Is It A Good Idea to Invest in Cryptocurrencies?
Like all forms of
investments, cryptocurrencies are considered a highly risky asset class.
Therefore, it is extremely crucial to conduct independent research before
deciding on them. Always relying on information from social media feeds
(Twitter, Reddit, and Facebook) could lead you to irrecoverable losses in the
short and long term. As a result, you must analyze digital assets based on
considerations. These considerations comprise the pros and cons of investing in
a particular asset, the price performance of the cryptocurrency, commentary
from major players in the game, and the price forecasts from credible
forecasting portals that use fundamental and technical analysis to determine
the potential prices of digital assets in the future.
It has been almost two
decades since the introduction of centralized exchanges. Following the
success of popular exchanges such as eToro which was established in 2006,
thousands of centralized exchanges have emerged to help traders and investors
trade stocks, indices, metals, commodities, contracts for differences (CFDs),
and exchange-traded funds (ETFs). Not long after the addition of centralized
exchanges to existing ones, Satoshi Nakamoto introduced Bitcoin and blockchain
technology to the centralized finance space in 2009.
The possibilities of
blockchain technology and the success of Bitcoin resulted in the creation of
several altcoins. The continuous success of cryptocurrencies led to the
creation of decentralized exchanges (DEXs) to supplement the efforts of
centralized exchanges (CEXs).
One of the most
successful cryptocurrencies aside from Bitcoin has been Ether (ETH). The novel
token of the Ethereum Network was founded by Vitalik Buterin. Ethereum enabled
smart contracts and this made it possible for the introduction of decentralized
finance applications or protocols, normally referred to as DAPPS.
With the novel tokens
of such platforms known as DeFi coins or alternate coins (altcoins) available
for trading, decentralized exchanges have emerged and become a mainstay in the
decentralized finance sector. Among them are Uniswap, Sushiswap, and
PancakeSwap among others.
This article focuses
on exchanged-backed cryptocurrencies which are Binance Coin (BNB), Uniswap
(UNI), and Sushiswap (SUSHI),
and the pros and cons of investing in these cryptocurrencies which can help
answer questions such as Should I buy Binance
Coin (BNB), Should I buy Uniswap
(UNI), and Should I buy Sushiswap (SUSHI)?
Uniswap (UNI)
Uniswap is the most
popular decentralized application (DAPP) on the Ethereum Network. Hayden
Adams is the software developer who founded Uniswap as an ERC20 token
on the Ethereum Network in November 2018.
As a decentralized
exchange (DEX), Uniswap allows peer-to-peer cryptocurrency transactions without
any intermediaries in a safe and secure environment. The primary purpose behind
the creation of Uniswap is to simplify the trading of digital assets.
Since centralized
exchanges sometimes lack the needed liquidity to facilitate transactions, most
of their transactions take relatively long periods to initiate and can be
costly. Uniswap has come into the exchange space to ensure there are no
slippages and that all transactions are executed on time. The novel token of
Uniswap is called UNI. This token governs the DEX. Holders of the token control
the community’s treasury. Due to the popularity of the decentralized exchange,
UNI is one of the most demanded cryptocurrencies in the market today.
UNI became a crypto
trading asset on Thursday, 17th September 2020 with an opening price of $1.10. Buoyed by the cryptocurrency boom in the
last quarter of 2020, UNI benefitted extensively and traded for a coin at $3.98 on the opening day of December.
The digital asset closed at $5.17 on
the last day of the same month. In the space of 3 months of trading, UNI
returned 370% for investors.
The year 2021 has been
tagged as the year of cryptocurrencies and more especially decentralized
finance (DeFi). With institutional investments and interests from
unsophisticated traders and investors (people who do not carry out fundamental
and technical analysis before making investments), UNI followed in the paths of
parent crypto Bitcoin and has reached new all-time highs. In the process, the
cryptocurrency closed February at $22.19, March at $27.99, and April at $40.70.
In May, the price of
UNI received a major boost with the announcement of the unveiling of the
Uniswap Version 3 upgrade.
According to the team behind the
decentralized exchange, it aims to make Uniswap the most flexible and efficient
automated market maker ever designed. The effect of this upgrade is the
promotion of up to 4,000 times the capital efficiency of what Version 2 was
used to. Additionally, the upgrade has introduced concentrated liquidity and solved the problem of low slippage.
Since slippage normally occurs when there is a difference
between the expected price of a trade and the price at which the trade is
executed, this upgrade on Uniswap reduces this risk. Uniswap, therefore, can
offer executions that surpass several centralized exchanges and
stablecoin-focused automated market makers (AMMs). Since UNI can be used in
token staking, the feature of concentrated liquidity helps liquidity providers
choose the range of prices they would like to allocate their capital. This
increases the rewards LPs enjoy in the process.
