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How to Invest in Cryptocurrency for Beginners
Despite its volatility, the popularity of cryptocurrency is on the rise. Experienced traders have been speculating on it for years, and many new investors are curious about getting into the game.
The decentralised structure of this asset type is the main selling point of owning and investing in cryptocurrency. Since it exists outside of the control of central authorities, crypto is immune to government manipulation and interference.
Cryptocurrency systems do not collapse at a single point of failure, but knowing the ins and outs of investing in them is crucial if you don’t want to lose your hard-earned money.
Table of Contents:
- At a Glance: Pros and Cons of Cryptocurrency Investing
- What are Cryptocurrencies & How Do You Invest In Them
- Top Cryptocurrency Investing Platforms
- How to Invest In Cryptocurrency – FAQs
At a Glance: Pros and Cons of Cryptocurrency Investing
Cryptocurrencies have the potential to reshape the financial world as we know it. Deciding which crypto to invest in – or whether to invest at all – can be complicated for new investors. This breakdown of cryptocurrency’s advantages and drawbacks can help you figure out whether crypto investing is right for you.
- Cryptocurrencies are decentralised. Unlike fiat currencies that governments and central authorities control, cryptocurrencies are controlled by their developers and the people who own a significant amount of a specific coin or token. Banks and financial institutions are not necessary to enforce trust and police transactions between two parties, and this eliminates the risk of a single point of failure. Single points of failure happen when a bank or other financial institution triggers a cascade of crises involving one or several countries (in some cases, even the entire world).
- Could help investors beat inflation. An advantage linked to decentralisation is that cryptocurrencies aren’t tied to a single economy. Their price reflects global demand rather than inflation. With a capped number of coins for each cryptocurrency, investors can also rest assured that the amount available can’t spiral out of control.
- Fairer, more transparent financial systems. Virtual currencies can be transferred between partners with no intermediaries whatsoever. By eliminating third parties, cryptocurrencies enable users and investors to take part in transparent financial markets and offer an alternative to traditional financial systems that rely on intermediaries to complete transactions.
- Inherently secure underlying technology. Cryptocurrencies are supported by decentralised data-storage ledgers commonly referred to as blockchains. A blockchain is a transfer infrastructure divided between multiple servers and computers. When a transaction is made, the virtual currency travels from one chain link to the other until it reaches its destination. Blockchains track each transaction and store the information forever. Because of the blockchain infrastructure, hackers cannot access the entire chain in one go, nor can they erase any of the information stored. In this way, blockchains add a layer of security that traditional financial systems simply can’t provide.
- Generate returns outside of standard working hours. Stock and commodities investments can be made and generate returns only when local or global markets are open. With cryptocurrencies, investors don’t have to wait for NASDAQ, NYSE, or another market to open for the day. Stock and exchange markets also are closed on weekends, but you can buy, sell, trade, or exchange cryptocurrencies 24 hours a day, seven days a week.
- Potential for high rewards. Cryptocurrencies have earned a bad reputation due to their volatility. Yet, they give investors the potential for high returns. All 10,000+ cryptocurrencies have one thing in common: a tendency to experience sudden spikes in value based on demand-supply dynamics. These dynamics can result in high profits.
- Extremely volatile investment. Cryptocurrencies have the potential to generate high returns, but they are also extremely volatile. This market thrives on speculation, and rumours alone can wreak havoc with the value of coins. Prices can drop to terrifying lows in an incredibly short time, regardless of the cryptocurrency you’ve invested in.
- Understanding cryptocurrencies can take time and effort. Unlike fiat currency, crypto is completely virtual. If you aren’t a digital native, understanding the concept of cryptocurrency and blockchains can feel anything but second nature. Making investments in something you don’t understand is risky in itself.Top Cryptocurrency Investing Platforms
- Potential scalability issues. One of the major issues with blockchains is that they have capacity limitations. When these limits are reached, transactions are processed a lot slower, which could lead to potential financial losses.
- Cryptocurrencies have a bad reputation. A common misconception about cryptocurrencies is that transactions are anonymous. The promise of anonymity led to cryptocurrency use for illicit purposes, such as money laundering. Hackers also use them for ransomware activities. However, each transaction leaves a digital trail that can be deciphered by authorities. Pseudonyms also become easier to link to the real account owner. Due to the illicit reputation of cryptocurrencies, however, governments and agencies are more likely to keep an eye on your transactions.
- Vulnerable to security risks. Although blockchains are secure, cryptocurrencies are typically stored in digital wallets or other crypto repositories that can be hacked. Crypto account owners also may lose a private access key and, with it, all their holdings. Hackers and scammers also invent ways to gain access to crypto accounts from unsuspecting owners. New investors are often vulnerable to this kind of trap.
What are Cryptocurrencies & How Do You Invest In Them? 🤔️
The number of cryptocurrencies more than doubled between 2021 and 2022, and many more virtual currencies are expected to emerge in the future. However, many of these new currencies have the sole purpose of making money for their developers. As an investor, you need to be selective – only a small portion of all cryptocurrencies are worth learning about and buying.
