Investing in Cryptocurrencies

investments

Cryptocurrency is a digital asset that can potentially bring a decent income.

Two strategies for investing in cryptocurrency

As with any exchange-traded asset, be it currencies, stocks or bonds, there are two main strategies for crypto:

Investing

Trading

In the first case, the trader receives income from short-term price movements both up and down. 

Investing usually means that a person invests money, buys a cryptocurrency and does not touch it for as long as possible: a year, two, three. During this time, the price of the same bitcoin on exchanges can rise 20-30 times.

When investing in cryptocurrency, you can make a profit solely from the increase in the price of the asset.

Benefits of trading:

Potentially big earnings

You can get money from falling prices

Benefits of investing:

No need to waste time

Significantly less risk of loss

Aggressive intraday trading often results in losses, as it is very difficult to predict price behavior over time intervals of less than 12 hours. Especially if we are talking about bitcoin, the rate of which does not depend on any states, corporations, companies and the state of their affairs.

Therefore, medium-and long-term investments in cryptocurrency are much preferable.

Below is a step-by-step algorithm for investing.

Choosing a cryptocurrency

Today, there are more than 7,300 of them in the world. How to choose something from such a variety?

First, we determine the investment goal. Cryptocurrencies themselves are potentially very profitable assets. However, there are two large groups among them.

Cryptocurrencies with large capitalization and relatively slow growth. These are those that have a capitalization of at least $500 million and are added to the listings of most crypto exchanges. For example, Bitcoin, Ether, Ripple, Dash, Monero.

Cryptocurrencies with a small capitalization so far, but with a growth potential that the “giants” of the cryptocurrency world like bitcoin are deprived of. Its “star” path from $1 to $10,000 has already been passed, and it can hardly be expected that in the next ten years it will grow another 10,000 times. But “young” cryptocurrencies with a small price and capitalization so far are quite capable of this.

Based on this, it is useful to divide your cryptocurrency portfolio into two parts:

1. Cryptocurrencies- “giants”: Bitcoin, Ether, Litecoin.

2. “Young” cryptocurrencies, such as Cardano, Polkadot, YUSRA.

Choosing the amount 

Different people have different financial opportunities. However, before you invest money, it is advisable to immediately decide:

How much money are you willing to invest?

For how long?

How are you going to diversify your investment portfolio?

The amount and term depend on how much you have available funds and how long you can do without them. Diversification is desirable to conduct on multi-level:

Invest money not in one cryptocurrency, but in several: 5-10 different ones

Buy not only cryptocurrency but also other investment instruments: stocks, bonds, currencies.

There is also a need for deep diversification among these instruments.

The portfolio of such an investor will be much more  stable. With all the faith in the blockchain, buying only Bitcoin or Ether is to risky  decision.

Cryptocurrency wallet

A cryptocurrency wallet is, in simple words, an agent program that connects to a central server when accessing the Internet and exchanges information with it. But in the case of cryptocurrency, instead of a central service, there are hundreds and thousands of devices that, just like you, have this program and store cryptocurrency coins.

There are two options for storing your investments in cryptocurrency:

 ” Hot ” wallet on the exchange

“Cold” wallet on your computer or laptop

Using a wallet on a reliable exchange is usually more convenient. First, you will be able to make any transactions on deposit, withdrawal or exchange of funds in 1-2 clicks. Secondly, your cryptocurrency will not be stored on your computer but on another device belonging to the exchange.

You may think that this is not a plus, but a minus. However cryptocurrency is different from bank accounts and payment systems: you own it only when your device on which the wallet is installed is working properly, you have access to it and remember the private key. If your laptop overheats, or your phone falls into a river, or you just forget your key, no one will ever give you back access to your money. 

In the event that such a nuisance happens to the exchange’s wallet, it is obliged to get you another wallet with the same amount. That is why storing funds in a ” hot ” way is almost always more profitable. 

The only exception is if you decide to invest several million dollars in cryptocurrency. But then you will have to spend money on a reliable server, ensure its maintenance and security.

