Not sure yet how to get started in the world of cryptocurrencies? Don’t worry, this cryptocurrency investing guide will be your trusted guide. Cryptocurrencies are not something complicated, they are just another type of asset that you can invest in, just like stocks, bonds or options.
But first, you should set aside some time to learn the basics. When you understand the general principles of cryptocurrencies, your confidence in your actions will grow. In this article, I will share with you a few cryptocurrency investment tips and advice that you may find useful.
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Cryptocurrency World
To say that the cryptocurrency market immediately generated a lot of interest would be an exaggeration. In 2009, the first cryptocurrency, bitcoin, was offered. Only 4 years later, in 2013, it started to gain recognition. The rise in bitcoin prices started in 2017, when more and more investors started to enter the market.
However, by mid-2018, the market capitalization of bitcoin and other cryptocurrencies had already declined sharply, but interest in them did not subside. In fact, there are now more than 1,600 different cryptocurrencies available on the market besides bitcoin (altcoins).
Many are convinced that cryptocurrencies are not serious and their growth cannot continue for long. Others argue that with cryptocurrencies, a new era has dawned and that they will eventually replace paper currency. No one knows what will actually happen, but it’s likely that the future of cryptocurrencies lies somewhere in between these two extreme viewpoints.
Many investors who invested in cryptocurrencies early on have been able to achieve dramatic equity gains. The potential of the cryptocurrency market can still be very large, but it is still characterized by too much volatility. Therefore, if you are interested in investing in cryptocurrency, you should clearly understand the risks involved.
Blockchain Technology
To understand how cryptocurrencies work, you must understand the technology behind them. Blockchain is the technology that enables cryptocurrencies such as bitcoin. In fact, blockchain is a publicly accessible digital ledger that is responsible for tracking and recording all incoming transactions. Networks of computers, independent of each other, control this entire process.
A practical example will help you understand this better. Let’s say Alexandra bought a mountain bike from Eugene using bitcoin. When Alexandra initiated a payment using bitcoin, her request was sent through the blockchain, which verified that Alexandra had the required amount of bitcoins for Eugene’s transfer. After the verification was completed, the open ledger was updated to reflect a decrease in the number of coins on Alexander’s bitcoin address while adding the appropriate amount to Eugene’s bitcoin address.
While the above example involves the use of blockchain to transfer cryptocurrency for commercial purposes, there are many other uses of blockchain. In fact, any information that has the potential to be stored can be based on blockchain technology. That being said, cryptocurrencies cannot function without blockchain technology, whereas blockchain can exist without cryptocurrencies.
Investing in cryptocurrency: opportunities
What is cryptocurrency and why is everyone talking about it?
The first step for many newcomers to the world of cryptocurrencies is bitcoin. Many people think that cryptocurrency and bitcoin are the same thing.
Ether, Dash, ZEC – what is it and what is it for?
Many people search for the familiar word “bitcoin” or its symbolic name “BTC” and buy. It’s so easy that even a beginner can do it. Right the first time. Even without understanding blockchain technology. On Matby, you can invest in cryptocurrency even without identity verification.
What could be against the simplest of investments?
While these investments may seem frivolous, it’s worth considering that the return on bitcoin investments between 2011 and 2020 exceeded the return of the Nasdaq index by 12,000 times. That’s an incredible statistic. Bitcoin and blockchain are the future.
Bitcoin is the mainstream cryptocurrency
Bitcoin sets the tone for all others. Its rate is listed alongside the ruble, dollar, and euro on the major news pages of the Internet. And when something happens to bitcoin, it affects all other coins. This is why many people consider bitcoin and cryptocurrency to be the same.
Other major cryptocurrencies
Bitcoin is only one type of cryptocurrency. In fact, it is the first cryptocurrency with the largest market capital. Other major cryptocurrencies to know are Ether, Ripple, Litecoin, Bitcoin Cash, EOS, and Cardano.
Ether or Ethereum
Ether, the second largest cryptocurrency, has seen an incredible growth of over 2800% in 2017. One of its biggest advantages is the ability to create your own blockchain projects using the Ethereum platform.
Ripple
Ripple is the third largest cryptocurrency by market capitalization. Ripple’s technology allows for fast and secure international payments.
Litecoin
Litecoin came from an improvement in bitcoin technology. It processes transactions 5 times faster than bitcoin.
Bitcoin Cash
Bitcoin Cash was split from the original Bitcoin and launched in mid-2017. It has 8 times larger block size, which improves its transaction processing.
EOS
EOS allows developers to build their apps on their platform. It has a throughput of up to 100,000 transactions per second.
Cardano
Cardano has many advancements in its technology compared to Ethereum.
Cryptocurrency Exchanges
Investing in cryptocurrency: exchanges
At this point, you already have a general idea about cryptocurrency. The next obvious question investors face is where can I buy a particular cryptocurrency? Typically, you will buy and sell your cryptocurrencies through organized cryptocurrency exchanges. This is the most common way to trade and invest in cryptocurrency online.
