A Guide on Investing In Cryptocurrency

A beginners guide to investing in cryptocurrency

Oct 30, 2022

Since Satoshi Nakamoto created the first cryptocurrency (bitcoin) in 2009, the crypto market has grown to $2.9 trillion.

Within this period, many investors and traders have made millions of dollars, while some have also gone bankrupt due to their poor knowledge of how to invest in cryptocurrency.

Therefore, it is essential to understand the fundamentals of crypto investment.

This article aims to guide beginners in their journey of investing in cryptocurrency and how to stay profitable in the long run.

However, before we start with the fundamentals of investing in crypto assets, you need to know what cryptocurrency is.

What is Cryptocurrency?

In simple terms, cryptocurrency is virtual/digital money, and like physical cash, it has purchasing power. It is built and deployed on blockchain technology, designed to ensure security, fast transaction time, and anonymity, among many other advantages.

To know more, check out our full What is Cryptocurrency post.

Knowing the best Cryptocurrency to Invest In

There are things to look for in a cryptocurrency project before you can confidently invest your money. The fact that the crypto market is flourishing does not mean there are no bad crypto projects. What are the things you should look for in any crypto project?

The team behind the project

As stated earlier in the article, cryptocurrency is like a system with a company. It is not advisable to buy shares from a company that you don't know who the founder, CEO, or directors are.

In the crypto market, knowing who is behind any project allows you to study what the person has done in the past, the person's qualifications, and pedigree in the industry.

For example, Ethereum (ETH) was created by Vitalik Buterin and his team, Binance coin (BNB) by Changpeng Zhao, Gavin wood founded Polkadot (DOT), and so on.

These are people with the requisite background and expertise in the crypto space. The team's vision, mission, roadmap, and milestones should tell you about the future potential of the crypto project.

What problem is the parent company solving?

Before you invest in any cryptocurrency, you must understand the problem that the company behind the cryptocurrency is solving. This is one of the significant factors driving a crypto asset’s value.

For example, BNB is the coin of Binance, the largest cryptocurrency trading platform by volume.

In addition, Binance has pioneered the creation of the Binance Smart Chain, which helps developers to deploy smart contracts and create NFTs, among other things.

If any cryptocurrency’s parent company doesn't have a real-life application to solve a problem, then you have to think twice before investing your money there.

Without real-life solutions, the crypto coin is most likely a 'shitcoin' that can lose its entire market value in the blink of an eye.

DYOR: Do your own Research.

I have seen many newbies throw in their hard-earned money on a crypto project simply because a friend or colleague told them it would make them rich in the future.

They always regret such actions. Before investing your money, ensure to conduct extensive research on the project. Read the whitepaper, litepaper, and other relevant documents related to the crypto asset.

Know what the project is all about, what they plan to offer to the world, and what it holds for the future. When you have done all these, you will have high confidence to invest your money rightly.

Steps to take before Investing in Cryptocurrency

You have carried out your research and are ready to invest in cryptocurrency; you need to take steps to ensure everything goes the right way. If you get any of these steps wrong, you might lose your money before getting started in the crypto market.

Step 1: Choose a trusted, reputable, and secure crypto exchange

You can only buy cryptocurrency through exchanges like Binance, Coinbase, etc. Before choosing any exchange, you have to ensure the exchange is secure, has available liquidity, and charges low fees. Once you have ascertained all these, then create an account on the exchange to begin your crypto investment journey.

Step 2: Choose your coin storage option

Most of the top crypto exchanges have options where you can buy and hold your crypto coins on the platform. However, there have been cases in the past where crypto exchanges were hacked, and many users lost their crypto assets. Therefore, before you store your cryptocurrency on an exchange, ensure the platform will be responsible for storing and safekeeping your coins.

Alternatively, you can opt for digital wallets to store your cryptocurrency. You can either use hot or cold wallets. Hot wallets are the ones that can be accessed through the internet, and they are convenient but can be hacked. On the other hand, cold wallets are completely offline and more secure than hot wallets.

Step 3: How much are you willing to invest?

The amount you want to invest in cryptocurrency depends on several factors, such as your investment strategy, budget, and risk tolerance. You will also have to consider the exchange's minimum investment requirement and transaction fees. Most importantly, you need to understand that the crypto market is extremely volatile, hence the need for you to invest what you can afford to lose.

Step 4: Choose an investment strategy

This will help you to manage your investment portfolio efficiently. Your investment strategy can be a long-term strategy, diversification, or regular investment, as the case may be. In addition, it will guide you to know when to sell your investment or acquire more crypto assets.

Additional Ways you can Invest in Cryptocurrency

Although investing directly in cryptocurrency is the most popular approach, there are other ways you can invest in crypto assets. They include:

Crypto Funds

Crypto funds allow you to stake on the price movements of Bitcoin, Ethereum, and other altcoins. These crypto funds are a good way for you to buy crypto via a fund-like product; an example is the Greyscale Bitcoin Trust.

Blockchain ETFs

With blockchain ETFs, you can earn profit by investing in companies that will make money from the emergence of blockchain technology. The leading blockchain ETFs will give access to publicly traded companies in the industry. However, it is also important that you note that the companies are not only restricted to crypto-related businesses.

Crypto Futures Trading

Futures is another way to make money off the price action of cryptocurrencies. With futures trading, you can utilize the power of leverage to earn more returns or losses, as the case may be. If you are still a beginner in crypto trading, you should avoid futures trading.

Conclusion

The crypto market is highly volatile, albeit profitable. As a beginner, starting small, will help you protect yourself from irreparable losses.

As you invest in crypto assets, also create time to learn and understand the market dynamics. Most importantly, always trade and invest the money you can afford to lose.

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