Investing in Cryptocurrencies
To many, cryptocurrency still remains a mystery despite the fact that the technology has been around for close to a decade now.
On the other hand, others still believe that cryptocurrency is one of those technical forms of technology reserved for a few IT pundits.
Whether you’re curious to know about cryptocurrency to enable you to invest in it or simply to gain an understanding of the trade, you’re certainly reading the right post.
This article will help you understand what cryptocurrency is, how to get started as a beginner investor, among other things.
Without further ado, let’s get started!
What is Cryptocurrency and How Does It Work?
A cryptocurrency is a digital form of currency that works as a medium of exchange for assets trade on decentralized platforms.
Unlike traditional currencies (USD, Euro, JPY, etc.) that are regulated by their respective states, cryptos rely on cryptography to control the creation of new units of currencies.
Cryptocurrencies are decentralized, transparent, and uncontrolled by any particular organization or government; they exist on a network called blockchain.
Inside the blockchain network, cryptocurrency transactions undergo various processes as highlighted below:
3 Steps to Investing in Cryptocurrencies
There are a few steps that one needs to follow to start investing in cryptocurrencies regardless of the coin(s) you choose. Essentially, below are the standard steps that you’ll need to follow to get started:
Step 1: Get a cryptocurrency wallet
A cryptocurrency wallet is one of the most important tools when looking to venture in cryptocurrencies. Just like conventional wallets that are used to store our physical money, crypto wallets help store your digital money safe.
There are several wallets to choose from, including online, desktop, and hardware wallets.
But as much as you may have a lot of wallets to choose from, consider going for the hardware ones that offer a safe and offline way of storing your assets.
And while at it, ensure that you go for a wallet that is compatible with a decent number of cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Ripple, Dash, and many more.
Step 2: Sign Up on Cryptocurrency Trading Platform
Cryptocurrency trading platforms are also known as exchanges – and they are platforms that enable you to buy, sell, and exchange cryptocurrencies.
However, some platforms allow the users to only buy and sell digital currencies, while others permit the trading of cryptocurrencies with fiat currencies.
Depending on the exchange you sign up on, you will be able to invest in a number of coins. The point to note here is that you want to go for coins that offer high liquidities.
Like I mentioned earlier, this will make it easier for you to convert your digital assets back to fiat money. The big four (Bitcoin, Ethereum, Litecoin, Ripple) are among some of the most liquid cryptocurrency assets in existence today.
There are hundreds of exchanges that can get you signed up easily, but as a starter, you probably want to narrow down to a few reputable ones. Depending on your location, some of the well-established trading platforms globally include Coinbase, Coinmama, Binance, Paxful, Cex.io, Bittrex, just to name but a few.
The choice of exchange you use may depend on your location, be sure to find out whether a given platform operates in your country before signing up on it.
Besides, the process of signing up on some of these platforms may vary, but they are mostly standard in terms of requirements.
Some of the standard requirements include your full name, a valid email address and a password, a phone number, identification documents, and/or a passport photo.
You may not be required to produce all these documents upon signing up, but most exchanges require you to avail them for you to increase your transaction limits.
Step 3: Transfer your Digital Assets to Your Wallet
After signing up on your platform of choice and acquiring your assets, you’ll need to transfer them to your wallet.
Most platforms offer free online wallets on their exchanges, but if history serves us right, one can never be too careful with online businesses, can they?
Here are some of the most terrifying hacks in the history of cryptos. I hope that scared you enough to know how important it is to store your funds offline.
In case you need to exchange your coins with other cryptocurrencies, you’ll need to transfer the funds back to your exchange of choice.
The process usually is quite straightforward, you’ll paste the address of your wallet to your exchange to transfer funds to the exchange. Next, you’ll need to find the trading pair of your choice, consider this example:
Let’s say you wish to exchange Bitcoin for Ethereum. After sending your Bitcoin to an exchange, find a trading pair indicated as BTC/ETH, this means that you’ll be exchanging Bitcoin for Ethereum.
Once you identify your trading pair, follow the steps to complete the exchange and transfer the funds back to your wallet.
11 Rules for Investing in Cryptocurrency
Prior to investing in the crypto space, there are certain rules you’ll need to consider. They include:
- 1Don’t invest what you’re not willing to lose – this is a rule that applies to almost all investments. It’s quite simple and straightforward, understand the level of risk you’re willing to take and don’t stretch beyond that limit.
- 2Diversify, diversify, and diversify. Don’t rely on only one cryptocurrency, spread your risk by investing in other digital currencies too.
- 3Understand the currency you’re investing in. Go through its whitepaper and analyze whether its model makes sense.
- 4Do a background check on the team behind a particular coin. Are they qualified in terms of knowledge and experience? Do they have a clear roadmap for their project?
- 5Evaluate the market cap of a currency. The higher the mark capitalization, the higher the liquidity of an asset.
- 6Analyze any partnerships or agreements in existence. Are they likely to have a positive impact on the cryptocurrency?
- 7Customer support: How responsive are they to customer queries?
- 8Conduct in-depth research about the currencies you wish to invest in – a great place to start is on cryptocurrency forums such as Coin Telegraph, Social media groups, or other platforms such as Reddit and LinkedIn.
- 9Share your thoughts and concerns with others to be able to get feedback on what you already know. This might save you from carrying around any false information that may otherwise affect your investment.
- 10Don’t trust everything you read or hear – understand that some of the information represented on media platforms are simply malicious in nature and are sometimes only meant to throw the market in a state of fear and uncertainty. Also, be cautious of any links or emails you come across online, the crypto space is one of those investment areas marred with the worst of scams.
- 11Always remember why you decided to invest in cryptocurrencies and abide by that reason. Whether it is to make a quick buck or to invest for the long-haul, remain patient and calm. The market will sometimes be emotional, but if you believe in the currencies you invested in, you’ve got to stick to your gut.
- 12Be aware of the fact, that you can lose all your money. A general rule for traditional investments is, that the higher the potential, the higher the risks are. Same goes for investing in cryptocurrencies. Per definition, investing in cryptocurrencies is an ultimate high-risk investment.
In a nutshell, investing in a cryptocurrency involves acquiring a wallet, signing up on an exchange, buying your coins, and transferring them to your offline wallet for safe keeping.
Cryptocurrency investment is quite promising in terms of returns. Some assets have in the past recorded over 2,000% gain in their market prices within a few months.
However, when the market undergoes a correction, the fluctuation of prices can also be quite deep.
In the past few months of 2018, the cryptocurrency market has experienced an volatile upward and a downward trend in prices. This has discouraged many people from this investment line. In December 2018, Bitcoin prices fell below 4,500 USD while the all-time high was >20,000 USD.
Finally, it is important to understand that each and every investment has it fair share of ups and downs, the most important thing is to understand the kind of investment you are in, its challenges, and how to get past them.
Once that happens, it will be much easier for you to trade profitably in the cryptocurrency space as well as other investment areas.