What Is Cryptocurrency?
Cryptocurrencies are virtual currencies secured by cryptography. This technology makes digital currencies nearly impossible to counterfeit or double-spend.
These currencies are not issued by central authorities and are immune to interference from governments.
Most cryptocurrencies available today are based on blockchains, which are distributed ledgers enforced by a disparate network of computers. These ledgers allow for cheaper and faster money transfers, enabling secure online payments without the use of third-party intermediaries.
Investors can choose to “mine” for cryptocurrencies or purchase them from cryptocurrency exchanges.
Types of Cryptocurrencies 🔎️
The main types of cryptocurrencies include payment and exchange tokens, non-fungible tokens (NFTs), decentralised finance (DeFi) tokens, stablecoins, privacy tokens, security tokens, and utility tokens.
The table below compares the various cryptocurrency types:
|Cryptocurrency Type||Purpose||Token/Marketplace Examples|
|Payment tokens||The most common type of cryptocurrency, payment tokens, are used for buying and selling digital goods and services without intermediaries. These tokens cannot be invested in as securities. Instead, investors gain returns from trading and exchanging these tokens.||Bitcoin, Ethereum, Tether, Dogecoin|
|Exchange tokens||These tokens are issued by and for use in cryptocurrency exchange marketplaces. They can be used for gaining access to particular crypto exchange services, increasing liquidity, or outside their native environments as payment tokens.||Binance Coin, OKB, CRO for Crypto.com, Uni|
|Non-fungible tokens||More than currencies, these are digital certificates of ownership to unique digital assets, such as works of art, land plots or estate in virtual worlds, photos, videos, collectibles, etc. These items are produced in limited editions and are illegal to imitate or reproduce, increasing their desirability and demand. NFTs can be bought and sold for a profit in NFT marketplaces.||Rarible, Decentraland, OpenSea|
|DeFi tokens||These tokens or financial apps are built on existing blockchains or ledgers. They give users access to global markets and allow for quick and secure global transactions through peer-to-peer methods. Most DeFi tokens are based on the Ethereum blockchain and enable users to invest, buy, and sell assets, earn interest on investments, send and receive monetary value, and save, lend, or borrow.||Polkadot, Uniswap, Solana, Chainlink|
|Stablecoins||Stablecoins are virtual tokens baked by a fiat currency, stock, or commodity, such as Euros, dollars, gold, other precious metals, oil, etc. They help get rid of volatility when investing in fiat currencies or centralised assets.||Gemi Dollar, Kitco Gold, Gold Coin, Paxos|
|Privacy tokens||Similar to payment tokens, privacy cryptocurrencies are preferred for highly sensitive transactions.||Monero, Beam, Verge, Horizon|
|Security tokens||These securitised cryptocurrencies derive value from an external asset or equity that can be traded as security under financial regulation. They are used when investors need instant settlement and transparency in equity or asset management.||Blockchain Capital, Science Blockchain, Sia Funds|
|Utility tokens||Provide access to a product or service offered by the token issuer. They are not investment products.||Golem, Funfair, Brickblock, Timicoin|
Types of Cryptocurrency Investing 💰️
New investors may believe that cryptocurrency investing is limited to virtual currency purchasing and selling. However, there are various ways to invest and generate returns in this market.
- Direct buying and selling of cryptocurrencies. This is the simplest and cheapest way to invest in cryptocurrencies. However, it is also one of the riskier investments due to the volatile nature of digital tokens. Options range from established names like Bitcoin and Ethereum to newly released coins that are virtually unknown. Investing in initial coin offerings (ICO) can generate a high return on a minimal investment if the new virtual currency gains popularity.
- Investing in crypto-focused funds. Crypto-focused funds are collections of crypto assets packaged together as one investment. Examples include virtual stocks, bonds, and other assets tied to the crypto markets. Each fund has an expense ratio, which is a fee to invest, but they are easy to buy and help new investors build a diverse portfolio. Cryptocurrency investment trusts are an alternative to funds.
- Investing in crypto companies. Investing in cryptocurrency companies directly, such as Bitcoin or Ethereum, is also possible by buying shares or through mining. In addition to companies with a total focus on crypto, most centralised financial services have a partial focus on cryptocurrencies nowadays. These services include online banks and PayPal.
- Investing in a cryptocurrency Roth IRA. Cryptocurrency Roth IRA enables investors to buy cryptocurrencies while also garnering the tax advantages offered by an individual retirement account. This type of long-term investment can facilitate more secure storage of cryptocurrency holdings.
- Crypto mining or validating. One of the most direct ways of investing in cryptocurrencies is by mining or becoming a validator in a crypto network. Both miners and validators earn rewards that can be exchanged for other currencies or held as an investment.
What to Know Before Investing?
