{"id":536213,"date":"2023-06-02T15:20:40","date_gmt":"2023-06-02T15:20:40","guid":{"rendered":"https:\/\/wncen.com\/?p=536213"},"modified":"2023-06-02T15:20:40","modified_gmt":"2023-06-02T15:20:40","slug":"how-to-invest-in-cryptocurrency","status":"publish","type":"post","link":"https:\/\/wncen.com\/learn\/how-to-invest-in-cryptocurrency\/","title":{"rendered":"How to Invest in Cryptocurrency for Beginners"},"content":{"rendered":"
Cryptocurrency investment in its most basic form is the process of buying digital currencies and holding them in the hope that the market falls in your favour while your portfolio increases in value.<\/p>\n
The value of a cryptocurrency is determined by the principle of supply and demand. As demand for a cryptocurrency, coin or token rises, there becomes fewer of them in circulation \u2014 resulting in a boom in price action. If the supply of coins outpaces demand for them, their value typically falls.<\/p>\n
There are several indicators that might draw an investor towards a particular cryptocurrency. Some investors and traders choose which cryptocurrencies to invest in by conducting a technical analysis of a range of coins.<\/p>\n
An investor might have certain criteria that need to be met to invest. For example, cryptocurrencies that are in an overall uptrend, are showing positive signs of adoption and have a durable, scalable blockchain interface are more desirable than those that don\u2019t.<\/p>\n
There are many ways to invest in cryptocurrency, besides directly purchasing coins or tokens through an exchange.<\/p>\n
Some of the common types of crypto investing include:<\/p>\n
Investing in crypto-oriented or pro-crypto companies<\/strong> \u00ad\u2014 As the prices of cryptocurrencies soar, so does the stock price in companies that form their business around them. Companies that are able to integrate cryptocurrency blockchain networks into their service offering can prove profitable as cryptocurrency use becomes more widespread.<\/p>\n Investing in crypto-heavy funds<\/strong> \u2014 Crypto funds typically carry less risks than committing capital to one specific cryptocurrency. As some cryptocurrencies bull and others bear (decrease or increase), fund holders can still benefit from having their losses hedged by their gains \u2014 making them attractive to more risk-averse investors.<\/p>\n Buy crypto EFTs on a brokerage platform<\/strong> \u2014 Similar to crypto funds, EFTs can also be a great way diversify a portfolio without committing large amounts of capital. The price of an EFT is determined by the price action of a group of coins or tokens rather than just one \u2014 making it a safer option for novice investors.<\/p>\n Incorporate cryptocurrency into your Roth IRA or 401K<\/strong> \u2014 More and more brokerages and investing platforms are allowing cryptocurrency allocations to be held in an IRA or 401K account. For example, Fidelity is unveiling plans to allow users to dedicate 20% of their 401k holding to cryptocurrencies \u2014 allowing investors to diversify their 401k.<\/p>\n Before plunging into the world of cryptocurrencies, there are a few things to consider:<\/p>\n Cryptocurrencies are unregulated and decentralized<\/strong> \u2014 Despite being one of the allures that draw investors towards cryptocurrencies, their decentralization can make them potentially dangerous. The threat of scams and fraud can make it a risky asset to hold.<\/p>\n They\u2019re known for huge fluctuations in price action<\/strong> \u2014 Bitcoin<\/a>, Ethereum<\/a> and many other altcoins are extremely volatile. Because their price is determined largely by hype and speculation from coin makers and blockchain developers, it\u2019s difficult for investors to gauge the long-term profitability of cryptocurrency investments.<\/p>\n Exercise caution when dealing with ICOs<\/strong> \u2014 Similarly to how companies have an initial public offering (IPO) for their stock price when they first go public, emerging cryptocurrencies start out the same way \u2014 offering what\u2019s known as an initial coin offering (ICO). Investors must be wary of these as they\u2019re known for their limited transparency when it comes to development progress, user adoption and potential issues, so investors may risk buying into pump and dump schemes.<\/p>\n Only invest amounts you\u2019re comfortable losing<\/strong> \u2014 Because of their inherent volatility \u2014 and lack of data to support consistent long-term growth potential \u2014 it\u2019s important investors only invest small portions of their portfolio into cryptocurrency when starting out.<\/p>\n Protect your private key<\/strong> \u2014 If you\u2019re using a cold or hot wallet to store your cryptocurrency, you\u2019ll need a private key \u2013 an alphanumeric code that acts as a password. Protecting this key is paramount to guarding your investments as criminals can steal it and walk away with your assets.<\/p>\n Choose the best coin exchange, broker or wallet to suit you<\/strong> \u2014 Whether you\u2019re a long-term or short-term investor \u2014 or even a day-trader \u2013 selecting a broker or exchange that works best for your needs is essential. Investors must consider the features of the site \u2014 like what currencies are available, what you can buy and sell and leverage options \u2014 as well as transactional costs that are more suited to their investment style.