Beginner's Guide to Cryptocurrency Investing
Cryptocurrencies, or crypto for short, are gaining increasing interest and adoption, resulting in many investors considering investing in them. You will be guided through the basic concepts of investing in cryptocurrency in this beginner’s guide. The following articles will give you an overview of cryptocurrency, the types of cryptocurrency, what you should consider before investing, and how you can determine whether crypto should be included in your portfolio. You will also find a step-by-step guide to becoming a crypto investor if you decide you’re ready.
Exactly what is cryptocurrency?
Cryptocurrencies are virtual currencies that provide purchasing power and are similar to cash. Aside from being an avenue for investment, it can also be utilized for financial return objectives, similar to other investment assets. Cryptocurrencies are considered to be one of the most volatile asset classes (meaning they fluctuate in price greatly). Investments in cryptocurrencies, rather than short-term trading, offer the opportunity to participate in this technology and its applications over the long term. Cryptocurrency and the underlying technologies appear to be becoming more ubiquitous in the future, although it is impossible to predict the future. It is likely that it will take a long time for crypto to become an integral part of our daily lives, however.
The U.S. government does not issue, back, or regulate cryptocurrencies, unlike most forms of currency. A key feature of its design is its decentralization. It is through a blockchain-based validation process that cryptocurrency units are created digitally. Blockchain technology has broad applications and can be used in many fields, not just for cryptography. Also referred to as distributed ledger technology, blockchain ensures that each virtual coin’s value and transactions are recorded securely and encrypted. In theory, anyone with an internet connection can access the blockchains by accessing a network of parties, or computers. In addition to security, transparency, speed, and accuracy, this system has been designed to provide these benefits.
Cryptocurrency types
As of January 2023, CoinMarketCap.com indicates that there were about 22,000 different types of cryptocurrency. However, the word cryptocurrency itself is only a generic term for virtual currencies utilizing blockchain technology. The first cryptocurrency created was Bitcoin, which remains the best known to date. In general, all other coin-based cryptocurrencies are called altcoins.
Recent years have seen a large number of cryptocurrencies become prominent, amass a large market value, and develop a broad base of users and investors.
Because the crypto ecosystem is new and many cryptocurrencies are still in their infancy, it is difficult to predict which coins will be the most successful. It is possible to lose a substantial amount of money when investing. During 2022, most cryptocurrencies lost significant value after strong gains in 2021. Because of this, it is crucial that you gain a thorough understanding of each cryptocurrency before investing and decide whether you are comfortable with the investment.
Investing in cryptocurrency: things to consider
It is important to remember that cryptocurrencies are volatile, and their value can fluctuate widely over a short period of time, giving you pause if you are risk averse. Cryptocurrencies can be launched by anyone, and the regulation of them is evolving, so it is imperative to thoroughly vet any potential investments in order to avoid falling victim to scams.
Considering why you wish to invest in crypto may also be helpful to you. Do you intend to take advantage of a trend or do you have a more strategic approach in mind? The belief that you cannot lose money should never be used as a basis for investing. There is no such thing as an easy way to make a lot of money without risk. Cryptocurrencies should only be invested in if you are confident about their future prospects and are prepared to absorb large price swings.
Even though cryptocurrency may present a significant investment opportunity in the long run, it may be prudent to exercise caution, be clear about your expectations, and ensure that you have a clear understanding of your intentions. Taking a long-term view is essential when investing. This is particularly true for assets that may experience rapid price fluctuations, such as cryptocurrency. The risk of making emotional investment decisions when investing in highly volatile assets is high. For example, when buying when the price is rising, and selling when it falls, it is easy to fall into the trap of fear-based decisions. This is generally not a good investment strategy.
Are cryptocurrencies a good investment?
The decision on whether to invest in cryptocurrency depends on a number of factors. A successful investment strategy depends on a number of factors, including your time horizon, your tolerance for risk and the diversification of your portfolio. Because crypto currencies are volatile, the value of your coins can rise or fall quickly.
There is no guarantee that an asset will be the right investment for you merely because it is available for trading. The risk of losing money is inherent in all types of investing, as discussed above.
What is the recommended investment amount for cryptocurrency?
Investing no more than 15% to 25% of one’s net worth is considered a prudent investment strategy by some experts. You should consider your investment portfolio when deciding how much to invest in crypto. Cryptocurrency investment should be limited and you should never invest more than you can afford to lose. It is important to consider what percentage of your overall investment portfolio should be allocated to cryptocurrency, as well as what level of risk you are comfortable taking.
Additionally, it is important to consider diversification within the crypto industry. You should pay particular attention to the type of crypto assets you hold. As an example, certain coins may be more susceptible to price manipulation because they offer more potential long-term uses. Despite the overall volatility of the cryptocurrency market, the larger, more liquid cryptos are potentially less risky than the smaller, more speculative cryptos. There are large price swings even with the largest and most established crypto assets. In addition to the total amount of cryptocurrency in your portfolio, you should also consider the mix of cryptos that you own.
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Pros
· A small exposure to this potentially high growth space may result in improved risk-adjusted returns since cryptocurrencies were not highly correlated to other investments prior to 2022. In spite of the high level of correlation between cryptocurrencies and other asset classes in 2022, it is unclear whether this is a new trend.
