Cryptocurrency, or crypto, has rapidly expanded into a huge field in recent years. For a newcomer, it can seem difficult to navigate this space without guidance. Cryptocurrency refers to encrypted and decentralized digital currency. It acts as a source of purchasing power and an avenue for investment. People buy it to get a significant financial returns. For those wanting to know how to invest in cryptocurrency, the best practice would be long-term investing.
Bitcoin is the oldest cryptocurrency by far, followed by Ethereum. These virtual currencies are extremely volatile asset classes. So, while investing, it’s best to stay away from speculative trading. Read on to learn about the different kinds of cryptocurrencies, the points to consider before investing, and the advantages and disadvantages of investing in these digital assets.
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Types of Cryptocurrency Investing
Bitcoin, which makes use of Blockchain technology, is commonly thought to be the only cryptocurrency by many people. However, it was the first ever cryptocurrency that was created.
Today, there are various types of digital currencies that you can use. Let us start with the popular ones.
- Bitcoin (BTC) – It is the first decentralized cryptocurrency that facilitates digital transactions using Blockchain. It makes peer-to-peer money transfers quicker and much less expensive than usual currency exchanges that involve third parties like banks or credit card issuers.
- Ethereum (ETG) – The Ethereum platform leverages Blockchain to facilitate smart contracts and decentralized applications. You can use the ether or the currency to perform various functions.
- Tether (USDT) – It is a currency linked to the fiat currency, the US dollar. Essentially, it is a stablecoin tied to the worth of a particular asset, in this case, the US dollar.
- Binance Coin (BNB) – This cryptocurrency is there on the Binance cryptocurrency exchange platform. You can use it for making payments and purchasing different items.
- USD Coin (USDC) – Like Tether, the USD Coin is also tied to the dollar, making it a stablecoin. Its value does not fluctuate. The coin is envisioned to be daily money that you can spend with merchants on the web.
- XRP – The XRP ledger is a decentralized public blockchain. Earlier known as Ripple, you can use it to pay in various real-world currencies.
- Cardano (ADA) – It is a very popular cryptocurrency that runs on the decentralized public ledger through Blockchain. You can send or receive Cardano or use it in return for goods and services. It also enables smart contracts or contracts that self-execute automatically when the contract’s conditions are met.
- Polygon (MATIC) – It is a Layer 2 scaling solution to offer quicker transactions and lesser costs for users. As a speedy parallel Blockchain, it runs alongside the Ethereum Blockchain. To use it, you just have to bridge some crypto over to Polygon and interact with different crypto apps.
Points to Remember before Investing in Cryptocurrency
You may feel excited about learning how to invest in cryptocurrency. However, before directly jumping onto it, note the following things.
Find the right cryptocurrency.
As an investor, you must be aware that coins with a market valuation that have touched the threshold may not grow more or at the same pass. So, identifying a suitable cryptocurrency that still holds potential is critical.
Find the legitimacy of your crypto.
It is not reliable to invest in recently-launched crypto without any backing. You must opt for those that have been known for at least one to two years. Investing in currencies that navigated the difficult period of 2018 -19 makes more sense.
Do proper analysis and then pick the assets.
Do not invest in a cryptocurrency just on the basis of hearsay. You need to comprehend the market behavior, do a proper analysis of various assets, and then pick one.
Go for long-term investing.
Digital currencies like Ethereum and Bitcoin are extremely volatile. So, investing for the long term is the way to go. For example, those who invested in Bitcoin at $19,000 in 2017 saw their investments reduce by 75%. But they still held on to it and, after three years, gained 300% in their investments.
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Is Cryptocurrency a Viable Investment?
Investing in cryptocurrencies can turn out to be good if you analyze their time horizon, risk tolerance, and liquidity needs. Understand the currency’s purpose, technology, and application, and only then invest in it.
A simple piece of advice is to not invest money that you cannot afford to lose in crypto. Since the prices of these digital assets surge and plunge, it is important to be very careful while investing.
Tips to Invest in Cryptocurrency Safely
When learning how to invest in cryptocurrency, pay attention to different guidelines, so you have a great experience. Here are some tips for investing in crypto responsibly.
- Ensure that you have a firm financial foundation. Cryptos are high-risk investments. Only those with a solid financial footing who can withstand the risk and potential loss that comes with crypto investing can engage in it.
