Without question, it is one of the most debated concepts seen in finance over the past ten years. Bitcoin’s meteoric rise and its actual legion of altcoins thrust it from the fringes of finance into mainstream interest. As the scope and promise of digital currency grows, so does investment in this new, nascent field.
Cryptocurrency just so happens to be the most volatile and complex market for any new investor. You must first understand everything in regards to investment under the cryptocurrency topic, starting from the basic concepts to setting up your first trade.
What is Cryptocurrency?
Before diving into cryptocurrency investment, you must first get to know how it operates in the digital world.
Cryptocurrency is a virtual kind of money in which transactions are done using cryptography, which is a method to ensure a secured transaction happens in the first place. While making the issuing of cryptocurrencies, decentralized systems most of the time rely on the concept of blockchain technology. Traditional currencies, issued by governments, often find its use mainly in blockchain technology for securing and recording their transactions. In definition, a blockchain is “an open public ledger verified and recorded through a network of computers.”.
In 2009, the first cryptocurrency species among the most triumphant and popular altcoins was discovered, since when thousands of altcoins were designed along with individual utilization cases and technologies.
Why invest in cryptocurrency?
There are quite a number of other reasons it is good to invest in cryptocurrencies, however, these include high returns as obviously shown above where some of the initial investors in cryptos like Bitcoin and Ethereum had fantastic returns.
- Diversification: With cryptocurrency, you get a new asset class which just so happens to be decentralized from traditional markets so that your investment portfolio diversifies.
- Decentralization: Cryptocurries are decentralized. That is, they have no central authority, neither government nor a bank to regulate and control them. This is just fine for many investors
- Future technology: Blockchain and cryptocurrency is considered, in the opinions of others, to be the future of money and finance. To that level, early investments become pretty luscious.
Step 1: Learn and Read
Well, let’s start at the most obvious place first: education. These things are some pretty high-paced stuff, and volatility can be pretty extreme, so you want to understand before you get into it.
Types of Cryptocurrencies
Of course, there’s Bitcoin, but there are thousands more. Some main categories include:
- Bitcoin (BTC): It is the first cryptocurrency invented and also the largest in terms of market capitalization.
- It is in a way both a currency and a decentralized application platform, because it enables programmers to write smart contracts; therefore, dApps can be built on top of it.
- Altcoins: All other currencies except Bitcoins like Litecoin, Ripple, Cardano, and many more
- Stablecoins: Any other cryptocurrency like USDT (Tether), which pegs the traditional currency for reduced volatility
Knowing Blockchain
In fact, it requires proper understanding of the underlying technology of it, namely blockchain. It is simply going to be a distributed ledger of recording all the transactions made on any network of computers. Hence, it would be safe, transparent, and decentralized because it has no central authority that could control it. And every cryptocurrency has its variant of a blockchain, and the knowledge of those differences makes all the difference between an informed and uninformed investment.
Cryptocurrency Market Cycles
Cryptocurrency markets, just like old school stock markets, are boom and bust markets. Knowing how a market cycle works and when markets get overheated will save you from some really bad investments.
Step 2: Decide How Much to Invest
You might reflect on how best you can do this by even coming up with what percentage of your money you would want to commit into the cryptocurrency even before you actually invest in the cryptocurrency. Small Investing
If it’s the first investment, then select the amount of investment at the introductory stage. Sometimes, the price of cryptocurrency rises or falls with huge margins in just a day. So you have to invest that much amount that can be afforded to lose because an investment in cryptocurrency is not risk-free. Risk Management
As many of the cryptos are volatile in nature, the most financial experts would suggest that you invest only a few small proportions. Rules of how much should not exceed in total investment capital whether it is 5% or 10% depending on what kind of appetite you have.
Step 3: Pick your Cryptocurrency Exchange
If you are highly interested in investing in cryptocurrencies, then you must first identify an exchange that holds onto a marketplace in them. Such market places are vitally used to buy, sell, and complete your trade requirements using digital currencies.
Best Cryptocurrency Exchanges
The best-known crypto exchanges are:
- Coinbase: The interface is pretty user-friendly, so it really does its job for new entrants. They offer an excellent range of coins.
