Investing in cryptocurrencies can be a rewarding and exciting venture. However, it can be challenging to make the right choice between stable and speculative tokens. The former ones, like Bitcoin and Ethereum, provide slow and steady results. Speculative tokens are much more volatile and allow you to make quick profits during a bull run.
This article discusses why pro investors usually diversify their portfolios with the two types.
Fundamental Tokens: What Is the Main Point
Before we explain why you should invest in fundamental tokens, let’s understand what they are. Fundamental tokens have various advantages when it comes to technology and adoption in the blockchain ecosystem or crypto markets.
- Increased scarcity compared to other coins. This is the case of Bitcoin, which has a max supply of 21 million coins that will ever be available.
- Actual functionality. The token has real use within its ecosystem (staking, paying for transaction fees, etc).
- Consequential technology adoption. The token is distinguished by a protocol that developers want to use. Ethereum falls in this class of digital assets. It’s used by a huge part of the community to develop decentralized applications.
- A popular team of developers and founders. The people behind the project are an essential part of the potential success of a token. For example, Cardano’s founder Charles Hoskinson is regarded as a pillar of the crypto community.
- An innovative consensus protocol that provides a huge improvement to scalability compared to other tokens of its type. Avalanche and Solana offer scalable smart contract platforms with fast and cheap transactions. This has led to greater adoption of their networks and an incredible increase in tokens’ value.
All in all, a fundamentally sound token should propose significant improvements to existing protocols. They usually try to provide a solution to the blockchain trilemma by being secure, scalable, and decentralized.
These tokens have historically proven to register decent gains during bull markets and remain stable during bear markets. For instance, a Litecoin to Dogecoin exchange could provide good profit opportunities if you time it right.
Speculative Tokens in 2022
Speculative tokens are cryptocurrencies with little-to-no fundamental value. They mostly rely on hype to bring profits to their backers and don’t offer any kind of improvement to the existing blockchain ecosystem.
A good example is Verge, which saw its value skyrocket by 20.000% in a matter of days during the 2017 bull run. It failed to return to this value during the 2021 bull run. Still, the crypto world is unpredictable. If you consider buying this asset, you might need a good wallet to store it, so check this out — https://godex.io/blog/crypto-tips/top-5-best-verge-xvg-wallets-to-use-in-2021-2030-godex-io.
Meme coins like Dogecoin or SHIB are also highly speculative. Their price mainly relies on hype from the crypto Twitter community and Elon Musk comments. However, once a bear market starts, they lose more than 90% of their value in a matter of weeks.
Focus on the Main Features: How to Choose a Functional Token?
Before you begin investing, always do some research. For example, check if a token has real functionality within its ecosystem. This should ensure that its value will increase over time as the network gains more adoption from developers and the community.
However, if you wish to make a quick profit, purely speculative cryptocurrencies (meme coins) can be a great gamble. Their value can skyrocket after a simple tweet and bring incredible 10x profits. However, the risks are also much higher, as their value can plummet instantly.
Conclusion
Both fundamental and speculative tokens have their advantages and drawbacks. A fundamentally sound token will provide less profit but is stable for a longer period of time. Speculative assets provide better profit opportunities but are volatile and risky to invest in.
Consequently, the best thing is to diversify. The majority of your portfolio (90%) should comprise stable coins, while a small portion can be reserved for high-risk ones. Thus, your investment doesn’t rely entirely on speculation, giving you some exposure to potentially incredible gains from your favorite meme coin.
