Everyone is talking about cryptocurrency these days and buying it has never been easier. New investors usually rush in to buy while the more experienced ones have many questions about crypto before making a purchase – when is the best time to buy, how to buy, how to safely store the investment.
We’ll answer these questions, and much more, in our crypto investment guide.
For starters, there are 4 important things every investor should know before purchasing any cryptocurrency:
1. Cryptocurrencies Are High-Risk, High-Reward Volatile Investments
Cryptocurrencies are considered many things, but stable is not one of them. They are very volatile and it is not uncommon for a crypto to lose 50% of its value in a week, then skyrocket to record highs the next. Many people have made a fortune, but others have lost everything they had (LUNA, anyone?)
2. The FDIC Does Not Cover Cryptocurrency Holdings
If you have a checking and savings account in a bank, your money is insured for up to $250,000. This is not the case if you are on a crypto exchange, so you could be out of luck if something happens to it – bankruptcy or a hacker attack.
3. Crypto Is Also Taxed
Defining which tax type your crypto gains go into is a blog post on its own and you can read all about it here However, one thing is certain, the capital gains are taxable.
4. Who Moves The Crypto Market?
Cryptocurrencies are volatile assets that use the blockchain system to operate. There are a couple of factors which can affect the price of a digital asset:
- Endorsements by trusted public figures or business leaders who promote a certain digital asset could entice many people to buy in.
- The good old press has a large say in any price swings, as it can sway public consciousness due to an article, editorial piece, interview or movie, leading to an increase or decrease in purchases.
- The so-called whale investors can start rallies and, in turn, convince other investors to buy in, bringing the price up to their sell orders.
- Fear of missing out (FOMO), hype and crypto mass adoption are all factors moving the cryptocurrency market upwards.
How To Buy Crypto?
First things first, you have to choose a reputable crypto exchange where you can buy, sell and store your crypto. The crypto space has developed a lot in the past few years and this led to the creation of many new exchanges. Whether you’re looking for a CEX or a DEX, we’ve got you covered. Check out the differences between a CEX and a DEX here. Here are our favorite exchanges for beginners:
Choose Which Cryptos You’d Like to Invest In
There are thousands of digital currencies to choose from besides everyone’s favorite Bitcoin (BTC). Most exchanges offer a large variety of coins, usually ones with a respectable market cap. Here are some examples of popular cryptocurrency altcoins:
- Ethereum (ETH)
- Bitcoin Cash (BCH)
- Binance Coin (BNB)
- Dogecoin (DOGE)
- Ripple (XRP)
- Cardano (ADA)
- Solana (SOL)
- Litecoin (LTC)
Credibility, security, privacy? Which one plays the biggest role in an investment? Well, selecting the ‘right’ cryptocurrency could come down to which volatility level you choose and which one you believe in. We suggest reading as much as possible about each coin you want to invest in, as well as examining their respective whitepapers.
Determine How Much Crypto To Buy
What percentage of your portfolio should be in crypto? We don’t recommend having more than 20%. Having less volatile investments would allow you to sleep easy if crypto tanks. The right combination between safe and risky investments allocated in diversified sectors of the economy is probably the most sane investment strategy. Start with a smaller amount of between 5% or 10% of your total portfolio and maybe consider increasing it later, depending on the market conditions.
Safely Store Your Private Keys In A Cryptocurrency Wallet
Great! You added some crypto in your crypto wallet and now you’re wondering how to store your private keys. Well, you can have a hot (online wallet) or cold (hardware wallet) wallet. The hot wallet gives you quick access to your crypto assets that are stored on the cryptocurrency exchange. However this method is riskier as your investment can get stolen if hackers attack the exchange. Some large crypto traders and especially long-term holders choose the cold wallet storage method due to the greater private key security it provides. While this is the safest option, make sure you know where you hid the USB or hard drive, and where you’re storing your recovery seed to avoid permanent loss of your crypto assets.
Keep Track of Your Investment
Buying crypto is just the start of your journey. We recommend you to try and follow these steps in order to stay ahead of unexpected price dumps or pumps:
- Monitor your crypto investment and its performance
- Read crypto-related news to stay updated on the newest trends, as well as other financial news highlights.
- Immerse yourself in crypto communities, follow crypto gurus and attend crypto conferences or meetups
- Monitor government regulation regarding cryptocurrencies especially in the USA and Europe.
- Stay curious and continue to self-educate on any blockchain and crypto related topics
These recommendations will definitely give you an extra edge when it comes to making the decision – do I buy or do I sell?
Alternative Ways To Invest in Crypto
Buying cryptocurrencies is not the only way to invest in digital assets. The blockchain ecosystem is a creative space where users can earn crypto for free through learning and mining. Coinbase offers an Earn program where one can watch a two minute video to earn Stellar (XLM) tokens in return. Furthermore, if your computer graphics card is powerful enough, you can mine crypto by ‘leasing’ your GPU’s processing power to the blockchain space. There are also NFTs, DeFi and smart contracts, which are a whole ecosystem of their own.
Another favorable investment is cryptocurrency stocks and ETFs. The SEC recently approved the first Bitcoin futures ETF. Additionally, you can invest in the crypto industry by purchasing shares of companies which have orientated themselves towards the future of cryptocurrencies, such as mining companies, GPU chip makers or shares of large crypto exchanges.
What are the Advantages and Disadvantages of Cryptocurrencies
- First and foremost is the possibility of massive gains. Bitcoin, the king of crypto, is the best-performing asset of the last decade when viewed on a high time-frame.
- The technological revolution is pushing into new horizons. Blockchain technology application is disrupting every sector, leading to new, exciting opportunities.
- Cryptocurrencies provide a good alternative for portfolio diversification and increase your chances to ‘strike gold’.
- You can earn by taking part in the community, by simply watching videos and earning tokens or mining cryptocurrencies.
- There are alternative ways to invest in crypto with less risk, for example Crypto and Blockchain ETFs.
- Cryptocurrencies are gaining more adoption worldwide, leading to more businesses entering the world of blockchain technology.
- The high risk and volatility of the crypto markets could lead to big gains, but also to massive losses. Risk only what you can afford to lose so you don’t have sleepless nights.
- There are many cases of theft, fraud and scams out there. Always do plenty of research on a project before clicking the ‘buy’ button.
In many countries around the world cryptocurrencies have become easier to get than bank accounts. The hype train is still going and it won’t be surprising if we see all time high market capitalizations within the next 3 years. Crypto’s future largely depends on what happens further with blockchain technology and how far it becomes integrated into developed economies. If you choose to be part of the crypto trading revolution, before you start investing make sure you self-educate yourself as much as possible and always remember that cryptocurrencies are very risky investments. This guide does not provide investment advice, it only aims to educate the crypto-curious what’s out there. Read more at about crypto topics here.