- Find a proper crypto platform. Analyze different ways to start investing in cryptocurrencies. You can buy it through apps like Cash App, Robinhood, the trading app, and SoFi. But these apps offer only a limited selection of crypto. Exchanges like Coinbase, Gemini, and Kraken are licensed businesses that protect your assets.
- Crypto trusts are like financial trusts that exclusively hold cryptocurrency.
- Secure your trading account. Use two-factor authentication, make a strong password, and whitelist withdrawal addresses to secure your crypto trading account. Make a trading plan outlining your trading objectives that consider your risk profile.
The Correct Amount to Invest in Cryptocurrency
By now, you must be more familiar with how to invest in cryptocurrency. At this point, it is crucial to know the amount you should reserve for cryptocurrency investment.
According to financial planners, it is best to keep this allocation minimal. Investing 5% of your portfolio in digital currency is suitable. However, you can also go as less as 1%.
The amount that you allocate also depends on the answer to the question of how much you can risk losing. If you are a younger investor, you can take greater risks than an older investor as you have more time horizon.
The Benefits of Investing in Cryptocurrency
Cryptocurrency investing has become highly popular in recent years. Here are the various benefits it offers.
- Cryptocurrencies represent a decentralized paradigm for money. This system eliminates the existence of one point of failure, such as a big financial institution, setting off a string of crises worldwide.
- You can quickly transfer funds between two entities without the need for a bank or any other third party. Private and public keys secure these quick and decentralized transfers of funds.
- There’s a high chance of gaining profits through cryptocurrency investments. In January 2023, Bitcoin was worth over $450 billion in the digital currency market. So, investing in these virtual currencies comes with an increased likelihood of better financial returns.
- You can transfer money across borders using cryptocurrencies. The transfer fee is either 0 or negligible as there are no third parties like PayPal or Visa for transaction verification.
- Cryptocurrencies are highly secure and private. These currencies use pseudonyms not linked to any stored data or user account.
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The Disadvantages of Investing in Cryptocurrency
Learning how to invest in cryptocurrency also comes with familiarizing yourself with the potential cons of doing so. Here are some key disadvantages of crypto investing.
- Cryptocurrencies are pseudonymous. It means they leave a digital trail that allows government authorities like the FBI to track your transactions.
- The ownership of cryptocurrencies is highly concentrated. In fact, only 11 addresses have around 12% of circulating Bitcoin.
- Cryptocurrencies like Bitcoin have been known to be a target of hackers of all stripes. Many criminals have used it for money laundering purposes.
- Crypto has many scalability issues. They can run into major problems at a certain level. This makes it challenging to roll them out on a bigger scale.
- The price of the cryptocurrency can go up to dizzying heights and crash to terrifying lows very quickly.
Investing in Cryptocurrency in 2023
Start by choosing a cryptocurrency exchange to purchase this digital currency. You can pick from popular exchanges like Coinbase and Bitfinex. These platforms let you buy reliable currencies like Ethereum and Bitcoin through a debit card.
The great thing is that investing in popular and old currencies like Ethereum can be done by buying just a fraction of the coin.
To buy altcoins, you must have Ethereum or Bitcoin because you cannot buy them with paper money.
Remember that your exchange will charge you money for performing transactions. If you are not interested in paying the transaction fees, look for sellers that directly sell digital currencies.
However, there is some risk involved in this process. So, if you are a beginner learning how to invest in cryptocurrency, using an exchange is the right option.
Finally, you can also leverage the Bitcoin ATM to buy it and transfer it to your wallet.
Can You Invest in Cryptocurrency with Stash?
The investing app Stash has recently added crypto to its set of products. It is following a curated approach to making people invest in cryptocurrency through it.
You can buy and sell eight kinds of cryptocurrencies on Stash. These include:
- Bitcoin
- Chainlink
- Ethereum
- Ethereum Classic
- Bitcoin Cash
- Avalanche
- Solana
- Uniswap
How Much Amount Do You Need to Purchase Cryptocurrency?
To start purchasing cryptocurrency, you need at least $10 in your trading account. This is true if you are investing in Bitcoin. Do not go below $10 while investing.
Find a safe platform or broker to invest in this digital currency. You can also use exchange-traded funds to invest in it.
Summing up
Hopefully, you have received an answer to the question of how to invest in cryptocurrency. Investing and trading these digital assets all boils down to the risk you can take and your time horizon. Be careful while assessing a specific currency. If you need more help, contact an expert on this subject online.