By Larry Wright
Because of the widespread popularity of cryptocurrency exchanges around the globe, buying cryptocurrency has never been easier for a common person, and everyone is looking forward to investing in this bright future of digital assets. While a novice investor mostly buys every hot asset too early, the experienced ones ask a lot of different questions about cryptocurrency before they can consider themselves ready to invest in it. For example, they might be looking for the best time to buy, where to buy it, and how to keep it secure after investing.
In this article, we will find the answers to these questions together by taking a brief look at a few different factors you should consider before starting to invest in the cryptocurrency market.
Before we talk about anything else, let’s first understand how cryptocurrency actually works and how it can prove to be a valuable investment medium for you in the future.
Cryprocurrency’s Working Rules
If you are a new investor, one of the best cryptocurrencies for you to invest in is bitcoin. However, there are hundreds of other crypto coins as well, which you can consider for investment down the road.
Here are some of the most common similarities in every cryptocurrency.
Although cryptocurrency is very popular around the globe and gets the most amount of attention from the media and people, Blockchain is an equally important invention. In fact, one of the main features of every cryptocurrency is that it is based on Blockchain technology. The Blockchain is simply a public record of all the transactions done on its platform, which cannot be changed once they are added to the public ledger. This makes sure that cryptocurrency transactions are always traceable and closes the doors for so many potential frauds.
There is no central authority controlling Blockchain technology as well. That is because the whole Blockchain ecosystem is decentralized, and every person using the Blockchain platform on their device is helping to keep it decentralized. People also get rewarded for helping to keep the Blockchain system running. Therefore, no one can influence any decision on Blockchain, and no transaction can be deleted or reversed.
There are a few different types of blockchains used by cryptocurrencies. For example, Bitcoin, ETH, and Binance are all examples of independent blockchains.
Although Blockchain technology is very difficult to regulate, almost every government authority around the globe has shown keen interest in regulating this huge market. However, the crypto market is still largely unregulated, and you should never trust a fishy website you just found on the Internet to invest in it.
In addition to having their own separate Blockchain, crypto coins have their own underlying purposes as well. Bitcoin has been developed as the digital version of fiat money. Other coins might help you access different blockchains and projects. You can also invest in any cryptocurrency after checking out its objectives and key purpose.
Invest What You Can Afford to Lose
Since the crypto market is very volatile, you should only invest the money you can afford to lose in this market. This is just like any other high-risk investment investors indulge in on a daily basis.
In addition to doing the due diligence before investing, you should also try to diversify your portfolio as much as possible by including other crypto coins as well. Always choose the well-known projects which are already working for investors no matter how low their return might be. As you start to gain more knowledge about the market, you can afford to take calculated risks.
Calculate the Risk Beforehand
If you are an investor, you already know that every type of investment includes a certain amount of risk. The same is the case with cryptocurrency as well. However, the higher the risk, the higher your potential reward. But high-risk investments are very volatile, and you can end up losing most or all of your investment capital as well.
Cryptocurrency investment, in particular, is very high in risk, as it is a relatively new type of digital asset which fluctuates in value very quickly. But if you calculate the risk before investing in a crypto coin, it can leave you with huge profits as well.
Moreover, since the whole crypto marketplace is online, you will also have to face other types of risks like fraud and hacking attempts. Cryptocurrency frauds are usually common amongst newer investors who do not want to miss out on the next big crypto coin. Hackers can also target you and your device to steal your cryptocurrency right from your account. Due to the decentralized nature of cryptocurrency, it is almost impossible to trace the hackers.
Choose Carefully
After all the research and due diligence, it all comes down to the choice of crypto exchange you make when buying your first cryptocurrency. You will have to choose between centralized and decentralized crypto exchanges.
