liquidity? According to the top 50 cryptocurrencies judged using the previous four criteria, almost half were practically dead. In the last few months or even years, these cryptocurrencies have not had larger trade volumes, with many of them, the price slowly waning and approaching closer and closer to zero. This can be very depressing for the investment because some of these projects seemed promising; they had an astonishing success and a reliable team. Take Selfkey, a cryptocurrency that sought to provide an alternative to existing KYC solutions but since then has dropped to 7,000. The fact is that even if we have verified all the previous criteria, it may not mean anything if the cryptocurrency is not traded and does not have sufficient liquidity. It can also become a victim of all possible “pump & dump” groups, which shoot the price to the heights once and then let it fall to previous values ​​or even lower.

Finally, don’t forget to check the exchanges on which the coin is traded. Although CoinMarketCap may show a high trading volume in 24 hours, if you look closely at this data — primarily trades within 30 minutes or 1 hour — you can get a clearer picture of whether and how the coin is traded.  You can also discover whether it is not just about the so-called “wash trading” when the trading of coins and their volumes is only apparent. Unfortunately, a few exchanges are willing to use these unfair practices, so try to stay away from them. You will recognize them by the fact that trading volumes show significant gaps during different time frames!   

The best cryptocurrencies for 2020 on cryptocurrency exchanges

Now that we have gone through these critical criteria, here is a shortlist of cryptocurrencies you can invest in during 2020 and why they are on our list. Remember, it’s up to you to do your research. In the end, your list may look completely different from ours! (So ​​this is not hard-and-fast investment advice!)

Bitcoin (BTC) – It is still the most popular cryptocurrency, which has the lion’s share of the market. Also, the price of most other cryptocurrencies depends on the price of bitcoins and their movement. Bitcoin is also the most-thoroughly researched cryptocurrency with the most extensive history and statistical data. Many computational models assume that its price will increase in the coming years and decades.

Ethereum (ETH) – This cryptocurrency has great potential. Many decentralized applications and cryptocurrencies are built on Ethereum. Their success is linked to the long-term award and success of Etherea. Ethereum is also a leader in decentralized finance (DeFi) — most DeFi projects such as MakerDAO or Compound are built around Etherea today.

Ripple (XRP) – Thanks to its efficiency and partnership with large money processors such as Moneygram, XRP has considerable institutional support.  Although XRP is not as well-known in the cryptocurrency community, its technology can process payments much faster than most blockchains. This makes it the best candidate for the “ideal” currency for fast funds transfers worldwide at low costs (which was the primary reason Bitcoin was invented).

Basic Attention Token (BAT) – This cryptocurrency has been well-adopted. Brendan Eich created the Basic Attention Token, which rewards users for viewing ads in the Brave browser (which is otherwise designed as an ad-free browser). The Brave browser has seen a significant portion of adoption in recent years due to its high-quality characteristics, speed of development, and tens of thousands of partnerships.

Cardano (ADA) – We admire Cardano because of its vision. Charles Hoskinson used his experience and knowledge years ago as a co-founder of Etherea to create the Cardano blockchain, which sets the highest goals. Cardano wants to become a social and financial operating system for people who do not currently have one. This smart contract platform is expected to have a 100x higher degree of decentralization in the future than Bitcoin itself. Because it is based on a consensus proof-of-stake algorithm, it also has significantly better scalability and throughput of transactions than either Bitcoin or the current Ethereum 1.0.

Cosmos (ATOM) – In a word: technology. Cosmos’ vision is to become the so-called internet of blockchains. Just as the internet is made up of various websites, Cosmos is built on several autonomous blockchains, called zones connected to the HUB, as it is called the central blockchain. Cosmos provides all connected blockchains with a previously unthinkable degree of scalability and interoperability.  

Long-term trade in cryptocurrencies vs. short – term trading

Once you have chosen which cryptocurrencies you want to invest in, you need to decide on what time horizon you will trade. There is a big difference between short-term trading and long-term trading. In the first part of this article, the rules we presented relate more to long-term investments that plan their cryptocurrencies, the so-called “WATCHING,” or hold for a very long time.

Many traders use both types of trading, i.e., part of the portfolio is for short- and medium-term trading and another part is the so-called HODL. Many claim that their profits from short-term trades are similar to profits from long-term trading. This, of course, can vary from cryptocurrency to cryptocurrency and from your trading experience and information resources.