The resultant effect
of the announcement was the soaring of UNI to a new all-time high of $44.97
on Monday, 3rd May 2021. News on Elon Musk's delisting of BTC as an option
of payment for Tesla products coupled with China’s stance on cryptocurrency as
a danger to centralized finance led to a bearish market towards the end of May.
After seeing all cryptocurrencies plummet to new high lows, UNI has been
recovering after reaching lows of $13.09
on Sunday, 23rd May 2021.
Despite the dip in
prices in May, June, and July and the recovery of prices in August, several
analysts across authentic forecasting platforms such as Wallet Investor,
Trading Beasts, Digital Coin Price, CoinPedia, Ripple Coin News, and Coin Price
Forecast remain bullish on the future price patterns of UNI. UNI has a lot of
factors that can see it increase to new price milestones in the short and long
term.
● The Total Valued
Locked (TVL) in Uniswap reached more than $6 billion in August 2021.
● Uniswap had 132,190 traders on its
exchange in the last 7 days (Tuesday, 10th August 2021 to Tuesday, 17th August
2021).
● What’s more, Uniswap
controls 65.6% of the decentralized
exchange space and as well continues to see more than $1 billion transacted on the exchange daily.
● From June to August
2021, UNI has recorded at least $200 million as daily trading
volume. Trading volume plays an essential role in conducting fundamental and
technical analysis. Such a statistic means that the asset is in demand by
millions of people who believe in the possibilities of the cryptocurrency for
the foreseeable future.
● Analyst Elena Rozy at CoinPedia believes that improvements
within the protocol could see UNI command a minimum trading price of $52.3 by the year’s end of 2021.
Binance Coin (BNB)
Binance is the largest
regulated cryptocurrency exchange in the world. Founded in 2017 by Chanpeng
Zhao, the exchange provides an interface that is easy to operate. Due to the
experience of Zhao in the creation of high-frequency trading systems, users of
Binance and investors of Binance Coin (BNB) could be rest assured that the
security of the exchange cannot be questioned.
The popularity of the
cryptocurrency exchange has led to increased demand in its native crypto asset
called Binance Coin (BNB). BNB
provides an alternative way of paying for fees charged to traders who use the
exchange. Aside from this, BNB can be used to pay for online services, goods,
in-game rewards, and work completed by freelancers. This confirms the extensive
use case of the cryptocurrency.
BNB became a crypto
trading asset on Monday, 14th August 2017 with an opening price of $1.43. The token benefited immensely from the
soaring of BTC towards the end of 2017 where the parent crypto crossed $20,000 for the first time in its
trading history. BNB closed on the last day of the year with a price of $8.48. In the space of 4 months, the
exchanged-backed cryptocurrency returned 493.007%
gains for investors.
After the coronavirus pandemic
brought the financial markets to new lows in March 2020, BNB and other digital
assets reached new high lows. This later resulted in an uptrend towards the end
of the year as a price of $37.76 was written next to BNB on the last
day of 2020. This happened after a huge influx of traders from all walks of the
financial world took advantage of the boom in cryptocurrencies.
BNB has performed well
in 2021, reaching an all-time high of $690.93 on Monday, 10th May 2021.
Due to the bearish
outlook that ensued after the soaring prices of digital assets in May 2021, BNB
was among the cryptocurrencies that were hit hard. It reached a new high low of
$213.52 on 23rd May 2021.
Resurgence in the
price of cryptocurrencies has got numerous analysts forecasting positive price
patterns for BNB in the not-so-distant future.
The primary drivers
behind a potential boom in the price of BNB can be attributed to,
● Binance reached as
high as $25.54 billion in volume over a 24-hour period on its
exchange in a research conducted by Statista on Monday, 16th August 2021. BNB
has been seeing huge liquidity through its usage in settling fees.
● BNB continues to see
great investor interest which is represented by as much as $2.5 billion in trading volume in
the last 24 hours up to the time of writing.
● Binance Coin continues
to be involved in more transactions as a result of Chanpeng Zhao moving Binance
from the Ethereum Network to Binance Smart Chain in September 2020. With BSC
capable of processing at least 1.4 million orders per second, the use rate of
BNB continues to soar proportionately.
● BNB is used as
collateral for crypto-backed loans. Trusted lending institutions NEXO,
YOUHOLDER, INLOCK, and KAVA LABS allow their users to employ BNB to secure
loans.
