Is Cryptocurrency Investment Right for You?
Over the last couple of years, the idea behind cryptocurrencies has exploded with more people investing in them. You’ve probably heard of the term before, even if you don’t know much about it. The first thing to do then is to find out what it is and why you want to invest in it. Cryptocurrency, sometimes shortened to crypto, is a virtual medium to exchange money. It’s unique because it features blockchain technology and cryptographical functions for its online transactions.
Cryptocurrencies are fully decentralized. They are not controlled by a single entity; in theory, they’re fully immune to government control. Still, most government agencies are working on trying to regulate crypto.
As an investor, you can exchange cryptocurrency online with few to no processing fees. Therefore, it is more appealing than a traditional currency because financial institutions charge to transfer them into the other currency.
Of course, you may be wondering how to invest in cryptocurrency. Now is the time to learn. Still, before diving in, it might be helpful to learn why you should invest in crypto.
Reasons to Invest in Cryptocurrency
You are going to find many benefits to investing in crypto. These can include:
Secure and Easy Transactions
It’s much easier to send money to someone securely with cryptocurrencies. They’re exchanged using private and public keys. This approach ensures that things are secure while keeping fees lower.
Potentials for High Returns
You’ve probably heard of someone who has made a lot of money by investing in cryptocurrency, such as Bitcoin. Though you might not become a millionaire by investing, you can see high returns. This investment is very volatile, so the potential to make a lot is there. Still, you must ensure that you’re buying the right ones.
Cryptocurrency relies on the blockchain technology. This includes an online ledger, which is sent to everyone’s device. That makes it easier to verify your transactions and keeps everyone honest.
How to Invest in Cryptocurrency
Now that you understand what it is and the potential benefits of investing, you now need to know how to invest in cryptocurrency. There are multiple steps involved, but we walk you through each one.
Take Calculated Risks
We talked earlier about cryptocurrency being volatile, so they aren’t normal investments. While no country has outlawed crypto trading right now, it is a possibility in the future. If that happens, you aren’t going to be able to liquidate your assets. The goal then becomes risking the amount of money you can afford to lose.
Know the Coins
Up until about 2016, Bitcoin was the most popular cryptocurrency on the market, and there weren’t many other options. Now, however, you do have alternatives, though Bitcoin is still the dominant one. Still, in 2017, the shares for the entire crypto market fell to 40 percent from 90 percent and currently sits at about 50 percent as of two years ago.
There are many reasons for that. Bitcoin is still king, but people have started questioning its utility. You can find more exciting cryptocurrencies out there, but Bitcoin also suffered from performance issues.
Consider all the types of cryptocurrencies out there, focusing on the market cap. This is the value of the tokens available. While not perfect, it can help you judge the value of a particular crypto.
The Utility of the Coin
Once you’ve gone through all of the market caps and chosen the coins in which to invest, you have more work to do.
First, read those coin’s whitepapers. No, it’s not going to be exciting, but you have to put in the research to earn the rewards. Reading each whitepaper can help you in two ways:
- Be more knowledgeable about the coin and utility it can bring to your ecosystem.
- Whitepapers that aren’t well-written may indicate that the cryptocurrency isn’t worth investing in at all.
Whitepapers tell potential investors (like you) what they should know about a project. Most of these companies know that investors aren’t likely to read the whitepaper, which is why these documents may be poorly written or unavailable.
If you do find a well-written whitepaper, there are a few points to consider:
Value of the Project
Make sure the project is bringing utility to the ecosystem. The perfect example is Ethereum. It took off quickly because it was bringing in so much value. Developers finally had a platform to build dapps on the blockchain.
With that, there are issues that the crypto world wants to solve, such as interoperability, privacy, and scalability. It might be ideal to invest in projects that are primarily trying to solve those problems. For example, Zcash, Dash, and Monero are focused on privacy, while Cardano and OmiseGo are working on scalability.
Do You Need Tokens?