The most popular cryptocurrency exchanges
There are many different exchanges that you can use. When choosing a cryptocurrency exchange, you need to consider what features and functions are most important to you. Some considerations will include the cryptocurrencies offered, liquidity, the difference between buy and sell rates, commissions, and the convenience of the trading platform.
- Coinbase is one of the most popular and widely used platforms for buying and trading digital currencies. It has an excellent reputation and the safety of your cryptocurrency is guaranteed by Coinbase’s insurance fund.
- Kraken offers margin trading accounts for experienced investors and traders. They also provide many different digital currency options besides bitcoin, ether, and ripple.
- Poloniex is a leading cryptocurrency exchange founded in 2014. They offer a wide range of tools for active traders and investors on their platform.
- Bitstamp is one of the oldest exchanges in the world and has been around since 2011. Bitstamp is known for its secure platform including a fully supported cold storage service.
- Bitsquare – A decentralized pir-based exchange that allows customers to trade bitcoins using cash or cryptocurrency.
- Gemini – A US based, licensed and regulated bitcoin exchange that adheres to very strict compliance regulations and maintains the highest standards.
- Binance – a Malta-based cryptocurrency exchange known for its low fees and high liquidity.
- CoinMama – One of the largest bitcoin exchanges that allows credit card purchases.
- LocalBitcoins is a peer-to-peer cryptocurrency exchange that allows you to trade directly with others around the world.
- Bittrex – this is one of the most popular exchanges in the world with a large selection of cryptocurrencies to trade and a high level of security.
- Bitfinex – this exchange has some of the largest trading volumes and offers a variety of trading pairs to meet the needs of different traders.
- Bingx – an exchange from the developers of tradingView, quite qualitative and thoughtful exchange with a lot of new opportunities, it also allows you to trade those markets that the usual crypto exchanges can not, as there is also forex.
Of course this is not all exchanges, they are much more, and there are also decentralized exchanges that actually work on smart contracts and, and your wallet acts as a wallet – the exchange itself does not store your money in their accounts, which is quite important!
Investing in cryptocurrency: risks and peculiarities
One of the biggest attractions of cryptocurrency investment ideas is the opportunity to make huge profits in a short amount of time. This is what attracts most investors to this asset class. For many investors, a small to moderate percentage allocation to the major cryptocurrencies is likely to be a smart decision and will help improve the overall performance of their portfolio.
The downside is that this asset class as a whole is still relatively new and very volatile. Thus, a prudent investor should be aware of the risks involved and constantly monitor them.
Liquidity issues
Liquidity is defined as the ability to buy or sell an asset at any time at the market price with minimal slippage. Since cryptocurrencies are a new asset class, they do not have much liquidity.
It is possible to buy and sell most cryptocurrencies in normal market conditions with almost no slippage, but the risk increases significantly in more troubling times. These are the times when it can be very difficult to effectively sell or buy the right amount of cryptocurrency.
Regulatory uncertainty
There is significant regulatory risk when it comes to investing in cryptocurrencies. To eliminate fraud, manipulation or panic in the cryptocurrency market, government agencies may step in and impose legal restrictions on this asset class in the future. This will significantly affect the price of many cryptocurrencies.
Valuation Issues
When you buy shares of a particular company, you can gather and research many fundamental factors to estimate a “fair” share price. However, cryptocurrencies don’t have the same level of transparency in analyzing investments, making it much more difficult to understand a “fair” price.
Strong correlation
It is important to consider correlation when investing in different instruments within the same asset class. Just like in the stock market, if you invest in Apple, Facebook and Google. You may think your portfolio is diversified because you are investing in three different companies. However, these three companies actually belong to the same sector and have a high level of correlation.
The same is true for cryptocurrencies. Most cryptocurrencies are highly correlated with each other and with bitcoin. Thus, you should not fall into the trap of thinking that by spreading your investments across many different coins, this will provide you with a reasonable level of diversification.
How do you put together a cryptocurrency portfolio for investing?
Portfolio allocation: a key aspect of investing
No discussion of investing would be complete without mentioning portfolio allocation. Suppose you have decided to invest in cryptocurrencies, have done the necessary analysis and are ready to invest your earnings. How much amount are you willing to invest?
Each investor should decide for themselves how much money they want to allocate to cryptocurrency, taking into account their age, risk-taking and financial situation.
If you are an aggressive investor, you can invest up to 20% of your portfolio in cryptocurrency and 80% in traditional assets. If you consider yourself a conservative investor who avoids risk, then perhaps a 5-10% investment in cryptocurrency would suit your needs.
It is important to remember that cryptocurrency investing is inherently a risky speculation, so you should only allocate funds that you are willing to part with. It is always better to be prepared for losses than to regret them later.
Summary
This article is meant to familiarize you with the basics of cryptocurrency investing. After reading this article, some of you may decide that they want to further explore the investment opportunities available in the cryptocurrency market. Others may decide that this asset class does not fit their personal financial goals. Regardless of your choice, you should try to objectively evaluate all of the potential benefits and associated risk
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