● What’s more, BNBs
circulating, total, and maximum supply are the same. What could this
mean? This means that BNB has reached the point of scarcity. Once this happens,
the laws of demand and supply can take place. This could see BNB reach new
price milestones when demand for the token is greater than its supply.
● Analyst Arslan Butt at
FX Leaders foresees positive crypto market sentiment,
expansion of the Binance cryptocurrency exchange, global politics, and crypto
policies to drive BNB to at least $700 in the short term and $4,000 in the long
term.
SushiSwap (SUSHI)
SushiSwap is one of the most
popular cryptocurrency exchanges. Chef Nomi is the pseudonymous entity
behind the creation of SushiSwap. As a fork of Uniswap, it has played a major
role in the decentralized finance (DeFi) movement and investors’ quest for DeFi
tokens in 2021.
Created with much
controversy since it was seen as a primary competitor to the most popular
decentralized application on Ethereum, Uniswap, it has been able to break away
from Hayden Adams’ creation and currently command a strong user base. Its
independence comes in the light of being tagged as a decentralized multi-chain
exchange since it also operates on Binance
Smart Chain, a highly scalable platform called Fantom, and layer 2 scaling solution Polygon aside from running on Ethereum.
SUSHI is the native
asset of SushiSwap and it’s the token used to reward holders with a portion of
transaction fees. Like most DeFi tokens, SUSHI entitles holders to governance
rights. SushiSwap controls 12.3% of the decentralized
exchange space. The cryptocurrency exchange continues to record impressive
volumes. The 7-day (11th August to
18th August 2021) volume is more than $10
billion and 33,614 traders have
accessed the exchange in the same time frame.
As per data retrieved
from CoinMarketCap, SUSHI appeared on
cryptocurrency exchanges on 28th August 2020. It opened at $3.40 and unlike other altcoins had more than $9 million as the day’s impressive trading volume. Selling engulfed
the cryptocurrency market in the last quarter of 2020 for investors who wanted
to cash in on their gains. Notwithstanding the selling pressure, SUSHI shed a
relatively small percentage of its price and closed the year on 31st December
2020 at $2.86.
With an improvement in
the price of all cryptocurrencies heading into the end of the 1st quarter of
2021, SUSHI reached a new all-time high of $23.38 on 13th March 2021.
Despite the bearish
engulfing of the market towards the end of the 2nd quarter and the opening
month of the 3rd quarter of 2021, SUSHI continues to see millions of dollars in
trading volume. According to analyst David Cox at CryptoNewsZ,
“The need to obtain SUSHI tokens to participate in the pool also marked
positive price changes at the beginning of the second quarter of 2021.” The
analysts foresee SUSHI command a price of $16
by the end of 2021 and $25 in the
early days of 2025.
With the use of
decentralized oracles such as Chainlink Oracle Solution, SushiSwap TWAP, and
Compound’s Open Power, SushiSwap will continue to deliver real-time data in the
interest of its users. In the long term, the liquidity being poured into the
exchange will reflect positively on its crypto token.
The Bottomline – Should You Buy Uniswap (UNI),
Sushiswap (SUSHI), or Binance Coin (BNB)?
According to the price
forecasts by various analysts and experts across tens of prediction portals,
UNI, BNB, and SUSHI are worth buying in the short and long term.
With that said, as a
trader or investor you must know that investments come down to two factors
(risks and rewards). Therefore, we must analyze the question; do the potential
rewards of investing in Uniswap, Binance Coin, and SushiSwap outweigh the
possible consequences of the risks?
The exchange-backed
cryptocurrencies have strong pros such as being involved in transactions
through its use as collateral in the acquisition of crypto-backed loans,
through staking which helps provide fast throughput when processing
transactions to avoid slippages. The DeFi tokens continue to see huge investor
interest through the millions of daily trading volumes they record.
On the other hand,
several traders prefer using centralized exchanges to decentralized systems.
Moreover, since UNI, BNB, and SUSHI are altcoins, they are susceptible to
unfavorable news around Bitcoin. Lastly, cryptocurrencies continue to be
engulfed in regulatory concerns which can lead to sharp gains and recessions
within a short period making them highly volatile.
So, is Uniswap a good
investment? Is it worth investing in SushiSwap? Should I buy Binance Coin? UNI
has returned more than 500%, SUSHI has returned
more than 333.916%, and BNB has
returned more than 900% for
investors who believed in the digital assets on the 1st day of 2021.
Perhaps, now could be
the time to purchase these exchange-backed cryptocurrencies so that you may not
miss out on any gains in the future.
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