Different Categories of Cryptocurrencies
Cryptocurrencies can be confusing. With over 10,000 projects, selecting the right ones for your portfolio can seem like a thankless task as they each have different values, teams, significance, and properties.
When we look at it from an elementary point of view, crypto can be broken down into four rough categories, which broadly cover all of the current digital assets and their uses; cryptocurrency, stablecoins, tokens, and memecoins.
This guide breaks down each of these classes and their benefits, allowing you to create the best possible portfolio for your needs and goals.
So, you signed up to a crypto exchange such as Coinbase or Binance and laid your eyes upon the thousands of currencies available to you at a wide range of price points.
Now, each of these coins looks appealing, and they are only listed because of their utilities, right? Not entirely - there are four broad categories that most, if not all, currencies fall into as a result of their properties.
Let's explore these categories, why these currencies are useful, and what this means for you as an investor looking to build and grow your crypto portfolio moving forward.
Cryptocurrencies are the ones that spring to mind first. Currencies like bitcoin and ethereum are built onto their own native blockchain and were designed to enable faster, more secure exchange of value over the internet.
These are a staple part of a portfolio as they have a proven track record as a store of value, with the price of these currencies skyrocketing from fractions of cents, to hundreds and, in Bitcoin and Ethereum cases, thousands of dollars.
These currencies are suitable for the everyday investor as they act as both an investment and a viable currency. Ethereum and Solana are hugely popular with NFT projects and marketplaces, allowing you to buy, sell and trade seamlessly.
Stablecoins, as the name suggests, are much more stable than some of the more prominent cryptocurrencies as they are pegged to, and backed by, more traditional reserves such as a FIAT currency, gold, and cash equivalents.
As a result, coins such as Tether (USDT) are not subject to the same, sometimes violent, price swings that still impact some of the largest cryptocurrencies, often making these a safe haven for investors who want to avoid a withdrawal during times of uncertainty.
If you are looking to make money through cryptocurrencies, you would be better off avoiding stablecoins as they are best suited for digital transactions and being a bridge between FIAT and digital currencies.
Native Project Coins
These projects are where you will find hundreds of tokens. These currencies allow individuals access to specific projects and have unique properties depending on their value.
Chiliz (CHZ, see central logo below), for example, is native to Socios.com (see my other guides) and allows you to purchase fan tokens for your favourite teams for exclusive opportunities unavailable to those without the tokens. Without the initial purchase of CHZ, you cannot engage with the platform.
As a result, these currencies are essential if you are looking to engage with new or existing projects and are looking to go beyond just investing your money. If you do your due diligence, these can be amazing tokens to hold and can grow in value if the project takes off, but be sure to do your research when investing in projects as people are looking to rug pull these tokens, leaving you with a worthless token!
Possibly the riskiest of the investments, these coins are subject to the wildest price swings possible, sometimes fluctuating by hundreds of percent in short spaces of time; they have no intrinsic value beyond the community behind them, usually found in places like Discord and Reddit.
With an infinite supply of coins, currencies such as DOGE and SHIB may never hit massive highs, but if you are an experienced investor, you can make some good money with timely buys and sells. However, if you saw the recent Squid Coin news, you will know these are not immune from a rug pull, where the currency's value quickly plummets to zero!
Although not for the faint of heart, there is no reason meme coins cannot be a part of your portfolio. However, it is not recommended to make them the bulk of your portfolio due to the lack of stability and applicability beyond the exchange you purchase them from.
Cryptocurrencies can be fun and useful when used safely, and they can also be used to invest and trade, allowing you to make good money along the way. This guide has broken down into very broad terms the different coin types and what they may mean for you.
You will likely come across all of these classes on your crypto journey, and it is essential to know their properties before jumping in, understanding what currencies allow you what access.
If you are after the coins that offer the broadest uses, then traditional cryptocurrencies may be the best for you. If you are after stability, then, as the name suggests, stablecoins are a staple of your portfolio. To engage with projects, you will need some of their native tokens, and if you want to be a part of a community and are happy with a bit of risk, then meme coins are for you.
Be sure to follow our guides throughout your adventure; we can help you enjoy crypto every step. As with every investment, crypto can go both up and down. Because of this, be sure to do your due diligence before making any investments and only use reputable brokers that you trust when exchanging currencies.