<\/p>\n Investing in crypto is simple and easy to do. All you need is some liquid capital \u2014 in the form of a fiat currency like dollars or pound sterling \u2014 and an account with a broker or crypto exchange.<\/p>\n To get started, you need to:<\/p>\n However, before committing funds to cryptocurrency investments. It\u2019s important to study the fundamentals of investing to limit the risks.<\/p>\n There are many advantages and disadvantages to investing in and trading cryptocurrency \u2014 all of which need to be considered by new investors when opening up an account.<\/p>\n Pros of investing in crypto<\/strong><\/p>\n Cons of investing in crypto<\/strong><\/p>\n Because there is little in the way of regulation and oversight in the crypto market, prices are governed solely by speculation.<\/p>\n While significant movements \u2014 like technical advancements in a cryptocurrency\u2019s blockchain infrastructure \u2014 can cause buzz and rallies of a particular cryptocurrency, its popularity is largely dictated by cryptocurrency owners inflating the strength of their own coins.<\/p>\n To hedge against volatility, investors and traders can make use of certain features on coin exchanges and brokerage sites to limit risk.<\/p>\n For example, experienced investors will look to:<\/p>\n Use crypto as a diversifier<\/strong> \u2014 Rather than betting their entire portfolio on cryptocurrencies booming in price, they\u2019ll only allocate a small portion of their assets to cryptocurrency. With their money in many types of investments \u2014 like stocks, commodities and indices as well as cryptocurrency \u2014 they\u2019re able to benefit from micro gains in each sector and limit losses.<\/p>\n Limit the use of CFDs and leverage<\/strong> \u2014 CFDs and Leverage lets investors take up much larger positions on the stock market than their capital might allow. This can mean higher gains but also substantial losses should they crash. A controlled, cautious approach to leveraged investing can help limit those losses.<\/p>\n Manage emotion<\/strong> \u2014 If you\u2019re new to crypto investing, it can be easy to get swept up in the emotional side of investing \u2014 especially if a bear market hits your portfolio particularly hard. Experienced investors understand that the market moves only in response to supply and demand, making It easier for them to cash out and change tactics in response to market changes with a cool head.<\/p>\n Work to a timeline<\/strong> \u2014 Experienced investors stick to a long-term plan \u2014 they don\u2019t just throw money at cryptocurrencies in response to trends. Their investments are based on data-driven predictions, price graphs and technical and fundamental analysis. This lets them buy, hold or sell at more optimal times than people that panic buy.<\/p>\n Investing in cryptocurrencies can be daunting \u2014 especially for those with limited understanding of market fundamentals.<\/p>\n Here\u2019s a few tips to bear in mind as a novice investor.<\/p>\n Make use of \u201cstop losses\u201d and \u201ctake profit\u201d levels<\/strong><\/p>\n \u201cStop loss\u201d and \u201ctake profit\u201d are price ranges determined by the investor. Once these levels are set in place, the broker or exchange will automatically sell their investments to help an investor limit their losses and cash out on profits when they aren\u2019t able to manage their assets themselves \u2014 say when they\u2019re at work.<\/p>\n If you\u2019re starting out, or have limited disposable capital to play with, these limits are an integral part of preserving it \u2014 especially in volatile markets.<\/p>\n Use an exchange rather than a broker<\/strong><\/p>\n Cryptocurrency exchanges typically have lower transaction and holding fees than brokers. This makes them better options for long-term investors.<\/p>\n Remember that the markets are constant<\/strong><\/p>\n Cryptocurrency markets never sleep \u2014 they operate 24 hours a day, seven days a week.<\/p>\n As well as your stop losses and take profit levels, it may be worth using tools to automate [DS1]\u00a0your investments, so you don\u2019t lose money on a sudden downturn.<\/p>\n Consider using a paper account<\/strong><\/p>\n If you\u2019re new to investing and want to get to grips with the market and understand how to navigate an exchange\u2019s interface, you can open a paper account.<\/p>\n This lets prospective users trade and invest in cryptocurrencies and stocks with fake money and safely test out strategies and monitor markets risk-free.<\/p>\nWhat do I need to know before investing in cryptocurrency?<\/h2>\n
What do I need to invest in cryptocurrency?<\/h2>\n
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Pros & cons of investing in cryptocurrency<\/h2>\n
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Understanding crypto market volatility and risk management<\/h2>\n
Tips for investing in cryptocurrency<\/h2>\n