How to invest in Cryptocurrencies

If you want to enjoy a thrilling experience of digital currency with new technology then the world of cryptocurrency is waiting for you. Here, you can invest but beware it is the most volatile market. How? Well, cryptocurrencies as you know are different from regular money but they can be very exciting and potentially profitable. No matter, if you are new or a pro to this world, investing in cryptocurrency could be a way to explore a whole new kind of investment that’s shaking up the traditional finance world.

Crypto has gained tremendous attention as a means of investment opportunity. But Investing in cryptocurrencies is a bit like a rollercoaster ride because of its extremely volatile nature. It has a potential for higher returns but risks of huge losses are also there. The value of these digital assets can swing wildly, sometimes even in a single day. This volatility means that prices can go way up or down suddenly, which can be both a thrilling opportunity for quick gains and a nerve-wracking risk for losses. Therefore, It’s important to be ready for the ups and downs if you’re thinking about investing in crypto.

Why did cryptocurrencies gain so much popularity?

Many factors play a role in cryptocurrencies popularity. Most prominent is the diversification that it offers away from traditional investment or savings like shares or bonds. Secondly, it cancels out the need for intermediaries because it allows peer-to-peer transactions. Also, the rise of cryptocurrency happened because of the substantial wealth creation of early adopters.

The underlying blockchain technology, known for its transparency and immutability, further increased trust in cryptocurrencies. Also, as compared to the conventional money transfer system, the transfer of medium or large sums of money can be done at much lower fees.

What motivates individuals to invest in cryptocurrencies?

People choose to invest in cryptocurrencies for the same fundamental reason people invest in anything – they anticipate an increase in value, aiming to secure a profit.

For instance, in the case of Bitcoin, if the demand for it surges, the interplay between supply and demand has the potential to drive up its value.

Reasons to be cautious when investing in crypto

If you are a beginner who is also attracted by these volatile digital currencies, then here is a beginner’s guide to investing in a cryptocurrency along with the risks that you have to consider.

Learn in depth about your chosen cryptocurrency

If you are going to invest in the crypto world, then you need to have a solid understanding of what you are investing in. Keep in mind that there are many cryptocurrencies and at least one is created every day, each functions differently than the other.

Also, many cryptocurrencies like Bitcoin are not backed with any hard assets. It means in order to gain profit, you have to exclusively depend upon the market to be more optimistic and pay more than what is paid for it.

Therefore, before diving into its water, check the pros and cons of each crypto. Also, have a cash flow ready to support your financial investment otherwise all your efforts will be in vain.

Do not connect past trends with future

Even if some coins were worth less than a dollar, and now worth more, much more! But there is no guarantee that they will continue to rise at such a great pace. Therefore, while investing, it is essential that one must not connect the past with the future.

Keep that volatility in your mind

Cryptocurrencies are known for their volatile nature, often experiencing rapid and substantial price fluctuations within short time frames. This volatility is influenced by various factors, including market demand, regulatory developments, technological advancements, and investor sentiment. 

This volatile nature may not affect the seasoned investors who have great algorithms in their pockets. Therefore, in order to gain profits, a new investor must have a solid understanding of how the market is trending. 

The rates of many cryptocurrencies depend upon how many people are buying them, therefore many influencers are also hired to post for them. The Volatility of cryptos can also be judged by the record of Bitcoin from just one year, where in November 2021 it reached its peak at $69,000 and fell to $15,500 in November 2022.

Manage your risk

It is essential for a new trader to make some rules for managing the risk and to compensate for the losses. These rules may vary for different traders especially if they are trading for short terms. 

The process for long-term traders is totally different because they may never sell their coins irrespective of the coins. But, where the short-term traders are concerned then they have to make strict regulations on when to give away their coins in order to prevent further blow to their investment. It is also very essential for a new trader to set aside a certain amount of money earned for trading. This way they will have something to start trading again if everything goes south.

This risk management is very necessary irrespective of its emotional toll on the investor in order to prevent bigger falls later.