- Binance: Ultra-low fee crypto exchange website, with an incredibly long list of altcoins-one of the favorites of more experienced traders Kraken: One of the oldest and safest crypto exchange websites, Kraken offers a large range of digital assets. Gemini: A US-based, highly secured complaint exchange. Choosing an exchange Choosing an exchange will involve the following considerations:
Factors Determining An Efficient Crypto Exchange:
- Select an exchange that is offering security features:2FA, cold storage and reputation.
- Fee Each platform charges a fee every time a client wants to buy, sell, or trade a digital asset. Compare the fees to get the best rate.
- If perhaps you are a first-time cryptocurrency investor, then you are going to want an exchange having a friendly interface.
- You must have an exchange that carries the currencies you wish to obtain
Step 4: Cryptocurrency Wallet
Once you have found the place to place your purchase, you will be further asked to create a cryptocurrency wallet to store all your acquired currency safely in them.
1. Different Kinds of Cryptocurrency Wallets
You can use any one of the following types of wallets:
They are also known as Internet Wallets because, at least theoretically, they should leverage the development of the internet only to gain access to them sooner rather than later. Easy leads to easier hacking. Examples are mobile apps and Coinbase .
- Cold Wallets: This one ensures that your cryptocurrency will be offline thus safe. Two examples are hardware wallets-the Ledger and the Trezor.
- Paper Wallets: Paper wallet literally is a piece of paper carrying your private keys written there and the address of your public. Really secure but really risky too; you don’t know where the piece of paper is at any given time.
Security Best Practices
Secure wallet: strong passwords, two-factor authentication, and back-up of wallet private key.
All your assets can derive private keys. NEVER EVER give anyone else access to your private keys.
Step 5: Buying Your First Cryptocurrency
You installed your wallet and selected a good exchange. You are now prepared to buy your first cryptocurrency.
How to place an order?
It is relatively painless and easy to get access to most of the digital coins through most of the trading platforms. First, make a deposit into your account. All exchanges except some of the new ones accept deposits made through bank transfer or credit card or any other deposit method that a particular exchange accepts. Then input an order to buy any cryptocurrency that you seek to buy.
Types of Orders
- Market order: You can sell any quantity of any cryptocurrency at the best market prevailing rate. Such an order is quite fast but will have your selling a little high or a little too low than you want because markets move.
- Limit Order: That caps the price at which you will pay for it. Your order will not be executed if you do not hit the target market price.
Step 6: Watching and Monitoring Your Investment
Shortly after you purchase your cryptocurrency, you will start getting some trends about the market with which you are investing.
You can begin getting a track of how your investments are performing, for instance
- CoinMarketCap: This is the great site, which should give you real time information relating to the price, market capitalization of your cryptos, as well as the volume of trading.
- Blockfolio: It is a software used to track the value of your cryptocurrency portfolio.
- Trading View: Crypto Trading View Looking inside the charting for a trend.
And then there is a crypto market that is just very liquid in motion all the time, so every decision has to come from the most updated information. And you just want to see what’s going around, watch some reliable news channels, and you’ll be taking part in all other communities like Reddit, Twitter, or Telegram just to be part of them. As you invest more than ever, you will be staring at the data aggregated from thousands of reliable sources.
Step 7: Long-term plans
Swapping as much as one can indeed proves to be very lucrative. More are rewarded for reaping long-term decisions.
HODLing
HODL: HODL is hold on for dear life. It’s a holding strategy that promises to hold your cryptocurrency long-term, giving out on short-term market trends in terms of opportunities. Almost all investors would believe the other money-making investments with cryptocurrencies such as Bitcoin and Ethereum promise much, and they cannot sell out when the market oscillates.
Diversify Your Portfolio
Just like in any kind of investment, here, there is also a rule of diversification. There will be no difference if one were to invest all the money in just one coin, especially considering it is supposed to be one that cannot be removed. From usage cases and market potentials in coins, the diversified investment in multiple coins becomes an excellent opportunity for any investor.
Conclusion
It’s one of the most exciting investments in the crypt world, extremely dangerous to play by but easy to follow through on simple and plain guides and will be able to step-by-step walk you through your understanding of the concepts involved and guide you on how to get started investing in the world of the cryptocurrency market.
Thus, with proper education and proper selection about a good investment with ample sum of money about a potential loss caused by inappropriate planning requiring proper long-run approach, a potential loss caused by inappropriate planning has been possible to invest in cryptocurrencies.