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Investing in the Cryptocurrency Industry Based on Sectoral Divisions: A Complete Guide

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Investing in the Cryptocurrency Industry Based on Sectoral Divisions: A Complete Guide

 

With the growing boom in the cryptocurrency industry and the fear of missing out on a trending investment, many investors buy into crypto projects without knowing what they are or do. While cryptocurrencies are trendy and very profitable, it helps to know exactly what it is you are venturing into.

In this article, we will dive into the different kinds of cryptocurrency available in the market and what they entail. Let’s get right into it!

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Sectoral Division of Cryptocurrency

Understanding the concept behind a digital asset and having insight into the seasonal cycle or beneficial undertones of that asset puts you, as an investor, ahead of the game. The key concepts behind cryptocurrencies classify them into niche sectors, giving them unique investment potentials. Listed below are the different classifications (sectors) of cryptocurrency:

Store of Value (SoV)

As the name implies, stores of values are cryptocurrencies that serve as a reserve or hedge assets against inflation. A store of value is an excellent investment tool and is highly recommended for fledgling investors.

Currently, only Bitcoin (BTC) falls into the SoV category. While Bitcoin is yet to reach its full potential, it has gained recognition as a store of value and is sometimes referred to as “digital gold.” This explains why many companies store a percentage of their cash reserves in Bitcoin.

Investment Recommendation: Excellent

Distributed Computing

Distributed computing cryptocurrencies, also called blockchain platforms, are the next most reliable crypto investment options being the SoV category (Bitcoin). This category involves cryptocurrency ecosystems, where developers build and distribute other cryptocurrencies. The future of the crypto industry relies heavily on this category, giving them a healthy level of durability and staying power in the financial industry.

The most prominent cryptocurrency in this category is Ethereum (ETH). Ethereum hosts a vast amount of developers, crypto assets, and crypto products and applications. Other top contenders in this category include Binance Smart Chain (BNB), Cardano (ADA), Tron (TRX), and several others.

Investment Recommendation: Excellent

Financial Services

One of the latest booms in the crypto industry is Decentralized Finance (DeFi), which has grown to a +100 billion dollar industry in just a year. While the sector involves many technicalities and niche knowledge, the payouts are worth the stress. Several reports have noted that DeFi is the future of finance due to its efficiency as a financial tool.

While investing in the DeFi sector (Financial Services) is relatively riskier than most other crypto-based investments, the profit potentials make it worthwhile.

Some prominent DeFi projects currently killing it in the market include Uniswap (UNI), Chainlink (LINK), Avalanche (AVAX), Aave (AAVE), PancakeSwap (CAKE), Maker (MKR), Compound (COMP), yearn.finance (YFI), and many others.

Investment Recommendation: Excellent

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Exchange Tokens

Exchange tokens are cryptocurrencies used on blockchain ecosystems for a variety of purposes including, facilitating transactions, staking, voting, and many other functions. Most cryptocurrencies in the distributed computing sector fall into this category. However, traditional exchanges are difficult to operate given the continual risk of legal and regulatory challenges. Regardless, exchange tokens can be lucrative crypto ventures.

Investments Recommendation: Good

Stablecoins

Stablecoins, one of the fastest-growing sectors in the crypto industry, are digital currencies pegged to real-world assets (usually the US dollar). Because stablecoins are (usually) pegged to the dollar (meaning they mirror the dollar’s price action), they do not possess the typical volatility that comes with digital currencies.

That said, stablecoins are not ideal for profit-making ventures and can only get used as a reserve due to their non-risk nature.

Some examples of stablecoins include USDT (Tether), USDC (USD Coin), BUSD (Binance USD), DAI (Dai), TUSD (True USD), and many more.

Investment Recommendation: Good

Gaming

In some sense, blockchain economies are similar to video game economies, where you purchase real money to purchase virtual goods for the game. One popular gaming-like Crypto project is Decentraland (MANA), which allows users to buy virtual assets in a fully immersive VR world. Instead of purchasing real-world assets like real estate, the user could acquire virtual real estate in Decentraland.

While we cannot say for sure that Decentraland will still exist in the next ten years, virtual real estate is staying a trend of the future.

Investment Recommendation: Good

Meta Chains

These are crypto-based projects that provide network interoperability between blockchains, much like how there are companies that provide interoperability between Windows and Mac OS. For example, meta chain protects can facilitate data exchange between the Ethereum and Cardano blockchains.

Investment Recommendation: Good

Meme Coins

Over the last few months, the crypto industry has witnessed the rise (and sometimes fall) of a new breed of digital assets known as meme coins. Typically, meme coins possess no intrinsic value and often serve no purpose. As the name implies, they are digital assets created around jokes, images, or social media trends.

Not surprisingly, this category of cryptocurrency is the most volatile amongst other categories, as that is the whole idea behind them. While they usually lack a healthy community who believe in the technology behind the project, this crypto category relies on internet hype and promotion from influential personalities like Elon Musk.

Meme coins are often restricted to a few exchanges due to their unrestrained nature. We have seen meteoric rises and dips in several meme coins over the past few months, including the likes of Dogecoin (DOGE), Shiba Inu (SHIB), SafeMoon (SAFEMOON), and several others.

While many investors avoid meme coins because of their volatile nature, the payoffs are usually worth the risk.

Investment Recommendation: Good

Privacy Coins

While they claim to be anonymous, Bitcoin and other mainstream cryptocurrency are not completely anonymous. Transaction histories on mainstream cryptocurrencies are readily available to anyone interested in viewing it. With privacy coins, however, it is a different story. Transaction histories are totally out of reach from inquirers.

While transactions are used for legitimate purposes, like protection of privacy or avoidance of tyrannical governments, they are heavily used for shady transactions. This places privacy coins in a position where widespread or mainstream adoption is unlikely.

Investment Recommendation: Poor

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Layer 2 ETH Solutions

Layer 2 ETH solutions are crypto projects built on top of a blockchain and require no changes to the Layer 1 network (Layer 1 refers to the underlying blockchain architecture being used and changes to this network are cashed Layer 1 solutions. Examples include Bitcoin and Ethereum).

While Layer 2 solutions have to leverage the security of the consensus mechanism of the host Layer 1 network, they are capable of increasing transaction speeds dramatically. On average, Ethereum’s Layer 1 can handle about 15 transactions per second, while Layer 2 projects can facilitate up to 4,000 transactions per second.

Some examples of Layer 2 ETH solutions include Polygon (MATIC), OMG Network (OMG), Cartesi (CTSI), and many others.

Investment Recommendation: Good

Conclusion

The primary objective of an investment-based venture (like trading cryptos), above everything else, is to realize profits. That said, it is advisable to take time in understanding exactly what it is you might be putting your capital into to give you a better knowledgeability grasp of your investment of choice. Investing in the crypto sector based on a sectoral perspective gives you an edge over the rest of the market.

Source: https://learn2.trade 

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