Vulnerable to cyber attacks

Crypto wallets and exchanges may be supported by advanced encryption but you should know that it is a relatively new platform of investment. It is still considered to be in its early years. Therefore, while investing you also have to consider the risks of cyber attacks as some crypto exchanges have been attacked by hackers in the past.

Largely unregulated

The majority of activities in the crypto space operate without substantial regulation. This lack of oversight can lead to increased risks for investors and underscores the importance of due diligence and caution when participating in the cryptocurrency market.

Always invest the amount that you can afford to lose

Cryptocurrency is a risky investment therefore, you have to make sure that you are not investing all of your money in it. Bigger risks are always there, in case your chosen coin goes down then you have some money left to keep you floating.

How To Invest in Cryptocurrency in the year 2023: A Guide

Now that all the risks have been considered, read below to know what steps must be taken in order to invest in Cryptocurrency in 2023.

Step#1: Do your own research

Just like you would do in any other investment, it is essential to know the crypto you are going to invest in. Since there are many cryptocurrencies available, therefore you have to research the pros and cons of each before investing. 

Keep in mind that assessing the investment risk associated with a specific cryptocurrency falls under your purview, and it’s essential to recognize that social media influencers may not prioritize your best interests.

Step#2: Choose an exchange

With growing interest in cryptocurrencies, many exchanges have surfaced that provide cryptocurrencies through a somehow secure platform. If you want to consider an exchanger for your investment, then there are certain factors that you should look for:

  • Security
  • Tax/fees
  • How much does it trade?
  • What is the minimum required investment?
  • Which currency is available?

Some best exchanges at the moment are Coinbase, Binance, Kucoin, OKX and MEXC. 

Step#3: Options for storage

There are basically two types of storage for your cryptos. One is the investment platform that you are using and another is a digital wallet. There are further two types of digital wallets: ‘hot’ or ‘cold’. A hot wallet stores your currency that can be accessed via the internet. Whereas a cold wallet stores your currency in physical format just like a flash drive. For many investors, the option of a wallet for securing the cryptocurrencies is a safer option.

Step#4: Consider the amount of investment

The first and foremost thing according to many investors is to invest only 2% in any of each coin in order to avoid huge losses. Also, consider the minimum required investment and fees for transactions of your exchange before deciding on the amount for the investment.

Also, the exchangers let you invest in dollars therefore you don’t have to come up with a huge sum of money to purchase a whole coin. This option lets you consider your pocket first before investing. It is therefore suitable only to invest a sum that you can afford to lose.

Other platforms for investing in cryptocurrencies

If you don’t want to invest in cryptocurrency directly then there are other ways to dip your toes in this world. These are:

Blockchain ETFs

You can put money into businesses that could benefit from the development of blockchain technology by investing in blockchain exchange-traded funds (ETFs). Exposure to some of the major publicly traded companies in the industry is provided by the top blockchain exchange-traded funds. 

However, investment in ETFs can reduce the chances of both potential profit and loss because these businesses frequently engage in activities unrelated to cryptocurrencies, which means your exposure to them is diluted.

Crypto funds

Certain cryptocurrency funds let you bet on fluctuations in the prices of altcoins like Ethereum, Bitcoin, and a few others. Thus, they may offer a simple means of purchasing cryptocurrency through a product that resembles a fund.

Crypto futures

Another way to bet on the fluctuations in Bitcoin prices is through futures, which provide you the opportunity to take advantage of leverage to make significant gains (or losses). The market for futures moves quickly, which makes the already erratic movements in cryptocurrencies worse.

Crypto exchange or broker stocks

Investing in a business that will benefit from the emergence of cryptocurrencies irrespective of the outcome may also be a worthwhile choice. And that’s the possibility with a broker or an exchange that gets a significant portion of their income from cryptocurrency trading.

Bottom line

Cryptocurrency market is a highly unregulated platform for investment. Many gain big, and others lose big. As a relatively new technology cryptocurrencies carry a high degree of speculation, and it’s crucial to understand the associated risks before committing to an investment.

That’s why, if you are a beginner in this field then make sure to invest only the amount that you can afford to lose.

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