Companies that want to make a profit in exchange for providing exchanging services make centralized crypto exchanges. This way, they can easily charge you fees, depending on the amount of cryptocurrency you are looking to transfer between different wallets. These fees can eventually eat into your investment. Centralized crypto exchanges are even vulnerable to hacking attempts. If your country is on the list of supported areas on any of these platforms, you can easily create an account and start investing in cryptocurrency with as much or as little capital as you want.
If you want to go decentralized, you can create a crypto wallet digitally and become the sole proprietor of that wallet. You can easily add funds to that wallet in order to buy any type of cryptocurrency supported by it. These wallets can easily be connected to decentralized exchanges to enable you to buy any type of cryptocurrency.
When you are using a wallet attached to a decentralized exchange, you will have to use your bank account or credit card to top up the wallet with fiat currency and swap it with a stablecoin. Depending on the platform you are using and your bank account, you will be charged a specific fee on every transaction.
However, if you are just starting out, we highly recommend using a centralized crypto exchange. That is because it will keep your crypto safe and will help you reset your password, just in case you forget it. Some exchanges even provide you with insurance against hacking attempts and data breaches. However, for people who want complete control and custody of their cryptocurrency, centralized exchanges are not the way to go.
So, if you use a digital wallet and a decentralized exchange, you will have complete custody of your cryptocurrency. Your identity and password are not shared with any third party whatsoever. These platforms often let you buy cryptocurrencies that are not even available on centralized exchanges.
A downside to using decentralized exchanges is that there are fewer safety measures in place. For example, if you lose your physical wallet or the password to it, there is literally no way to recover the password or your wallet. Moreover, unrecognized cryptocurrencies available on the decentralized Blockchain can turn out to be scams.
Investing in Cryptocurrency
In order to invest in cryptocurrency, you will have to create an account on a reputable crypto exchange. The crypto exchange you choose will help you buy, safely store, and keep all of your cryptocurrency safe.
Due to the widespread acceptance of cryptocurrency around the globe, lots of crypto exchanges have been created. Choose carefully between a centralized or a decentralized crypto exchange based on your needs and personal preferences.
You can choose between crypto exchanges like Gemini, Binance, Coinbase, Crypto.com, and various others. Just make sure that the exchange you choose actually operates in your country.
Choose a Best Performing Cryptocurrency
As a beginner, you might only know about Bitcoin and a few other cryptocurrencies. However, there are many more reputable cryptocurrencies beyond Bitcoin. Big crypto exchanges list thousands of cryptocurrencies with a reasonable market cap.
Some of the most popular cryptocurrencies include Ethereum, Litecoin, Bitcoin Cash, Solana, Binance Coin, Cardano, Ripple, Dogecoin, and a few others.
One of the most important factors you should consider before investing in any crypto coin is the amount of volatility you want to face. Knowing about this is only possible if you do proper research on each of these cryptocurrencies in-depth.
Investment Amount
If you already have an investment portfolio in traditional stock trading, we recommend limiting the share of crypto investments in your portfolio to only 20%. If you go for less volatile currency, you will be able to sleep tight at night, knowing that you won’t lose much of your investment even if the crypto market crashes. However, less volatility also means fewer rewards.
The best investment strategy in the cryptocurrency market would be the perfect mix of highly volatile and less volatile currencies. At first, you can try with only 5% of your portfolio and then grow the percentage as you get to know more about the market.
Keep Your Keys Secure
After you buy the desired crypto and transfer it to your digital wallet, the next step is keeping the keys of your digital wallet safe. There are two different types of digital wallets. One is a hot or online wallet, And the other is a cold or hardware wallet.
In the case of an online wallet, you will be able to access your cryptocurrency a lot faster whenever you need it. However, the passwords saved on crypto exchanges are always prone to hacking attempts. So, if the exchange suffers from a data breach, you will lose all of your crypto assets.
Long-term investors and other people who invest a lot of money in cryptocurrency choose cold wallets as their preferred option. The security is impeccable with hardware wallets, and the chances of hackers getting access to your hardware wallet and password at the same time are next to none. While this is a very secure method of storing cryptocurrency for a long period of time, you should make sure that you remember the place where you hide your hard drive or USB. Moreover, keeping the recovery phrase away from other people will also be a challenge.
