Cryptocurrency Investing
How to Start Investing in Cryptocurrency
When it comes to cryptocurrency investing, a lot of research and due diligence is truly needed. But with a little of help and following this guide, you can learn the secrets of cryptocurrency investing in just 9 minutes.
It is no secret that many of us are generally more wary about investing in cryptocurrencies, given their volatility. There’s also a problem of lack of adequate resources out there to help beginners go about cryptocurrency investing.
If you’re considering spending money on cryptocurrencies, it may be best to recognize that you run the risk of losing money. However, investing in cryptos could also prove to be the best saving decision of your life.
Before diving deeply into how you invest in cryptocurrencies, it is important to underscore their value.
What is cryptocurrency?
Cryptocurrency, also called cryptocoin or crypto, is a form of digital or virtual currency that is powered by blockchain technology. In short, cryptocurrency is a medium of exchange — similar to paper money, except that it has no physical form and exists only in the blockchain network.
Cryptocurrency has no intrinsic value. It cannot be redeemed for a physical commodity like diamond or gold. That means cryptocoins are used solely as a means of payment. The network that supports cryptocurrency is completely decentralized, thus the supply of cryptocoins cannot be determined by a central entity like a bank.
Which cryptocurrencies are there on the market?
You’ve probably heard of Bitcoin — the peer-to-peer electronic cash system. It was the first cryptocurrency to be created and is still the most popular today. Litecoin (LTC) is another emerging cryptocoin that uses the same technology as Bitcoin. Other altcoins that rival Bitcoin include Ethereum (ETH), Monero (XMR), Dash (Dashcoin), and Vertcoin (VTC). These altcoins are gaining market share at an alarming speed, perhaps fueled by a widespread adoption by people who once skeptical of Bitcoin and blockchain technology.
Are cryptocurrencies similar to stocks or securities?
Quick answer — yes. To some extent, cryptocurrencies are fiat money because they share more similarities with stocks or securities than conventional currencies. Both fiat currency and cryptocurrency are mediums of exchange that are used to store and transfer value, both can be traded at exchanges, and both have their value governed by supply and demand.
A notable difference between crypto and fiat money is that fiat takes the form of physical dollars, bank credit or bonds whereas cryptocurrency is a decentralized digital medium of currency underpinned by blockchain technology.
In actuality, when you purchase cryptocurrency, you are simply buying some digital asset, a part of the blockchain that supports that coin.
How can I acquire cryptocurrency?
The easiest way to acquire cryptocurrency is to purchase it at online exchanges. Exchanges are online marketplaces where people use fiat money to buy and trade cryptocoins. Before choosing an online exchange, look out for their quality and reliability in term of liquidity, security, spread, trading volume, fees, insurance, purchase and withdrawal limits, and user-friendliness.
Coinbase, in particular, is a great exchange with user-friendly interface ideal for beginner investors.
In order to trade cryptocoins via Coinbase, you need to set up an intermediary bank account and verify your details. With Coinbase, you can buy Bitcoin instantly and exchange it for other cryptocurrencies seamlessly.
Besides Coinbase, there are many other exchanges that allow you invest in a wide range of cryptocurrencies, such as Bittrex, Kraken, Bitfinex, Poliniex etc.
Tip: Always verify your account with details early when signing up on any cryptocurrency exchange platform. You do not want to be caught in the middle of some tedious and time-consuming verification process when the trading opportunity presents itself.
Why cryptocurrency wallets?
Sometimes you may feel uneasy keeping your crypto funds on exchanges after you’ve purchased them. If that’s the case, you have the option to store your cryptocoins in a free and secure digital wallet. Keeping your funds in a cryptocurrency wallet reduces the risk of losing your savings on the exchange platform.
Cryptocurrency wallets are either software-based — like the ones that reside on your mobile phone, tablets or computer, and physical hardware based wallets. Each wallet has a private key required to receive and send coins to and from your address. The keys are stored in an inherently more secure hardware wallet. This keeps the cryptocurrency safe from hacking or fraud.
It is worth noting that while software-based wallets are easy to use, hardware wallets offer the best option if you want to keep multiple cryptocoins (BTC, LTC, ETH, VTC, DASH, XMR etc).
How much should you invest in cryptocurrency?
You should only buy as much as you can afford to lose. Cryptocoins are still new and a hyper-volatile assets class. Because of the unpredictability of cryptocurrency markets, I would urge that you take caution.
Essentially, most financial experts suggest you live by the 50–30–20 rule. What this means is 50 percent of your income should go to necessities, 30 percent towards discretionary spending and 20 percent towards saving.
In that case, consider investing some 10 percent of that 20 percent you’re saving, in cryptocurrency. Additionally, within that cryptocoins portfolio, make sure you diversify your coins by factoring in potential risks.
The Secrets to Cryptocurrency Investing
Now here is where you need due diligence and prior research.
Cryptocurrency investing is a crazy bull market currently. The market is so bullish it doesn’t really matter which coins you should go along with. But the high demand for cryptocurrency makes buying and holding the safest bets for higher returns.
Still, ask yourself these questions before you decide to trade crypto:
Are my investments safe with this development team? To ensure preservation of your capital, ask if you can trust that particular cryptocurrency development team with your money.
What are the long-term plans for my coin of interest? Check out the goals and timelines of the development teams and how they are working towards attaining those goals.
How long should I stay in this and what’s my exit plan? If you don’t want to hold some coins forever but want to flip for some short-term gains, make sure you set a plan along with your timeframe and exit price.
What can you do with the coins? Some coins keeping increasing in value simply because the demand is high, but they may not have a long-term supported value. This may not be sustainable and may soon turn out to be a get-rich-quick scheme. Look out for such coins.
Tip: Consider short-term trading with margin if you want to make money in a crazy crypto bull market. Here, you take advantage of pre-announcements to make quick bucks. The key to cryptocurrency investing is to be a smart investor — act fast, take profits, or go along.
Disclaimer: The information provided on this guide should not be taken as a professional investment advice. Take due diligence before putting your money into cryptocoins.
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