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There was a time when discussions about cryptocurrencies and the industry’s various investment products and tools only took place on specialized forums and websites. These days, hardly a day goes by when cryptocurrencies are not mentioned in the mainstream media, or people talk about crypto investing with their friends, peers, and work colleagues. Cryptocurrency investing can seem overly complicated to a newcomer, but it should not be as daunting once you have finished reading this beginner-centric article.
Bitcoin was the first-ever cryptocurrency, a digital currency that was first released as open-source software in 2009. Since then, more than 9,000 other cryptocurrencies have flooded the marketplace, and the global crypto market cap currently hovers around $1.2 trillion. Digital currencies have spawned massive exchanges such as Binance, Coinbase, and Kraken, where investors can buy, sell, and trade assets. More traditional companies like Microsoft, Newegg, Twitch, and several Bitcoin betting sites online accept various cryptocurrencies in addition to everyday fiat money; the industry is massive and is here to stay.
Buying From an Exchange is the Easiest Way to Get Started in Crypto Investing
Those wanting to invest in cryptocurrency directly and have complete control over that investment should look into buying cryptocurrency from one of the many exchanges found online. The process is similar to purchasing shares on the stock market, with your primary goal to buy a cryptocurrency at one price and sell it later when its value has, hopefully, increased.
Choosing a cryptocurrency exchange to buy and sell with is your first port of call. It is in your interest to select a well-known exchange that is reputable and has been in business for a significant time because it reduces the risk that the exchange will go out of business for many reasons. As with any investment, there is always that risk, but it is vastly reduced if you use one of the more prominent, established exchanges.
Create your account on the exchange, including verifying your identification, the latter being a prerequisite before you can buy or sell digital assets. Once your account is up and running, you need to fund your exchange account with fiat money. You should set up your exchange account currency in your native currency to avoid unnecessary conversion fees; use US dollars if you are in the United States, British pounds in the United Kingdom, and so on.
Now it is time to decide which cryptocurrency you wish to buy. As mentioned earlier, there are several thousand cryptocurrencies, each with positives and negatives attached. Thoroughly research your options before taking the plunge; you can find a plethora of information here at Altcoin Investor to help start your investment journey.
Once you have settled on which cryptocurrency you want to invest in, you must place a buy order with your exchange. The steps for this are relatively simple, and although each exchange operates in its own way, they are all similar. The buy order is usually settled quickly, leaving you with your first cryptocurrency investment!
The final step is where to store your cryptocurrency. Storage is done via a digital wallet, either hosted on the cryptocurrency exchange, via an independent wallet provider, or offline in a specialized hard drive or USB drive known as a hardware wallet.
Other Cryptocurrency Investment Methods
In addition to the traditional buy-and-hold strategy, the most common way of investing in cryptocurrency, there are several other ways to make money from digital assets. For example, mining cryptocurrency is still big business globally.
Miners are essentially minting new currency. Miners worldwide use powerful computers to solve highly complex math problems, and the first computer to solve a problem receives the next block of cryptocurrency. There are two main issues with mining cryptocurrencies. First, a computer with a powerful graphics card (GPU) or an application-specific integrated circuit (ASIC) is required, and these are costly. Second, the mining process uses a lot of electricity, and soaring energy costs can make mining unprofitable, depending on your place of residence.
It is also possible to trade cryptocurrencies, much like stock traders do. Where investing is considered more of a long-term project, trading takes advantage of short-term opportunities. Cryptocurrencies are volatile assets – their value increases and decreases rapidly and often wildly – making them perfect for day traders. However, while the potential rewards are massive, so are the financial risks, so trading cryptocurrency is only recommended for those with a trading background.
Consider investing in cryptocurrency companies or those with strong links to the industry instead of holding digital currencies. For example, Nvidia produces elite-level graphics cards that miners use, so investing in Nvidia has links to cryptocurrency. Many other crypto-focused companies trade on traditional stock markets, including PayPal, MicroStrategy Inc., and Robin Hood Markets Inc. Buying shares in these companies exposes you to crypto markets without ever physically holding any cryptocurrencies.
What Are the Risks Involved With Cryptocurrencies?
Volatility is the most considerable risk involved with most cryptocurrencies. The price of traditional stocks and shares continually increases and falls, but the differences in crypto prices can be extreme. Take Bitcoin as a shining example. Bitcoin was trading at almost $65,000 per Bitcoin in November 2021, but that identical Bitcoin was worth a little over $20,000 only 18 months later. One only needs to look at a historical price chart to see the vast swings related to almost every cryptocurrency. Those price swings attract investors (because massive profits are possible) but also detract potential investors (because you could lose significant sums of money).
The cryptocurrency space continues evolving rapidly, with new developments potentially affecting your portfolio. There are taxation implications in some countries, such as the United Kingdom, if you profit from buying and selling cryptocurrencies despite these digital assets not being legal tender.
There is also a slight chance that the exchange you use is up to some shady business that puts your investment at risk. FTX was once valued at a staggering $32 billion, but gross mismanagement by the owners and senior management team resulted in FTX having $8 billion of liabilities that it could not pay. As a result, FTX filed for Chapter 11 bankruptcy, which in turn caused a spike in crypto volatility and wiped billions of value across the board. While such catastrophes are rare, they are still possible.