Ready to take the plunge in cryptocurrency investments, but not sure where and how to start? It's not too late, but note that if you had invested $100 in Bitcoin when it was first launched in 2009, the current valuation would have been in millions. This is so because the initial value of the asset was $0, and over the years, the crypto space grew to where it stands today. It's still a smart time to invest, but doing it right is the key.
There are tons of things that you will discover and learn as you start investing in cryptocurrency (crypto). However, let's start with this guide that will help you understand crypto and go about it most efficiently.
How to Invest in Crypto
- Cryptocurrency and its function
- Different ways to invest in the crypto market
- How much should you start investing?
- Choose the cryptocurrency
- Choose the right storage wallet
- FAQ section
Cryptocurrency and its function
There's a lot of noise around cryptocurrency by financial experts, business tycoons, countries, etc., and famous people like Elon Musk have created quite a stir in this space. Some see cryptocurrency as a substitute for global currencies such as Euro and U.S. dollar in the future. So what is cryptocurrency?
- Cryptocurrency is based on blockchain technology, where any single institution does not control the chain of information and distribution.
- Contrary to fiat currencies, crypto works as digital transactions detached from the central banking system.
- Essentially, crypto enables the buyers and sellers to directly transact between themselves while eliminating the middlemen such as banks.
There are over 6700 (many new ones are added all the time) cryptocurrencies traded in the market every day, but the two most popular ones are Bitcoin and Ethereum. And thanks to Elon Musk's field trip on Twitter, Dogecoin is now a popular name as well.
Different Ways to Invest in the Crypto Market
As you start investing, you will also come across many different approaches to investment. Let's take a look at investing in Bitcoin.
Stockpiling gold is common across the world, and it is done with the anticipation that the prices will increase. Many stockpile bitcoin as the investment principle is almost the same. Bitcoins are also finite like gold, and their built-in limit is 21 million coins. Many investors find this approach successful.
You have the option to purchase a coin or a fraction of a coin via platforms such as Coinbase, Gemini, etc. You need to provide your personal details and deposit some money into your account before starting.
Greyscale's Bitcoin Investment Trust can cater to your needs when planning to invest in capital markets. GBTC shares are eligible in particular IRA (investment return account) and other investment and brokerage accounts. This provides you with easy access to a wide range of accounts.
Bitwise 10 Private Index Fund:
This index fund is based on the kitty of large-capacity coins. Here, the company provides security and ease of use in traditional ETF. The minimum investment required in this fund is $25,000, and users are charged a small fee of 2.5%.
How Much Should You Start Investing?
In the world of established financial institutions, cryptocurrency tends to function within its own network. Word of caution, do not invest emotionally or based on any famous person's whims and fancies—Premeditate and start by allocating a small percentage of your portfolio to your crypto investments. With the recent changes and disruptions in this space, it could be challenging to make a rational decision.
Given the advancement and promises crypto has shown in recent years, it could be tempting to let greed take over decision-making. However, as you start and advance your cryptocurrency investments, here are a few things to remember.
Remember, regardless of the promises, crypto investment should be a small portion of your portfolio. If you are a balanced risk-taker in investments, you should be cautious even when investing more than 5% of your investment portfolio.
Crypto is not Stocks:
Crypto investment is not the same as stocks, and it doesn't pay dividends or interest just like silver and gold. The actual value can be derived if the crypto price increases significantly and stays there for a while.
Not Investment by Design:
When designed, cryptocurrency was not thought of as an investment. These are mediums of exchange and have been widely seen as a means to replace currencies such as the euro, yen, and dollar. The value of cryptocurrency is determined by the market and not by the manipulations in the traditional currencies.
A lot of your investment decisions will be guided by your risk-taking abilities, understanding of the market, and long-term goals. However, experts suggest that you shouldn't invest in crypto just because it is new or exciting. It would also be a compromise of a better future if investing in crypto restricts you from
- Paying off your financial debts
- Building an emergency fund
- Planning for your retirement
Choose the Cryptocurrency to Invest
This is one of the most complicated decisions that investors will need to make. In the current market, there are hundreds of cryptocurrencies, and the number keeps growing. Many currencies have fallen outside of the crypto space, even after being listed. However, Bitcoin is the most dominant cryptocurrency even in May 2021, and it is followed by Ethereum, Zcash, Dash, and Ripple. Bitcoin and Ethereum have been dominating since their inception in the market. As a matter of fact, these names have become synonymous with "cryptocurrency."
There's a lot of talk and media attention towards Bitcoin, but, interestingly, a few cryptocurrencies in the recent past have performed even better. As you start building your crypto investment portfolio, it is best to start with the two dominant names - Bitcoin and Ethereum. When you add new cryptos to your investment, you need to be careful and take an incremental approach.
Remember, many cryptocurrencies that popped up in the last decade even flatlined and completely disappeared. So apart from the growth potential, there's also the risk of your investment becoming zero with very short notice. Make sure that you choose your crypto wisely.
1. Bitcoin. BTC was launched in early 2009 and has successfully become the largest cryptocurrency measured by market capitalization and the volume of data stored on its blockchain.
2. Ethereum. Ether was launched in mid-2015 and is now the second-largest cryptocurrency in the world. This crypto is built on top of the Ether Blockchain that runs smart contracts.
Choose the Right Storage Wallet
You will also need a wallet to store your cryptocurrencies, and there's a lot of wallets available. A crypto wallet is a software that stores public and private keys that connect your cryptocurrencies to the blockchain. These wallets do not actually 'store' cryptocurrencies but provide you with the key to access the blockchain. The key is nothing but a means for you to unlock your crypto on the blockchain. These wallets also retain the record of transactions. You can choose from desktop wallets, online wallets, hardware wallets, or mobile wallets.
The decision to choose the wallet needs to be weighed carefully after considering the convenience and security of your assets.
The cryptocurrency market is volatile, and even in the middle of 2021, we have seen all the drama that unfolded with Dogecoin, Bitcoin, Ethereum, and other crypto valuations in the market. Whether you are investing big or starting small, make sure to clearly understand where the market stands today, start safe, keep a long-term plan, and slowly build your portfolio.
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Virtual currencies are highly volatile. Your capital is at risk.
How do I open a cryptocurrency exchange account?
In general, it is not hard to open a cryptocurrency exchange account. Choose from the most efficient crypto exchange platforms. You will need to add in your personal details such as your:
- Date of birth
- Email address
- Phone number
- Valid proofs that help companies establish your identity.
What is a cryptocurrency wallet?
A cryptocurrency wallet is a software program used to save your keys that can access your crypto on the blockchain. These wallets do not store crypto; instead, they provide access to your currencies.
How do I invest $100 in crypto?
To invest $100 in the crypto market you first have to identify your risk profile and educate yourself above the environment. The best strategy to invest is to split your amount and diversify your investments. If you are a novice trader, then it is safer to invest $100 in Bitcoin or Ethereum crypto assets. Once you get more savvy, you can start experimenting with other volatile coins.