Investing in cryptocurrency is something that a lot of people are looking to do these days. The boom in this market, which began in 2016, doesn’t show signs of slowing down anytime soon, meaning an influx of new investors will be pouring into the space as early adopters continue to create new wealth we’ve never seen before.
However, with this many new players entering the market, it can be difficult to know where to begin. For example, you could purchase Bitcoin and hope it grows in value over the years, or perhaps Ripple is more your style — the possibilities are endless. This is why we created this guide on how to start investing in cryptocurrency so you’ll have no hesitation when deciding where to start and what platforms would best suit your needs as a cryptocurrency investor.
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Steps for investing in cryptocurrency
If you’re new to the world of cryptocurrency and want to get started investing, here are some steps to follow:
1. Know what you’re getting into
Before investing in any asset, you must know what it is, how it works, and what makes it valuable. The same goes for cryptocurrency. You may be familiar with BTC, but there are hundreds of other cryptocurrencies out there that are worth considering.
2. Pick a crypto wallet
A crypto wallet is a digital storage device where you can store your coins. Each has its pros and cons, so it’s important to understand the features of each before making your choice. For example, some wallets allow storing multiple coins, others only one or two types of cryptocurrency. Some wallets let you buy additional storage space on their servers if needed; others don’t. Some offer extra security features such as two-factor authentication or fingerprint ID scanners, while others don’t offer these services at all.
3. Find a reputable exchange platform
Next comes choosing an exchange platform where you can buy and sell your coins at market rates set by other traders like yourself rather than by a centralized bank or company that sets prices through supply-and-demand models (as with stocks).
There are several hundreds of exchanges around the world that trade different types of cryptocurrencies: some accept US dollars, some accept euros, and others accept only digital currency. Some exchanges are better than others in terms of fees and security features. You should do your research before choosing an exchange platform to be confident that it’s a reputable place to buy or sell your coins.
4. Manage your risk
Don’t invest more than you can afford to lose — and remember, “it’s a long game.” It’s possible that the value of your portfolio could go up or down by 20% or 30% in one day, but over time, it’s likely to increase.
5. Don’t invest more than you can afford to lose
Cryptocurrency is not a safe investment, so never risk more than you can afford to lose. If the price goes down, don’t panic — there’s a good chance it will come back up again. Many times, people have lost money on cryptocurrency but still become millionaires. They used that initial loss as motivation to learn more about investing and make better decisions in the future.
6. Diversify your investments
Don’t put all your funds in one basket; spread out your investments so that if one goes wrong, it won’t affect everything else too much. This also helps reduce risk because if something happens to one asset, another might not be affected by it at all or only slightly affected.
7. Invest for the long term
Don’t try to make quick profits from trading cryptocurrencies; it’s best to invest for the long term and hold onto your assets for a few years or until you decide to sell them. You might make less money this way than if you trade frequently, but it’s safer. Also, don’t get too caught up in the hype: It can be tempting to want to jump on the bandwagon when you see everyone talking about cryptocurrency and making big profits from investing in it.
Ways to invest in cryptos
There are plenty of ways to invest in cryptocurrency. The following is a list of the most common ways:
Crypto futures
Crypto futures are a way of investing in cryptocurrencies without actually buying them. For example, CME Group and CBOE have launched bitcoin futures — both exchanges offer “cash-settled” contracts that allow individuals to bet on whether the price of bitcoin will rise or fall.
Futures contracts represent a legal agreement to buy or sell an asset at a specific future date and price. The buyer agrees to pay the seller the contract’s value, calculated based on a specific index. The seller agrees to deliver the asset at that time.
Crypto futures are traded on regulated exchanges, which means they have some oversight from regulators and consumer protections. As a result, investors can speculate on whether bitcoin or another cryptocurrency will rise or fall in value by purchasing futures contracts on these exchanges.
Crypto funds
Crypto funds, like Grayscale’s Bitcoin Investment Trust and Bitwise’s HOLD 10 Private Index Fund, have been around for a while. These funds allow institutional investors to buy into the cryptocurrency market, but they don’t hold any of the assets themselves. Instead, they invest in the companies behind cryptocurrencies or other asset classes linked to blockchain technology.
Crypto exchange or broker stocks
You can buy stocks of companies of companies that own cryptocurrency exchanges, such as Coinbase, Binance, Kraken, and others.
Exchange-traded funds (ETFs)
ETFs that track the price of bitcoin or other cryptocurrencies can be used to gain exposure without going through the stress of buying and storing actual crypto assets.
Exchange Traded Notes (ETNs)
ETNs are debt instruments issued by banks backed by collateral such as cash, bonds, or stocks. ETNs linked with bitcoin can be traded on stock exchanges like any other financial product, but they’re not backed by any real bitcoins —they’re just a promise that the bank will pay out at some point in the future.
Read also: Top 2 cryptocurrencies to buy and hold forever
Conclusion
With this article you know pretty much everything you need to know about how to start investing in cryptocurrency. The market volatility means investing in cryptocurrency should be a small part of your overall portfolio. Moreover, doing your research is crucial to protect yourself from the risks involved. The technology behind cryptocurrency may make for incredible advancements in the future, but for now, the best thing is to take advantage of these volatile swings and try to profit from them. Just don’t bet more than you can afford to lose!