If you decide not to follow our rules, you can immediately jump on lesser-known and less capitalized cryptocurrencies. They often have higher volatility and price jumps, as well as lower liquidity, as they are traded on a limited number of exchanges. In this case, however, you should keep in mind that just as there is more room for a profit with these coins, there is only as much room for loss.

It is widely known among experienced cryptocurrency traders that it is with these less-capitalized projects that huge profits and massive losses can be achieved. It depends on what cryptocurrency you are experiencing and at what stage of your cycle it is. However, the more open these stores you have, the higher the chance that some will turn out badly because, in short, these projects cannot be confirmed with certainty that their price will be the same or higher in a year or two.

Finally, it is necessary to ensure that the funds you have invested are safe, no matter what style of cryptocurrency trading you prefer. Your cryptocurrencies should be safely stored in your private wallet. These cryptocurrency wallets can be digital or hardware. The hardware version is one of the safest you will find on the market. TREZOR is the best hardware wallet you can buy to store your cryptocurrencies.

You can currently use hundreds of cryptocurrency wallets. Among the most recognized are the Atomic Wallet (digital multi-crypto wallet) and the Safe (hardware multi-crypto wallet). If you already have some experience with cryptocurrency trading, for example from videos or seminars, you have probably heard terms like “hot wallet” and “cold wallet” in them. A hot wallet is a place where you store the cryptocurrency you want to trade shortly. On the other hand, a cold wallet is a wallet where you store your cryptocurrencies which you will not move soon. Examples of the cold wallet are hardware wallets such as Vault or Ledger. A hot wallet is a designation for digital/electronic wallets that you have stored on your computer or mobile phone. Always remember to keep your funds safe.

How to be a successful cryptocurrency trader in 2020

Before you finish this article and start a cryptocurrency exchange with charts, let me remind you of a few more essential things.

First, invest only what you are willing to lose. Bob Loukas, a recognized crypto influencer, recommends that you not spend more than 10% of your total capital in cryptocurrencies. Loukas has also remarked several times that this percentage might vary depending on your age and the type of commitments you have. Younger investors can generally risk more of their assets without having a catastrophic impact on their lives. However, there is a more important reason why it is recommended to invest only a small part of your assets related to the second rule of cryptocurrency trading.

Invest strategically, not emotionally! Emotions are your main enemy in trading. If you decide to invest more than 10% of your total capital in cryptocurrencies, you do not necessarily go bankrupt when the market falls, and your positions shrink. In times of increased volatility, it will be difficult for you to keep your emotions in check. Loukas also emphasizes that the same is true when prices rise, and cryptocurrencies are in a bull market. The stress of waiting for a sale price can be higher than watching your portfolio drop to zero. In short – trading is not for the faint of heart.

As Baron Rothschild once said, you must learn to “shop when there is blood on the streets” and know the right time to sell. Timing is the hardest thing in any market. But remembering the following advice can help you trade.

The penultimate advice is the most important for your personal development. Get a basic overview of the market structure, what types of candle charts we have, which candles are bull, which are bears, and how supports and resistance work. For your trading, you can find information about various indicators such as Moving Averages, Stochastic RSI, MACD, or multiple data analysis models such as Stock To Flow model, Golden Ratio Multiplier, The Pull and many more. The more time you spend studying the market, the more confident you will be in trading.

Finally, consider using new applications and platforms such as Bybit.

Bybit uses the classic macro-taker model, so it distinguishes between orders that enrich the market and which, in turn, narrow it. Therefore, macro and taker orders are subject to different fees (see below). If you create an order and increase your liquidity, you get a discount. At the same time, however, you must wait longer to complete the order until a suitable counter-offer appears on the market. Yet, if your order reduces the liquidity (i.e., it is filled immediately because a counter-offer already exists on the market), you must pay a fee.

There are three types of trade orders on the platform. For the Market order, you only fill in the required amount of “Qty” currency. For the Limit order, you can also enter the required “Order Price” rate you want to buy or sell. The Conditional third-order serves as an automatic Market or Limit order, which is not executed until the market reaches the “Trigger Price” rate you set. For each order, you can also select the method of termination if the order is not executed immediately (termination is offered manually or directly).