We’ve all seen the news about fast gains and new millionaires from the crypto industry, but it can also be fraught with danger. In this article, I explore the merits of investing in cryptocurrency and share tips and tricks for maximizing your chances at success.
What is Cryptocurrency?
Cryptocurrency is a decentralized form of money that exists solely in digital space. It relies on blockchain technology and is nearly impossible to counterfeit.
Unlike traditional fiat currencies, there’s no central agency that regulates the value of these coins. That typically falls to the pool of users who own and trade cryptos via the web.
The first cryptocurrency to enter the market, Bitcoin, first appeared in a 2008 article outlining the premise of such technology. Since its official launch in 2009, Bitcoin has risen more than 12,000%.
Why Invest in Crypto?
Before attempting your hand at cryptocurrency, it’s essential to understand your reasons for dabbling in the space.
Digital coins can offer significant diversification from mainstream investment methods, helping diversify a portfolio. It’s worth noting that cryptos tend to rise faster than other assets, creating space for faster gains. For every coin that skyrockets, however, many more never leave the ground.
Similar to commodities like gold that aren’t tied to a fiat currency, digital coins can shield your wealth from the harmful effects of inflation. Since most cryptos have a limit on how many can be printed, future demand has the potential to keep value high.
Because of its decentralized nature, cryptocurrencies are safe and secure to use. Also, transactions are always transparent, carefully recorded, and take place much faster than mainstream methods.
Understand the Industry
As you segue into cryptocurrency, take all the time you need to understand the industry. This means reading up on blockchain technology, cryptography, and even some of the more complicated mechanisms that make cryptocurrency viable. It sounds like a lot, but there are several tools employed by crypto exchanges and other sites to bring you up to speed quickly.
It’s wise to stay up to speed on the latest crypto trends and market dynamics shaping the space right now. As a constantly evolving industry, strategies that worked previously may no longer apply today. Even past successes from particular coins are no guarantee of future growth.
The judicial landscape surrounding cryptocurrency is still new, and court rulings or regulations can have a major impact on how digital currencies trade. China’s 2021 ban on crypto mining had a dramatic effect on cryptocurrency there.
This is still a relatively new sector, and its frequently changing nature is a put-off for some. Those that stay on top of news have the highest chance of winning big.
Types of Cryptocurrencies
Blockchain technology is entirely open source, meaning anyone with the skill can create a new coin with the right code.
At present count, there are more than 10,000 unique cryptocurrencies around the world. Knowing where to invest your hard-earned money can prove challenging with so many options available.
Established Coins
Like companies with large market caps, established cryptocurrencies like Bitcoin and Ethereum continue to stand the test of time. They’re also now tied to other financial mediums, such as exchange-traded funds, that contribute to a sense of stability.
A handful of other coins, including Tether and Binance Coin, are working hard to catch up. While none of them are guarantees, these coins can be a solid but expensive way to start investing.
Promising Altcoins
New or off-the-radar altcoins are sometimes equipped to grow much faster than more stable cryptos, allowing a shot at considerable gains in a relatively short amount of time. With so many to choose from, it’s best to turn to the experts for advice.
Top crypto exchanges like Binance keep constant tabs on promising altcoins, sharing lists at regular intervals. Each Binance new listing provides details on top recommendations and why they have a shot at moving upward.
Start Slow
No matter where you decide to start your crypto journey, it’s usually best to do it slowly. Because it’s a high-risk asset class, consider attributing just 1-5% of your portfolio to cryptocurrency when you first invest.
As you begin to understand cryptocurrency more, use your best judgment should you ever decide to increase that amount. The draw of large potential returns is real, but you’ll want to balance the volatility out with more predictable investments in the event your pool of crypto goes sour.
Choose an Exchange
Crypto exchanges can make purchasing and trading cryptocurrencies a breeze. Like digital currencies themselves, there are many mediums to choose from.
The first step to choosing the best exchange for you is to confirm it carries the coin or coins you’re most interested in. Bitcoin may be prevalent in all of them, but lesser-known altcoins are likely not.
You’ll also want to verify the payment methods available for purchasing cryptocurrency. Wire transfers are a common option, but some allow payment through credit card, debit card, or other digital means.
All exchanges carry some sort of fee for trading, and those extra costs can really eat into your earnings. Check into what you’ll be charged for before signing up. It’s also wise to look up security measures designed to protect your assets from unscrupulous characters.
Have Safe Storage Mediums
Once you own some cryptocurrency, you’ll need a safe place to store it. This is where hot and cold digital wallets come in.
Hot wallets are always connected to the internet, allowing for quick access to your coins for trade or use in a transaction. Since they’re always online, however, hot wallets are easier targets for hackers to steal what’s yours.
On the other hand, cold wallets are offline devices that offer protection against cyber theft. The downside here is that they’re not nearly as easy to use when you want to view, spend, or trade your digital assets.
Crypto custodians are yet another possibility for safeguarding your holdings. These third-party operators have strong safety protocols such as encryption and two-factor authorization to keep your assets where they belong.
Final Thoughts
Cryptocurrency can be an excellent investment vehicle and has minted many millionaires since first appearing on the scene some 15 years ago.
That said, the industry’s infancy and volatility can make digital coins very shaky ground to stand on. Understanding what you’re walking into and having a solid plan in place before spending a penny can shield you from some of the chaos.
As with any investment, never use more money than you can afford to lose. Starting with just a few percent of your portfolio will help with that.
If you take measures to protect your assets and enter in with an open mind, there’s no telling the level of success you can have through this lucrative investment opportunity.