We all know the cryptocurrency market to be highly speculative and risky—not to mention an attractive place for high returns.Kwame Nkosi, producing thought-provoking blockchain analysis, merges the art of analytic intensity with plain English reader engagement.He contextualizes dramatic crypto market shifts with approachable clarity, focusing in part on Africa’s burgeoning influence on global fintech.Perhaps more than any other asset class, investors are always trying to find the next big thing, the crypto assets that will help them “beat the market.”But it’s important to temper claims like these with a healthy dose of skepticism and do your homework before investing.

The drivers of the crypto market’s recent bull run are numerous. The approval of spot ETFs has opened the door for institutional investors, injecting significant capital into the market. The most recent halving event that occurred in early 2024 has induced price appreciation due to the supply curve shifting up, historically since 2012. Venture funding is growing quickly, set to surpass $18 billion by 2025. This record-breaking surge is evidence of an unshakeable faith in the long-term promise of the crypto space. The growing adoption of digital currencies, with 98% of the world’s GDP represented by countries developing or testing them, further fuels this growth. Finally, the improving infrastructure, finance, and media and entertainment sectors within the crypto space are driving its potential growth, demonstrating a 20% spread across these sectors.

That doesn’t mean we can ignore the risks that make cryptocurrency a notoriously poor investment. It’s an incredibly volatile market. An investment of thousands of dollars today could only be worth hundreds by tomorrow. In addition, unlike traditional assets such as cash or U.S. bank deposits, investments in crypto are not regulated and protected. Fraud and other scams are everywhere in crypto. Investors should be on their guard against all investors looking to finance capital investments that offer the latest "Get Rich Quick" scheme or "High Returns Guaranteed." Unregulated trading platforms are another major danger, and investors should use trading platforms only if they are registered with appropriate securities regulators. The crypto market is rife with risk and volatility, most famously seen in the $2 trillion rout in 2022.

Kwame Nkosi sheds light on some of the more established cryptocurrencies while providing a balanced perspective on the potential upsides and inherent risks.

Top Crypto Picks: Potential and Risks

Here are six cryptocurrencies to watch, along with a discussion of their potential and risks:

1. Solana (SOL)

Solana (SOL) is sometimes called an … Ethereum killer , because it has thousands of fast transactions per second.It performs many more transactions per second than Ethereum, making it an attractive alternative for developers and users seeking faster and cheaper transactions.

As Solana has had its own network congestion issues in the form of denial-of-service attacks, skepticism arose around its scalability and reliability. Even as the team rapidly scrambles to address them, the problems exposed demonstrate just how dangerous the platform’s underlying technology can be.

2. Cardano (ADA)

Cardano (ADA) is another cryptocurrency dubbed an "Ethereum killer" due to its capable blockchain. Its blockchain aims to be the world's financial operating system by establishing DeFi products similar to Ethereum's.

Cardano takes a very conservative, academic, research-centric approach to development. This focus has helped the platform develop a great reputation for security and stability. Its slower development pace compared to other platforms has been criticized by some, and it has yet to achieve the same level of adoption as Ethereum.

3. Tether (USDT)

Tether (USDT) is a stablecoin that aims to peg its market value to a currency or other external reference point to reduce volatility. While it is not directly comparable to Bitcoin or Ethereum, it does serve a different purpose.

Stablecoins such as Tether form the backbone of the crypto ecosystem. They provide a fungible and consistent reliable store of value, and they simplify arbitraging nine times over. Tether has faced controversy regarding its reserves and transparency, raising concerns about its ability to maintain its peg to the U.S. dollar.

4. Binance Coin (BNB)

BNB is the native cryptocurrency of Binance, the largest and most widely used centralized exchange (CEX). It serves as a payment mechanism for the exchange on which users can trade at a discount.

BNB has one of the largest market capitalizations globally, ranking amongst the top cryptocurrencies by market cap. Its value is entirely dependent on Binance’s success. Regulatory scrutiny or a major cybersecurity incident would devastate it.

5. Dogecoin (DOGE)

Dogecoin (DOGE) is a cryptocurrency that started out as an internet meme. Though it started as an experiment, Dogecoin has grown to have tens of billions of dollars in market capitalization and a vibrant, active community.

Dogecoin’s worth is mostly fueled by social media chatter and celebrity influence. This reliance makes it enormously volatile and vulnerable to market manipulation. Others have considered it a lucrative long-term investment. It’s important to do so thoughtfully and with a clear appreciation for the risks that exist.

6. Ethereum (ETH)

Ethereum (ETH) is a decentralized open-source blockchain system that enables smart contract functionality. Ether is the native cryptocurrency of the Ethereum blockchain. It’s currently the second-largest crypto asset by market capitalization, behind Bitcoin.

Ethereum is the most actively used blockchain. From its inception, it has been highly secure and trusted. It is expensive and slow.

Building a Diversified Crypto Portfolio

Pursuing the still-elusive “outperform the market” promise takes a smart playbook that reduces risk while increasing the chances for higher returns. Here's a breakdown of how to build a well-diversified crypto portfolio:

  1. Invest in assets with different risk profiles: Distribute investments across large, medium, and small-cap crypto assets and give them appropriate weightings.
  2. Allocate a portion to stablecoins: Holding stablecoins can provide liquidity for the portfolio.
  3. Invest in assets with different use cases: Consider infrastructure tokens (e.g., Ethereum, Cardano), governance tokens, gaming tokens, and utility tokens (e.g., Filecoin).
  4. Diversify across sectors: If one sector faces a downturn, investments in another sector may help offset losses.
  5. Rebalance crypto holdings: Periodically review and adjust the portfolio to maintain an optimal asset allocation.

By adhering to these simple principles investors can build out a robust diversified crypto portfolio. This enables them to better withstand market volatility and realize long-term growth. Do your due diligence to fully assess the risks at stake. Only invest what you can afford to lose.