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Cryptocurrencies have emerged as one of the most exciting new tradable asset classes in the world. What many investors don’t know, however, is that there are more ways to invest in crypto than buying just Bitcoin online.
While Bitcoin still remains the most traded and popular cryptocurrency globally, there are now over 10,000 altcoins in the crypto market.
But how do you know which are the right coins to invest in?
Read on to learn about picking the right crypto investments and the best ways to invest in cryptocurrency.
Before learning how to invest in cryptocurrencies, it’s imperative to understand what cryptocurrency is and how it works.
Cryptocurrency is a digital currency or asset that operates on a cryptographically secured, decentralised peer-to-peer blockchain network that enables the trustless recording, storing, and transfer of data.
Today, there are thousands of cryptocurrencies available in the market. So, how do investors pick one that is worth investing in? Let’s that a look at that next.
Before getting started with investing in a cryptocurrency, conducting some research is essential. Follow this checklist below to deep dive into a new coin that might pique your interest:
Once there is a good understanding of what a cryptocurrency is all about, investors can formulate an opinion on it and decide whether it should be in their investment portfolio or not.
In the early days of crypto, investors could only invest in cryptocurrency by buying it online on largely unregulated exchanges. Today, there are numerous ways to invest in cryptocurrency.
Let’s take a look at the most popular:
First, it’s important to choose how to invest in cryptocurrency. For example, is it preferred to buy cryptocurrency outright and store it in a cryptocurrency wallet or to buy cryptocurrency CFDs so crypto storage isn’t an issue?
Alternatively, investors can also invest in digital assets by purchasing exchange-traded crypto products or invest indirectly by buying shares in publicly-traded crypto companies.
Next, investors need to conduct their own research and choose which digital assets they would like to trade or invest in. Successful investors only invest in what they understand. If a cryptocurrency doesn’t make sense, it’s probably not wise to invest in it.
When it comes to investing, the rule of thumb has always been to invest only what you can afford to lose.
Cryptocurrencies are high-risk investments because of how volatile they are. Therefore, investors need to consider what percentage of their portfolio to allocate to cryptocurrency.
A higher percentage means higher risk. However, it could also mean higher returns if an investor manages to pick the right crypto assets.
Investors buying crypto in the spot market need to make sure they securely store their assets in a cold wallet or with a qualified custodian.
Crypto CFD holders don’t need to worry about digital asset storage but need to keep an eye on their positions to make sure that funding fees aren’t eating into the investment performance too much.
While checking crypto prices every hour is probably not a good idea, keeping track of crypto investments is. It’s also important to follow crypto market developments in general to get a better idea of how markets are doing and in what direction they may go next.
There are various ways to invest in cryptocurrencies. Below, we take a look at four ways that any traders can use to invest in crypto.
While investing in cryptocurrencies is high risk, crypto can be a great investment opportunity.
For starters, cryptocurrencies like Bitcoin have been incredibly successful, outperforming all major asset classes in the last five to ten years.
Secondly, some cryptocurrencies, such as Bitcoin, have additional utility. This means that besides investing in them, people can also use them to pay for goods and services. Other crypto tokens may also grant access to projects or services and discounts linked to that project.
Thirdly, cryptocurrencies can be an excellent asset class for diversification as they are largely uncorrelated to stocks and bonds.
While crypto offers excellent investment opportunities, there are also disadvantages when it comes to investing in this new digital asset class.
Firstly, cryptocurrencies are very volatile and can be considered high-risk investments. While some cryptocurrencies will likely succeed, most crypto projects will probably fail, leading to losses for investors. Moreover, sharp price swings can affect portfolio value substantially, which may be difficult for new investors.
Secondly, some regulatory uncertainty remains surrounding cryptoassets. The classification of digital assets keeps changing across the globe, adding regulatory risk to the crypto markets.
Decentralised Autonomous Organisations (or DAOs) are entities that have no central leadership. This means that DAOs distribute authority democratically among members.