One of the biggest challenges for new crypto investors is not getting caught up in the hype. Cryptocurrencies promise high returns, but they are unpredictable and volatile.
Before investing, you should take time to analyse the market and explore various cryptocurrency options.
It is equally important to explore blockchain technology and understand how the crypto world works. Various cryptocurrencies use blockchains differently, and the way they use blockchains may make them more or less suitable for investment.
Once you have identified potential cryptocurrencies for investment, read their white papers and join dedicated online communities.
White papers must include specific data from developers on how their project is intended to work, including a general overview, detailed specifics, and a time frame.
If the white paper feels misleading or incomplete, or if it is hard to come by, consider investing in other cryptocurrencies.
Online communities include active discussions about the ups and downs of specific cryptocurrencies and can help you determine whether it is the right investment.
Cryptocurrency Investing for Beginners – Step-by-Step Guide 📝️
The easiest way of investing in cryptocurrency for beginners is buying currency from an exchange and selling it for a profit.
Step 1 – Decide which cryptocurrency you want to invest in
There are thousands of cryptocurrencies out there, but the market is focused on only a handful of them.
The table below compares the best cryptocurrencies for beginner investors:
|Bitcoin (BTC)||Over $846 billion|
|Ethereum (ETH)||Over $361 billion|
|Tether (USDT)||Over $79 billion|
|Binance Coin (BNB)||Over $68 billion|
|XRP (XRP)||Over $37 billion|
|Terra (LUNA)||Over $34 billion|
|Cardano (ADA)||Over $33 billion|
|Solana (SOL)||Over $33 billion|
|Polkadot (DOT)||Over $22 billion|
|Litecoin (LTC)||Over $9 billion|
Step 2 – Choose which cryptocurrency exchange you want to use (and establish an account)
You can choose from dozens of cryptocurrency exchange markets, but your best bet is an established, reputable service such as eToro, Swyftx, or Kraken.
Once chosen the platform, establish an account. You will have to provide personal information and verify your identity to complete the registration process.
Step 3 – Choose a digital wallet
Digital wallets enable you to store the cryptocurrency bought from the exchange platform – some platforms provide users with digital wallets, but you don’t have to store the tokens in them if you don’t want to.
Some of the best crypto wallets include ZenGo, Coinbase, and Trezor.
Step 4 – Fund your exchange account with fiat money
Before you can buy crypto, you need to top up your exchange account with fiat currency, such as AUD, USD, EUR, GBP, etc. Some platforms require a minimum top-up amount, while others enable you to charge as little or as much money as you want.
Step 5 – Place a buy order for your chosen cryptocurrency
Follow the steps required by your chosen exchange platform to complete and submit a buy order for your chosen cryptocurrency. Upon purchase, you will receive the information needed to access the tokens. Store it securely in a virtual wallet to prevent losing your holdings.
Step 6 – Sell the cryptocurrency for a profit
When it is profitable to do so, exchange your crypto holdings for fiat money or use the funds to invest in another cryptocurrency.
Top Cryptocurrency Investing Platforms ➡️
With dozens of cryptocurrency investing platforms around today, it is often challenging to choose the best one. The two alternatives below are the best crypto exchanges for beginners.
Considered one of the leading cryptocurrency exchange platforms, eToro features over 115 crypto options and accepts payments in AUD, GBP, EUR, and USD.
Low brokerage fees make eToro an excellent choice for all types of investors. Crypto aside, the platform also enables you to invest in stocks and commodities.
The platform’s main disadvantage is the higher non-trading fee compared to other services and the lack of a virtual private server.
With more cryptocurrencies than eToro (over 250), Swyftx is ideal for Aussies who want to use AUD or USD for their investments.
The platform is known for its exceptional customer support – an essential point for beginners – and high level of security.
What makes it slightly less appealing than eToro is availability. Swyftx only operates in Australia. Exchanging crypto is also more complicated than eToro.
How to Invest In Cryptocurrency – FAQs 📢️
How much money should beginners invest in cryptocurrency?
Crypto exchanges appeal to beginner investors thanks to the low investment amounts. You can invest as little as $5 or $10 and generate revenue by reinvesting the profits.
Which crypto is expected to give the highest return in the future?
Due to the volatility of cryptocurrencies, it is nearly impossible to predict which crypto will generate the highest return in the future. Investing in established coins, like Bitcoin, Ethereum, or Tether, may not generate the highest returns but can reduce the risks associated with crypto investments.
Is crypto profitable for beginners?
Crypto can be profitable for beginners if you choose the type of cryptocurrency and type of investment wisely. Explore the market and your options to decide which investment type is best for you.
Cryptocurrencies are virtual currencies characterised by high volatility. Despite the risks, cryptocurrency investments can generate high returns.
Crypto exchange – selling and buying crypto for a profit – is the easiest way to get started as a beginner. Before investing, make sure you understand the crypto and blockchain world and explore your exchange platform options.
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