As cryptocurrencies gain traction in the public consciousness, more and more people are seeking to invest in their worth. This is easier said than done, as research needs to be performed to arrive at sound crypto investments, much like any financial decision.
This article will explain what crypto investments are and what it takes to start your investment journey. We’ll look at the basics, what you need to do to make sure you are investing properly, and what the processes are that enable you to trade in these digital currencies.
Some Preliminaries For Crypto Investments
Any new investment should be done correctly. For every story of an overnight cryptocurrency millionaire, countless others have crashed and burned. The latest crypto craze is not necessarily going to be that investment silver bullet.
With this in mind, as crypto investments should be done safely, we’ll go through some of the fundamental elements backing the decision-making process when considering what will produce the most lucrative results. This will be to both educate potential investors and to reduce unnecessary speculation in the crypto market.
There are many reasons to invest in virtually based currencies. Perhaps you support the general vision behind a distributed and immutable digital currency for the future, or perhaps you want to make more money to go along with your other investments. It could also be a case that you simply enjoy tinkering with new technologies.
While these are all good reasons for investment, there are also terrible reasons that people fall prey to, the most notable being caught up in the hype of a new craze. Buying at the peak of a rise in a cryptocurrency’s worth is always risky. Riskier still, not understanding the dynamics of the market will inevitably lead to money being lost.
The Difference Between Investing and Trading
To be clear on what we mean when we speak about crypto investments, it’s worth juxtaposing investments with trading.
When one invests in a cryptocurrency, the aim is for a long-term stake on the digital asset based upon fundamental analysis and the long-term trends of the market. You are not necessarily buying or selling more of the asset when there are market fluctuations. The entire point is to stake a position to sell high in the long-term, if at all. You effectively want more coins and to avoid overthinking short-term price fluctuations.
Trading, on the other hand, aims for profit in the short-term by using technical analysis of the immediate trends in the market. “Day trading” in crypto is more about gains in capital, and not about the importance of any currency itself. The future and fundamental information of the digital asset is second to short-term gains in profit.
How To Start With Cryptocurrency Investment
Do Fundamental Analysis
As detailed in our post on fundamental analysis, there are factors to consider before beginning your crypto investments.
There are resources to use to procure information on a particular currency, and you should use these as much as possible to glean information. Utilize the developer website, the white papers that detail the use cases of the particular currency, and, finally, dependable news and specific websites that specialize on the topic.
Remember to go through the list of important factors to consider when investing. The market capitalization of the cryptocurrency is one such factor to consider, and going to a website that lists currencies in order of their market capitalization is a good place to start. Remember to investigate who is behind the investment itself – in other words, whether they are dependable.
The amount of coin in circulation, as well as trade volume, is also important. Legal and regulatory issues should be researched, as well as whether there could be scalability issues for the currency down the line.
Choose An Exchange
After fundamental analysis of the assets you are seeking to invest in has been done, you will need to choose the place where you can buy the coin.
The most popular and well-known locations to purchase it and undertake crypto investments are the exchanges.
There are several different exchanges to choose from, but a few of the most popular are Coinbase, Kraken, and Bitstamp. Coinbase, in particular, is a good starter exchange to use due to its beginner-friendly nature and security.
What all exchanges do is provide the platform necessary to purchase cryptos such as Bitcoin, Ethereum, and so forth with your debit card. Luckily, you needn’t invest in entire coins or tokens for popular cryptocurrencies, as money can be saved by buying fractions of any currency on the exchange. This enables you to start investing without needing to pour unnecessarily large and risky amounts of money into the initiative before you are familiar with the process.
What To Keep In Mind When Selecting An Exchange
If you’re seeking to buy into some altcoins, there’s a good chance that you’ll need to buy in either using Bitcoin or Ethereum first. Generally, altcoins can’t be bought with fiat currency, although this may change in the future.
The exchanges charge fees for every transaction, but this does not stop you from exchanging directly with people who are willing to sell off some of their currency. This can be done on particular websites such as LocalBitcoins. Keep in mind that this does not ensure sufficient security, and will be a more drawn-out process than if you were to do it on an exchange.
Which exchange to ultimately use for crypto investments would depend on a range of factors. Using exchanges located within the jurisdiction in which you reside helps if legal issues arise. If this is not feasible, then using exchanges tied to countries that are stable and have strong legal systems is your next best bet.
Other factors to contemplate are how many coins you want to purchase, as well as how patient you are willing to be. If acquiring a vast amount of BTC in a short space of time is your goal, then using a popular exchange with a large user base is necessary to provide sufficient liquidity. Smaller exchanges will not provide this, but they could still give you a large return on investment in the long run.
At the end of the day, sticking to exchanges when starting out with crypto investments is a good idea. While they are centralized, which can make them vulnerable, they are at the center of the investment market.
Forms Of Crypto Exchange
Exchanges act as a gateway between your fiat and crypto currencies. There are a couple of forms of exchange in which these are usually traded.
The fiat to crypto exchanges assist with the exchanging of your fiat currencies, whether that’s euros, pounds, or US dollars, into cryptocurrencies such as Bitcoin or Ethereum. Coinbase, mentioned above, is an excellent example of this.
There are also crypto-to-crypto exchanges, which allow you to trade your cryptocurrencies for others. For example, you could trade your Bitcoin or Ethereum tokens for altcoins. Binance is one of the most popular examples of this type of exchange.
How To Store Your Crypto Investments
Another aspect to know about is how your currency is stored. They are placed within a crypto wallet, which is a secure repository that stores the code that entails your cryptocurrency portfolio. There are different types of wallets, which depend on the form that they take. You can generally choose between online and offline wallets.
A software wallet can be used, which is often online and far easier to trade with regularly if that is your aim. But, of course, this comes with a security cost.
You can also choose to hold your crypto investments in an offline device to facilitate safer storage. Bear in mind that offline storage may be safer, but it’s slower to interact with if you end up trading often.
One form of offline storage is hardware wallets. These are usually devices that look like USB drives but which store your crypto investments more securely, untethered to any other device.
Another form of offline storage is paper wallets, where you can print out your public and private keys in the form of a QR code and then store it wherever you choose.
Your form of investment will influence how you choose to store your currency, so bear these types of storage in mind when deciding on your course of action.
At the end of the day, remember to do your fundamental analysis, and to then select the appropriate exchange. Thereafter, it’s important to keep an eye on developments in the world of digital currencies.
Crypto investments can be a rewarding experience, but it’s important to know the basics before blindly going in. The above should be a sufficient starter guide to assist you in exploring the available avenues before deciding on any investment.