Investing in cryptocurrency is complicated and risky.
Some have made a lot of money buying in at the right time. Many more have lost nearly everything, most recently when the crypto market came crashing down in May — losing nearly $2 trillion in value.
Through all the ups and downs, crypto has boomed in popularity over the past year, drawing waves of new investors who face a steep learning curve with potentially high stakes. Still, there are ways you can empower yourself to make the best possible decisions if you’re interested in investing in crypto.
That’s why we created the NextAdvisor Investability Score, which uses a mix of quantitative and qualitative factors to give crypto investors a comprehensive view of a coin’s performance.
As a highly speculative, volatile investment, cryptocurrency prices fluctuate by the minute — sometimes drastically — driven by speculation, hype, and even the whims of social media. The recent crypto market crash is a prime example. That’s why the NextAdvisor Investability Score is also dynamic, changing daily as the performance of individual coins and the overall crypto market ebb and flow.
Bitcoin plummeted to its lowest price in more than a year in May, and other cryptocurrencies saw even worse sell-offs amid a broader stock market rout. The collapse of popular stablecoin TerraUSD and sister token Luna highlights why it’s important to proceed with caution when investing in cryptocurrencies. After TerraUSD de-pegged from its 1-to-1 exchange rate with the U.S. dollar, its sister token Luna quickly plummeted in value as well — and many investors lost a lot of money. It highlights the uncertainty inherent in a market that is still in its infancy but also increasingly mainstream by many measures.
Whether it’s investing in crypto or any other big financial move, like buying a home or paying off debt, we want to help you make smarter decisions when it comes to your money. While we may present partner offers on our website, our Investability Score was created independently by our writers and editors, without any influence from partners or business interests.
Top Cryptos by NextAdvisor’s Investability Score
Bitcoin has the highest score of all cryptocurrencies, with ethereum close behind. As the first and most established cryptocurrency, bitcoin has become the de facto standard for cryptocurrency investments. It has the longest track record and has shown itself to be a better fit for holding and increasing in value than other newer coins, which remain much more speculative and unpredictable.
Ethereum is the largest and most valuable altcoin by far, and along with bitcoin is one of the two cryptocurrencies many experts say represent the best starting point for new investors. Our score considers bitcoin and ethereum to represent a ceiling of sorts, so all other cryptocurrencies are in effect weighed against bitcoin and ethereum.
Here’s how our score shakes out for 10 cryptocurrencies that are consistently among the top by market cap, excluding stablecoins, for reference:
|Coin||NextAdvisor Investability Score|
|Binance Coin (BNB)||49/100|
Here is a deeper dive into what goes into NextAdvisor’s Investability Score:
How We Choose Tokens or Coins We Score
There are thousands of different cryptocurrencies. We score the ones we believe can be most beneficial for readers and which we see most interest in. While our goal is to ultimately score and cover as many available cryptocurrencies as we can, we prioritize which coins or tokens we review based on consumer interest and notability.
That’s why we started by scoring the top cryptos by market capitalization. From there, we may also score coins based on public interest and other factors that could increase the likelihood of investors considering certain coins for their portfolios. We exclude stablecoins from our scoring model because they’re typically pegged to fiat currency, like the U.S. dollar, and as such aren’t typically considered investments.
We determine prospective investor interest in different coins based largely on our knowledge of the crypto market, but there are a few factors that help base our decisions on data and quantitative factors: the top cryptos by market cap; which cryptos consumers are searching for most often online; age, liquidity; value growth; experts’ recommendations; and use case, or the real-world problem it is trying to solve.
Notability also factors into our decision to review a cryptocurrency: When a crypto’s market cap increases substantially, or when an industry-changing crypto project comes along, for instance. These won’t always lead to full evaluations and ratings on NextAdvisor, but we use our knowledge of the overall industry and aforementioned measures of interest to determine when it makes sense to include notable cryptocurrencies in our evaluations.
Investability Score Methodology
We’ve interviewed more than 100 experts over the past year to help us explain cryptocurrency to new investors. We’ve talked with them about the risks, the upsides, and how to evaluate the investment potential of any cryptocurrency.
We asked a number of trusted cryptocurrency experts specifically about the NextAdvisor Investability Score, and how to make sure it accurately represents the crypto market. They shared what they look at when evaluating cryptocurrencies as potential investments, and what other investors should know. Here are some of these experts whose insights have been particularly helpful in our effort to create an Investability Score that provides an accurate reflection of different cryptocurrencies and the market as a whole:
Chris Chen is a financial advisor and CEO of Insight Financial Strategists, a Boston-based financial planning firm. Chen provides financial planning, retirement planning, investment management, and divorce planning services to help clients organize, grow and protect their assets. With the rise in interest in bitcoin and cryptocurrencies, Chen realized the importance of understanding this emerging asset class for the benefit of his clients. Chen regularly comments on the crypto markets and provides expert advice on crypto investing.
Wendy O is a crypto expert and educator who has amassed a large following of crypto enthusiasts across several social media platforms. O regularly provides expert commentary on the crypto markets, reviews crypto services, speaks at live crypto events, consults businesses on crypto, and more.
Kiana Danial is a personal finance expert and the founder of Invest Diva, a company that teaches women how to invest. She is the author of “Cryptocurrency Investing for Dummies,” and regularly talks about investing in crypto as a way to diversify your overall investment portfolio.
How It Works
To create our Investability Score, we developed a framework to evaluate cryptocurrencies using a weighted average score between 0 and 100 based on a total of nine quantitative and qualitative factors. Quantitative factors are grouped in a performance bucket and qualitative factors are grouped in a trustworthiness bucket. Performance makes up 55% of the total score, while trustworthiness makes up 45%.
We do this because the quantitative factors that make up performance, such as market cap and liquidity, tell only part of the story for crypto investments. Smart investors should also take a coin’s trustworthiness, like use case or project backing, into account when considering crypto investments. The coins with the highest scores deliver on both performance and trustworthiness.
For performance, we also use a relevant peer group — the top 85 cryptos by market cap — as a basis for comparing cryptos, so our score is constantly and dynamically consistent with the fast-moving broader crypto market. The goal is to give you a comprehensive view of a coin’s performance. Higher weights are given to the criteria we determine to be most important.
Here’s a further breakdown of all the factors we use to determine our Investability Score for different cryptos:
Market capitalization is the total value of a cryptocurrency, and experts say it’s a key factor when evaluating a crypto’s investment potential. In general, the higher the value of the market cap the safer the investment. Coins that have larger market caps will have higher scores, because those coins have larger-scale buy-in and are less susceptible to short term-fluctuations.
Liquidity is a crucial component of market interest in a given coin. The more liquid a market is, the better. It reduces investment risk; and, importantly, helps define your exit strategy — more liquidity makes it easier to sell or trade your investments when you…
Read More: Cryptocurrency Investability Score | NextAdvisor with TIME