Cryptocurrencies are also difficult to handle. Operations on crypto networks are irreversible and making a wrong move can mean you lose your money. This is why it’s so important to choose a good exchange and crypto wallet for storing your cryptocurrency.
How to choose a currency for investment?
Investing in cryptocurrencies is a relatively new phenomenon, but it has already become extremely popular around the world. Many have become rich with high-risk bets on cryptocurrency. For example, the Winklevoss twins famously bought $11 million worth of bitcoin back in 2012-13, supposedly for as little as $10. Their original investment would be worth $50 billion in 2021.
However, crypto investing doesn’t need to be that risky. It’s possible to earn money from investing in cryptocurrency while not staking your entire net worth.
What to take Into account when investing in cryptocurrencies
Cryptocurrencies are a unique investment asset. They are much riskier than traditional assets like stocks indices and gold. That’s because they aren’t backed by anything physical. Bitcoin exists only as a digital network, with no physical product underpinning it. Bitcoin and Ethereum don’t even have an official government or company that operates them.
This means that much of the value of cryptocurrencies comes from speculation about their future price. For this reason, you should always invest in cryptocurrency as part of a balanced portfolio of other non-crypto assets.
However, their digital nature also means that cryptocurrencies can be quite profitable. The price of bitcoin is largely determined by how many people are using it. And since it’s a digital currency, the number of people using it can expand rapidly. This is why bitcoin and other cryptocurrencies have increased in value so quickly in the past.
Difficulties for novice investors
Cryptocurrency can be confusing to novice investors. You need to decide what cryptocurrencies to invest in, what exchange to use to buy your crypto, and what investment strategy to use.
Cryptocurrencies are also difficult to handle. Operations on crypto networks are irreversible and making a wrong move can mean you lose your money. This is why it’s so important to choose a good exchange and crypto wallet for storing your cryptocurrency.
How to choose a currency for investment?
Cryptocurrency is changing all the time, and there is no one best crypto to invest in. You’ll need to update your opinions and portfolio holdings regularly. There are a few factors you need to consider to stay on top of this. The main ones are market capitalization, profitability, the scope of application, and expert opinions.
Market capitalization refers to how much the total value of that cryptocurrency is worth. This is the total number of crypto tokens that exist in the world multiplied by the price. For example, the bitcoin market capitalization at the end of September 2021 was just under $800 billion.
The bigger the market capitalization of a token, the more likely it is to be a stable investment. However, cryptocurrencies with a smaller market capitalization also have more room to increase in price. Choose a blend of high and low market-capitalization cryptocurrencies to balance your risk. You can see the market capitalization of different cryptocurrencies on CoinMarketCap
Profitability refers to how profitable the cryptocurrency has been in the past. Cryptocurrencies that have been relatively stable are more likely to continue the trend. While cryptocurrencies that have been very profitable recently may be exciting, they are also risky. Again, try to balance your portfolio with different options.
Scope of application means how the cryptocurrency can be used. Some cryptocurrencies are a great store of value (like bitcoin). Others, such as ether, can be used to create applications, sign smart contracts, and buy unique collectables.
Expert opinion means following experts on social media, such as Twitter, or subscribing to mailing lists. There are many brilliant minds that constantly analyze the crypto markets and share their opinions on the best investment opportunities. Taking in a diverse set of opinions is essential to understanding the markets and reducing your cryptocurrency trading risk.
Cryptocurrency investment strategies
There are three core investment strategies relevant for beginners. Pick the one that best suits your goals and the amount of time you can commit to your investments
Long-term investment
This is the simplest and easiest type of crypto investment. It simply means choosing a cryptocurrency to buy and hold for the long haul. Make one purchase and then don’t touch it for many years, even if the market goes up and down during that time.
The basic philosophy of this strategy is that cryptocurrency will keep going up until it becomes a major force in the world, even if it does go up and down in the short term. This is the lowest-risk trading strategy. It’s the strategy of the Winklevoss twins, mentioned earlier, and it’s one that has made them billionaires in less than 10 years
Short-term investments
If you don’t want to wait years to see a return on your investment, you can make short-term investments in cryptocurrency, too. Crypto regularly goes on epic bull runs where the currencies gain huge amounts of value quickly. You can capitalize on these runs by making short-term investments.
If you had invested $1,000 in the ether in June 2020 after the price started to soar, you would have had almost $4,000 within 6 months and $40,000 within 12 months. If you can catch these exponential price increases you can earn lots of money in the short term.
Trading
Cryptocurrency is an extremely volatile asset. That means the price jumps up and down very quickly on a day-to-day and month-to-month basis. This makes it great for day trading. However, it is the most difficult and risky crypto investment strategy. You’ll need to have your pulse on what’s happening in the news and social media around the world to identify great trading opportunities quickly.
Pros and cons of investing in crypto
Cryptocurrency has become so popular because it makes investing easy for regular people. Anyone can set up an account on an exchange and get involved in one of the biggest changes to our financial system in history.
Of course, there are many dangers to investing in cryptocurrency, due to its volatility. But, if you can manage them well, you can make a great profit. If you want to invest in crypto, consider the factors in this article. Choose a diverse range of investments, and you’ll be able to minimize your risks.
