How to Invest in Cryptocurrency? – A Beginner’s Guide

Cryptocurrency has now become an essential part of everyday conversations and it’s even discussed more frequently on financial news. Investors from around the world are eagerly willing to take advantage of the blockchain technology in various ways. However, the cryptocurrency market is so huge that beginners may easily become exhausted while looking to invest in it.

Understanding Cryptocurrency

Cryptocurrencies pretty much play the role of traditional currencies in the digital landscape. The major difference is that traditional currencies are acceptable in specific countries whereas cryptocurrencies are accepted in specific blockchain networks.

For example, if someone wants to transfer funds to someone in the United States, they’d have to conduct the transaction in USD. Similarly, if someone wants to transfer funds to another person, they’d have to conduct the transactions in BTC. However, cryptocurrencies are only available in digital form.

The important part is that the cryptocurrencies operate on a decentralized network so they can’t be controlled by a centralized authority. The best thing about cryptocurrencies is that they’re even accessible to unbanked economies.

Blockchain Technology

Blockchain network keeps a record of all transactions processed over time. The network uses a specified consensus mechanism to avoid double spending and other security issues.

Types of Cryptocurrencies

Bitcoin (BTC) and Ethereum (ETH) are the major participants in the crypto industry. However, there are hundreds of other coins that are referred to as altcoins. Altcoins aren’t just limited to simple transactions but they offer a number of amazing features and functionalities.

Advantages of Cryptocurrency Investment

• Potential for High Returns – Over the years, cryptocurrencies have offered significant returns over the investors’ initial investments.
• Diversification in Investment Portfolio – Cryptocurrencies are also considered to be a hedge against traditional asset classes like stocks and bonds.
• Accessibility and Ease of Transactions – Unlike traditional financial systems, cryptocurrencies offer seamless cross-border transactions with significantly low fees and fast speed.
• Decentralization and Security – With their decentralized nature, cryptocurrencies offer trust and reliability to investors.

Risks of Investing in Cryptocurrencies

• Volatility and Price Fluctuations – Extreme price volatility can be a nightmare for new investors. The dramatic price movements of cryptocurrencies can cause potential financial strain.
• Regulatory and Legal Uncertainties – The investor’s confidence is severely damaged when the governments introduce new regulations for the crypto industry.
• Security and Hacking Risks – Although blockchain networks are really secure, individuals may still become a victim of hacking and cyber-attacks.

How to Invest in Cryptocurrency?

Learning About Different Cryptocurrencies and Their Use Cases

The investors need to start by collecting information about how different crypto projects work. There’s a misconception that crypto projects are only designed to transfer funds without any centralized authority. But the fact is that the crypto projects can do a lot more than that.

Ethereum is a prime example that allows users to build decentralized applications on top of its network. Similarly, there are some crypto projects that are dedicated to leading the Web 3.0 revolution. And some projects are dedicated to offering complete transparency and privacy to the users. So, the users need to learn about different crypto projects to start their journey in this realm.

Setting Investment Goals

There are several stories where investors lost their entire life savings due to a wrong investment. That’s because investors don’t properly set their goals before investing in cryptocurrencies. Most investors come with the goal of becoming a millionaire overnight. But they usually end up losing their investments.

The investors need to decide whether they’re willing to invest for the short term or the long term. Similarly, they need to define their risk tolerance to make sure that they secure their capital amount so they may use it for other opportunities. They should also focus on risk management and other important aspects that may help with protecting their capital.

Choosing a Cryptocurrency Exchange

Beginners are always encouraged to start with a centralized exchange because they’re pretty much similar to the traditional exchanges that offer trading facilities for stocks and indices. Coinbase, Kraken, Binance, and Bybit are some of the leading names in this category. They offer a range of cryptocurrencies with significantly low trading fees.

But these exchanges are susceptible to hacking attacks and they don’t provide investors with complete control of their funds. On the other hand, decentralized exchanges like Uniswap, PancakeSwap, SushiSwap, and Curve Finance provide a more secure environment. Similarly, they provide direct access to DeFi marketplaces.

The best thing about decentralized exchanges is that they provide an extensive range of passive income opportunities for investors. So, the beginners may start their journey by choosing a centralized exchange but they need to educate themselves about decentralized exchanges to enjoy additional benefits of the crypto market.

Choosing a Wallet

Centralized exchanges provide online wallets that are directly connected to the trading accounts but these wallets are soft targets for hackers and cyber criminals. Investors should consider storing their crypto tokens in hardware wallets or software wallets.

Hardware wallets are considered to be the best in terms of safety but they don’t offer the freedom to access crypto tokens anywhere. The users need to carry the device with them all the time if they want to access their funds. Software wallets, on the other hand, are easily accessible through the internet.

And they provide more security features compared to online wallets. Software wallets can be the right choice for those who want to trade more frequently whereas, hardware wallets can be the right option for those who want to invest in cryptocurrencies for the long term.

Portfolio Diversification

One of the major reasons why investors lose money in crypto is that they invest all the funds in a single project. No matter how strong the fundamentals are, investors should avoid making this mistake. They should instead consider investing in five different projects that have strong fundamentals. Thus, they can establish a balanced portfolio.

Conclusion

Cryptocurrencies operate digitally on specific blockchain networks, offering accessibility and decentralization. Major coins like Bitcoin and Ethereum are accompanied by diverse altcoins with unique features.

Understanding various cryptocurrencies, setting investment goals, choosing a reliable exchange and wallet, and diversifying the portfolio are essential steps for successful cryptocurrency investment.

If you need more information about cryptocurrency investment, feel free to get in touch with us. We also invite you to subscribe to our weekly newsletter if you need regular updates about Bitcoin and the crypto market.