Initially, to start working with cryptocurrency, it was necessary to have a separate wallet for each of them: one for Bitcoin, the second for Ether. And only then can you invest money in one or another currency.

Today the concept of a multi-wallet has appeared. It allows, as the name implies, to store several cryptocurrencies at once and easily exchange them for each other.

The easiest way to create a multi-wallet is on the exchange. In this case, you will only need to install an application on your device (PC or smartphone), which will receive up-to-date information about your accounts and currency exchange rate changes from the exchange server. However, your smartphone will no longer collect and download information about all transactions from hundreds of other devices.

The second option of a multi-wallet is a personal account on a cryptocurrency exchange. It shows all your deposits made in cryptocurrencies and the current number of tokens of each of them. 

For a person who constantly buys and sells something, a multi-wallet on the exchange will be much more convenient than the one created on their own device. Although some sites, such as the Ethereum platform, today allow you to download such programs that will work as multi-wallets. However, it takes more time to work with them, and the commission for transfers within your own wallet is often less than on the exchange.

Buying cryptocurrency

Where and how to do it correctly?

There are several options:

Exchanger

Stock market

Individuals who own cryptocurrency

The latter option should be used only the  individual – your relative or close friend, and you yourself perfectly understand the purchase algorithm. Otherwise you will either be deceived with the price or you will  wait for the digital currency tokens to be credited to your account at all.

There are several fundamental differences:

The owner of the exchanger is also the owner of all its funds.

It determines the value of each cryptocurrency (exchange rate).

If he does not have the necessary volumes of Bitcoin or Ether –  you will not be able to buy them.

The owner of the exchange can change the exchange rate at his own discretion, refuse to buy/sell any assets.

In practice, an exchange is usually not the best option to invest in cryptocurrency. Prices in it are usually not as favorable as when buying on the stock exchange. But you can count on instant completion of the transaction, and the exchange rate is always known in advance.

Before you invest money in an exchange, it is advisable to check three things:

The reputation of the site (on review sites) and its jurisdiction (find permits on the website of the exchanger and clarify information on the website of the regulator).

Exchange rate. It should not be much higher than the over-the-counter average. But if it is more profitable than the exchange, then this company is probably fraudulent.

What documents and customer data the exchanger requires. Information from the passport will most often have to be specified. But if more data is needed, it is already suspicious: it can be compromised.

An exchange is a platform where sellers and buyers of cryptocurrencies themselves look for and find each other – just like in the market. If you are interested in how to invest in cryptocurrency with minimal losses on commissions, then the exchange is one of the best options.

Its disadvantage is that you may have to wait for some time until there is a seller/buyer offering you the right lot at the right rate. But you can buy Bitcoin or Litecoin at the best possible price.

To make a deposit through the exchange  you will need:

Complete the registration process, including entering your passport details.

Top up your account or crypto wallet.

Start looking for suitable buy/sell offers.

Then make a deal.

Many exchanges have the advantage that they allow you to buy crypto on pending orders. For example, you will instruct the system to buy Bitcoin when its price is no higher than a certain one. The system “waits” until the price becomes necessary, and then performs the necessary operation itself. They can also offer leverage and other tools that exchanges do not have. 

In general, the exchange is suitable for those who are going to invest in cryptocurrency often and in large quantities. If you buy small amounts and from time to time, you should use an exchanger.

Cryptocurrency exchanges:

Binance

Bitmex

Exmo

Coinbase

When to sell cryptocurrency?

Even before you invest in cryptocurrency, it is advisable to decide at what point you will sell it and fix the profit. 

There are several options:

After a certain time, for example, after a year. Regardless of the price.

Upon reaching a certain financial result. Regardless of the time.

For novice investors, it is useful to set a minimum term for which they are ready to invest, and calmly wait for it to come. 

With the “explosive growth” of the cryptocurrency in which you have decided to invest money, it is worth selling half the amount each time you reach a significant price milestone. In this case, you will insure yourself against losses in the event of a sharp collapse, but if you continue to grow, you will keep some part of the cryptocurrency for sale at a very high price.

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