The next question is how to ensure that you’re getting quality tokens. You have to inspect the project to see if you need them and if the project is on the blockchain. If you don’t need either or both of those things, the cryptocurrency is just there to raise money. You can still find out the utility for the token, but you need to know the purpose, features, and role. Every token role has a specific set of features and a purpose. Let’s look at the roles that a token can take:
- Right: When you take possession of a token, you get some rights within its ecosystem. For example, if you have DAO coins, you might have voting rights to decide on which projects can get funding.
- Value Exchange: These tokens create an economic system inside the project. They help sellers and buyers trade within the current ecosystem. Therefore, people can complete tasks and earn rewards. The creation and maintenance of such economies are highly important tasks for tokens.
- Toll: Tokens can act as a gateway to help you gain functionalities of the system. For example, with Golem, you need its tokens to have access to the supercomputer.
- Function: Tokens can help holders enrich user’s experience in a particular environment. With a web browser called Brave, holders of its tokens can use them to add attention-based services and advertisements on the platform.
- Earnings: You need earnings to distribute equitable profits to your investors in the project.
- Currency: You can use currency as a storage of value, conducting transactions outside and inside the ecosystem.
How Does It Help with Token Utility?
If your goal is to maximize the utility amount your token provides, you have to have more than one of the properties mentioned above. More options mean more value and utility for your ecosystem. If it doesn’t have multiple roles or the token isn’t explained well, you don’t need it.
Some may wonder why you don’t need those useless tokens. To understand better, you need to focus on token velocity. It’s an indication of how much value and respect that token has. If people hold onto their coins, there’s low velocity. If they sell it fast for Fiat, ETH, or BTC, it’s got a high velocity.
Buying your Bitcoin is easy. The problem is that you have to store it, and most people don’t want the hassle. You can use an investment vehicle, such as the XBT tracker, Bitcoin ETI, and others. As your Bitcoin rises, exchanges and brokers set up financial products based on the cryptocurrency.
They all allow investors to bet on the Bitcoin’s price without buying it. While some people think it takes the fun away, it might be the easiest way to invest in the success of Bitcoin. Plus, you can utilize the same channels for investments like you’re used to, and you have a certificate if something goes wrong, and you have to sue.
Two Exchanges for Buying Bitcoin
The exchange is one of the most important functions in the cryptocurrency ecosystem. It acts as a portal between the crypto and Fiat world. You can choose to go from Fiat to crypto or from crypto to crypto.
- Fiat to Crypto: With this exchange, you buy cryptocurrencies and get Fiat money back.
- Crypto to Crypto: This exchange allows you to exchange some cryptocurrencies for others. While crypto to crypto offers valuable services, they’re centralized, so they are more vulnerable. It can be quite risky when you think about how much money the exchanges have to deal with every day.
When you buy cryptocurrency from the exchange itself, it’s not complicated. You just have to open an account with the exchange, verify your identity, and fund the account with money. Some exchanges don’t require you to put funds in, but instead, you trade with others directly.
Learning how to invest in cryptocurrency couldn’t be complete without understanding how to store it.
You’ve bought it, so now what do you do? Most people recommend that you keep it off of the exchange. Many cryptocurrency markets have been hacked or gone bankrupt, so it’s best to store it somewhere else.
To do that, you need a crypto wallet. There are two options available. Cold storage is similar to a savings account at the bank, while hot storage is like a wallet you carry with you everywhere.
- Hot Storage: This option means that you keep your cryptocurrency in a device connected to the internet. These can include mobile, exchange, and desktop wallets. Many consider this option for money they plan to trade or for daily spending.
- Cold Storage: Cold storage means that you keep the currency on a device that’s offline. This is the best choice if you want something extremely secure. Still, cold storage works best for long-term holders who don’t need their money for months or years.
The process can seem daunting and confusing at first, but you can do this if you take the time to learn about it. Therefore, it isn’t a get-rich-quick scheme, and it does require you to take some risk.
However, the allure of cryptocurrency is that you can make profits if you invest correctly. Those who want to try their hand at it now know what to do and where to go. This ensures that they can start trading and learn as they go. In most cases, that is what you have to do when investing in any market.