· It has been suggested that certain crypto assets, such as Bitcoin, are analogous to gold: they are both fungible and durable due to their durability, finite supply, scarcity, and independence from any central authorities that can define their purchasing power.
· Cryptocurrencies are difficult to compromise because of their decentralization and transparency.
Cons
· Market volatility is a common characteristic of the cryptocurrency market, and it can be difficult to predict when prices will rise or fall, as well as the underlying reasons for large fluctuations in price.
· Despite the difficulty of hacking crypto blockchains, individuals may be susceptible to hacks due to the same risks associated with any activity conducted online.
· Currently, cryptocurrency transactions are not protected by law due to the lack of government regulation.
How to keep your cryptocurrency secure
It is important to take precautions to ensure the security of your crypto investments. The following tips may be helpful:
· Do not use any exchanges or digital wallets that are not reputable.
· Secure internet connections, strong passwords, and two-factor verification should be used to protect access.
· Cryptocurrency users should be alert to phishing scams.
· Passwords and keys should not be shared with anyone.
What are the best ways to invest in cryptocurrency in 2023?
A growing number of people are becoming familiar with crypto investing each day. You can invest through a number of exchanges similar to those which are used for traditional investments. A new account can be created within minutes. The key to investing in a particular currency is to make sure you have done your research beforehand, just as you would with any asset. These four steps will help you get started if you are interested in investing in cryptocurrency for the first time.
Step 1: Select a cryptocurrency for investment
Prior to investing in a cryptocurrency you should carefully evaluate the different, unique characteristics of each cryptocurrency you are considering, just as you would evaluate the potential risks and financial health of a company before buying its stock. There is no restriction on the number of cryptocurrencies you may invest in.
Due to their popularity as a vehicle for fraud, cryptocurrencies can be more difficult to verify. Cryptocurrency investment entails risks that might lead you to wonder how to avoid being scammed. The smallest/newest cryptos that are heavily promoted on social media should not be invested in if you want to avoid pump-and-dump schemes. Take into consideration that social media experts may not have your best interest at heart when analyzing the investment risk of a given cryptocurrency. In spite of the fact that investing through a large, reputable platform can minimize your exposure to fraud and cybersecurity risks, it is impossible to eliminate these risks since the entire industry is not regulated. The FTX platform, which had previously been regarded as one of the most reputable platforms, was found to be run by bad actors who misappropriated the funds of its clients as early as 2022.
Step 2: Choosing a cryptocurrency exchange
An exchange or investment platform must be used to purchase cryptocurrency. Choosing an exchange should take into account security concerns, fees, trading volume, investment requirements, and the types of cryptocurrencies available to buy.
Step 3: Evaluate your options for storage and digital wallets
Keeping your cryptocurrency in a digital place is necessary since crypto is entirely digital. Cryptocurrency investments are most commonly stored with investment platforms as the market has developed. Your assets should be safely stored and supervised by the platform you choose. Regulatory platforms, well-protected against hacking and cyber threats, and well-insured are the types of platforms that should be used.
For those who opt not to hold their cryptocurrency on one of the more popular platforms, a cryptocurrency wallet is required. In order to access your crypto, you must unlock the digital identity associated with your ownership, which is recorded on the blockchain. They contain the private keys that allow you to access your crypto. A digital wallet can either be classified as “hot” or “cold”. It is generally more convenient to use a hot wallet since it can be accessed via the Internet. As the name implies, a cold wallet is a physical device that stores your cryptocurrency keys completely offline, much like a USB drive, and is generally considered as a more secure method of storing them. It is recommended that you store your cryptocurrency in a wallet to ensure its safety.
Step 4: Determine the amount of investment to be made
Investing in cryptocurrency depends on a variety of factors, including budget, risk tolerance, and investment strategy. Furthermore, you should consider whether the cryptocurrency exchange requires a minimum investment and the transaction costs, since these can vary from one exchange to another.
To invest in Bitcoin, for example, you don’t have to come up with tens of thousands of dollars, like if you choose a cryptocurrency with a high value per coin. Most exchanges allow you to buy a dollar worth of the cryptocurrency rather than a whole coin. Don’t be concerned about the number of coins you intend to purchase, but rather the total dollar amount you wish to invest. Don’t invest more than you can afford to lose, and never invest more than you can afford to lose.
Related investments to explore
There are some related investments to consider if you are not yet ready to dive into cryptocurrency. A number of Exchange Traded Funds (ETFs) offer investors a way to participate in the crypto market without actually holding the crypto asset or any derivative thereof. Generally, these ETFs hold stocks in companies participating in mining or holding large balance sheet positions in cryptocurrencies, which interact with or support crypto markets. The opportunity to participate in this emerging market without having to take the plunge into cryptocurrency is provided by these investments.
Investing in cryptocurrency with Intelfin
The ability to invest in cryptocurrency can provide you with a number of options if you decide to give it a try. No matter what your level of excitement about cryptocurrency is or your level of fear, it is important to know how to invest in cryptocurrency. Using Intelfin, you can activate one or several multiplatform products simultaneously, generating profits without being required to engage in routine operations.