Cryptocurrency might have started out as a Wild West of investing dominated by mavericks, but it's now firmly in the financial mainstream. Institutional investors and big banks treat it as a serious asset, even during a year marked by volatility and regulatory crackdowns in China and elsewhere.
If you need evidence of how volatile, consider this: As of Dec. 20, Bitcoin's value has ranged from a low of $22,159.37 to an all-time high of $68,789.63 over the past year.
Despite that volatility, many crypto investors remain on the lookout for the next big payoff. Keep reading to learn which cryptocurrencies might explode soon.
Before figuring out which crypto might be the next big winner, it helps to understand why so many investors are gravitating toward cryptocurrency in the first place. Much of it has to do with a fundamental change in how digital assets are perceived, said Jeff Dorman, chief investment officer at Arca, a financial services firm that specializes in digital assets.
"I believe we are in the early stages of a multi-decade secular shift towards digital assets, as the evolution from an analog to digital world has been transformed forever due to COVID-19," Dorman told GOBankingRates in an email.
He says this asset class "has now evolved far beyond cryptocurrencies" to decentralized finance, non-fungible tokens and other investment vehicles.
But much of the public attention remains focused on crypto - largely because of the huge potential profits. When trying to identify the next big cryptocurrency, two things to keep an eye on are similar to what a stock investor would keep an eye on: market capitalization and price.
Market cap works for crypto because it shows how much has been invested in a specific network. As a general rule, the larger the market cap, the more stable the asset, though it also means the coin has less room to grow. It's also important to keep an eye on the price to determine whether investors are bullish or bearish on the crypto.
To buy cryptocurrency, you'll need to a broker or crypto exchange. Your decision to go with one or the other largely depends on your level of experience.
A cryptocurrency exchange is a platform where both buyers and sellers meet to trade crypto. Popular exchanges include Coinbase, Binance.US and Gemini. Exchanges typically have low fees, but they also feature complicated interfaces with multiple trade types and advanced performance charts. They are better suited for experienced crypto investors.
In contrast, cryptocurrency brokers feature much simpler interfaces that interact with exchanges for you. The downside is that some brokers charge higher fees than exchanges, and the selection of coins you can trade is more limited. You might also face certain restrictions, including restrictions on your ability to move crypto holdings off the platform. Well-known crypto brokers include Robinhood and SoFi.
After you've settled on a broker or exchange, you'll need to open an account and, in some cases, verify your identity. The next step is to deposit money into your crypto account by linking your bank account, authorizing a wire transfer or making a payment with a debit or credit card. Just keep in mind that credit card companies usually treat crypto purchases as cash advances, which carry much higher fees and interest rates than regular purchases.
The final step is placing your crypto order. This might involve entering a ticker symbol, such as BTC for Bitcoin. You will also need to indicate how many coins you'd like to purchase. Most exchanges and brokers let you purchase fractional shares of cryptocurrency. For fractional purchases, you'll specify a dollar amount instead of the number of coins.
So now that you're ready to start buying cryptocurrency, the question is: Which crypto will bring the biggest potential return? Although Bitcoin might be the obvious choice, it's not necessarily the best one in 2022. Your chances of having a big payoff might be better with a smaller coin that hasn't already been pumped up by institutional investors the way Bitcoin has.
Here are five cryptos that still have a high ceiling.
Ethereum, commonly known as Ether, is the world's second-largest cryptocurrency behind Bitcoin. Earlier this year, it instituted a major upgrade that included reducing the supply of Ether, currently at 118.82 billion coins. The upgrade also allows the Ethereum network to handle more transactions per second and improve the platform's scalability and lower transaction fees.
Binance is one of the most successful crypto exchanges in terms of trading volumes and is the third largest in terms of market cap. Like Bitcoin, Binance Coin keeps a hard limit on the number of tokens in circulation - in its case, 166,801,148 tokens, all of which are in circulation as of December 2021. This helped the token price increase exponentially in 2021. In addition, Binance puts about one-fifth of its profits each quarter into getting rid of, or "burning," BNB tokens, which raises the value of the remaining tokens.
Tether is a type of "stablecoin" designed to provide a less volatile alternative to Bitcoin because it is linked to another asset. In Tether's case, that asset is the U.S. dollar. In valuation terms, Tether has a 1-to-1 ratio with the dollar, meaning it is less speculative than cryptos such as Bitcoin and Ethereum. The big advantage of Tether is that it lets you make transactions in traditional currencies rather than having to dive into complex digital currencies.
Decentraland is a virtual reality game on the Etherium blockchain that uses the MANA token as an in-game currency. Users can purchase goods and services, buy land and visit other players' as well as create and monetize their own content. MANA's current price of $3.29 represents a 4,600% increase from its 52-week low of about 7 cents.
ALGO, founded by noted computer scientist Silvio Micali, has positioned itself as a competitor to Ethereum. It got a huge lift this year when El Salvador said it would establish its blockchain infrastructure using Algorand. More recently, the venture capital firm Borderless Capital launched a $500 million fund to invest in digital assets that power decentralized applications on Algorand, Blockworks reported. One of ALGO's biggest advantages is its "proof-of-stake" algorithm, which requires less electricity than Bitcoin and other platforms. This feature will only grow in importance as cryptocurrencies face more criticism - and possible regulation - for their massive energy consumption.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Dec. 20, 2021, and subject to change.
This article originally appeared on GOBankingRates.com: What Is the Next Big Cryptocurrency To Explode in 2022?