Keep Yourself Updated
Buying cryptocurrency is not the end of the story, as it keeps fluctuating in price to a great extent. Therefore, you should keep yourself updated with all the latest trends in the crypto marketplace in order to benefit from early opportunities before it gets too late and to avoid unexpected price drops to prevent huge losses.
- Keep an eye on your crypto investment and how it is performing with time.
- Keep yourself updated about the latest trends in the crypto marketplace, and read lots of articles on Blockchain technology and the latest inventions in this field.
- Keep an eye on the latest cryptocurrency-related news. You should also keep yourself updated about the financial conditions around the globe on a daily basis.
- Stay updated regarding any type of regulation your government might be planning to impose on the crypto marketplace.
- Attend virtual and physical conferences regarding cryptocurrency, and become a member of different crypto communities to stay ahead of the market.
Following these steps regularly will help you make the right buying and selling decisions when you are a crypto investor.
Benefits of Crypto Investments
While most of the benefits of owning cryptocurrency today are obvious, let’s still go through some of the biggest benefits of making an investment in the crypto marketplace.
Seamless Transactions
When it comes to transaction speed and costs, crypto transactions are the best. You can easily make crypto transactions in the fastest way and without facing many fees. Privacy is another important factor in these transactions.
All you have to do is download an exchange app on your smartphone, and you will be able to attach your digital wallet and make any type of transactions right from your smartphone without any third-party interfering.
You can also buy any type of cryptocurrency easily with your fiat money. You do not even need a bank account, as various Bitcoin ATMs allow you to use your credit card to buy bitcoin on the spot. This helps people out of the financial system take full advantage of digital transactions without visiting banks.
Swift Settlement and Low Costs
Although a majority of investors are looking to hold their cryptocurrency after buying it, others might look at it as a good way of exchanging value. While some cryptocurrencies like Ethereum cost more money to send, others like Litecoin charge you a negligible amount for any transfer. These exchange requests are completed within a few minutes or seconds. On the other hand, wire transfer, which is an alternative to crypto exchange, costs much more and takes around 4 to 7 business days to settle.
Astronomical Returns
Since its launch in 2009, bitcoin has proven to be the single most successful asset. Today, one bitcoin will cost you tens of thousands of dollars to buy. This accounts for thousands of percent increase in the value of bitcoin over the years. On the other hand, even the most successful assets on the S&P index show no more than around 8% growth per year.
Many coins launched after bitcoin have outperformed it in yearly percentage increase in value. However, many of them later collapsed as well. So, the astronomical increase in value is probably one of the best-known benefits of cryptocurrency. But the losses are also well known to be harsh and huge as well.
The volatility in the crypto marketplace is one of the biggest benefits for day traders and speculators.
Diversification of Portfolio
Cryptocurrency has been recognized as a separate asset class. The price fluctuations in the cryptocurrency market happen independently of other markets. Factors affecting the price fluctuations in this market are also different from the ones that make other markets swing.
So, investing in cryptocurrency can be a good way to diversify your portfolio. However, if you do not like volatility in your investment portfolio, you should either limit your crypto holdings or play, save by investing in more stable cryptocurrencies. Allocating around 10 to 20 percent of your total investment portfolio to cryptocurrency is a good idea.
Conclusion
If you are looking for astronomical profits on small investments, there is no better market than the cryptocurrency market. However, before you start investing in this market blindly, you must teach yourself all the nitty-gritty related to this market.
If you are looking for a stable way of making passive income, the volatility attached to every cryptocurrency is your biggest enemy. Therefore, you should only invest the money you are willing to lose in this market. At the start, allocate only 10 to 20% of your total investment portfolio and cryptocurrency and see how it goes.
Keeping yourself updated on all the trends and developments in the crypto market can help you take benefit of every early opportunity.