If you’ve decided to invest in the cryptocurrency market, as with all investments, it’s important to do your research. Although Bitcoin is the most well-known digital currency, there are thousands of other cryptocurrencies. In fact, cryptocurrency is considered as one of the newest and most exciting asset classes available to investors.
What is cryptocurrency?
Cryptocurrency is a digital or virtual currency that is based on a decentralised network that is distributed across a large number of computers. It is secured by cryptography which makes it almost impossible to counterfeit – they enable secure online payments without the involvement of third-party intermediaries. Many cryptocurrencies use blockchain technology.
Bitcoin is the most popular and valuable cryptocurrency. Satoshi Nakamoto introduced it to the world in 2008. There are thousands of cryptocurrencies available in the market today.
Each cryptocurrency is considered to have a different function and specification. For example, Ethereum’s ether markets itself as gas for the underlying smart contract platform. Ripple’s XRP is used by banks to facilitate transfers between different countries.
Bitcoin was made available in 2009 and it is still the most widely traded cryptocurrency. As of November 2021, there were over 18.8 million bitcoins in circulation with a total market capitalisation of around $1.2 trillion. There will be never be more than 21 million bitcoins. Following the success of Bitcoin, many other cryptocurrencies, known as “altcoins,” have been launched. They include Solana, Litecoin, Ethereum, and Cardano. By November 2021, the combined value of all the cryptocurrencies in existence had reached over $2.1 trillion—Bitcoin represented around 41% of that total value.
Understanding cryptocurrency investing
When you want to invest in cryptocurrency, you can consider buying and holding one or more crypto coins. Buying cryptocurrency directly is probably the most common way to add crypto to your portfolio, but when it comes to investing in cryptocurrency, there are a few different options:
- Buy cryptocurrency directly. You can directly buy and store one or more cryptocurrencies. There are a range of options from the most established digital currencies like Ethereum and Bitcoin to virtually unknown coins that are newly released in an initial coin offering (ICO).
- Invest in cryptocurrency companies. You can invest in companies with a partial or complete focus on cryptocurrency. You have a number of options including cryptocurrency mining companies, mining hardware makers, companies like Robinhood Markets, Inc. and PayPal Holdings, Inc. that support cryptocurrency, and many others that have different levels of crypto exposure.
- Invest in cryptocurrency-focused funds. You can invest in cryptocurrency-focused funds. These include exchange-traded funds (ETFs), such as index funds and futures funds, or a range of cryptocurrency
- investment trusts. Some crypto-focused funds invest in cryptocurrency directly, while others invest in crypto-focused companies or derivative securities such as futures contracts.
- Invest in a cryptocurrency IRA. If you want to invest in cryptocurrency which will diversify your retirement portfolio, then you can consider investing in a cryptocurrency individual retirement account (IRA).
- Trade CFDs on cryptocurrency. Trading crypto CFDs works in the same way as trading CFDs on forex pairs. You can speculate on the price movement of a cryptocurrency without owning the digital asset. Go long or short on crypto price movements and benefit from rising or falling prices.
How cryptocurrency investing works
If you want to invest in cryptocurrency directly, you can do this on a cryptocurrency exchange.
How to buy cryptocurrency through an exchange
- Choose which cryptocurrency exchange you want to use
- Choose a reputable, well-known exchange with a large selection of currencies.
- Establish an account with the cryptocurrency exchange
- You need to provide your personal information and verify your identity in order to complete the registration process.
- Fund your account with fiat money
- Before you can buy any cryptocurrency, you need to fund your exchange account with another currency such as U.S. dollars.
- Decide which cryptocurrency you want to buy
- You can choose to invest in one or many cryptocurrencies. Do your research in order to make your decision.
- Place a buy order for the cryptocurrency you have chosen
- Follow the steps required by the exchange to submit a buy order for one or more cryptocurrencies.
- Store your cryptocurrency in a digital wallet
- After you have completed your purchase, the information you need to access your cryptocurrency is held in a digital wallet.
What you need to know before investing in crypto
Investing in cryptocurrency is considered risky. The prices of cryptocurrencies, even the most well-known cryptocurrencies, are much more volatile than the prices of other assets like stocks. However, many investors are attracted to the potential advantage of investing in crypto. If you decide to invest in cryptocurrency, it’s important to carefully research any digital currency before buying it. Pay attention to transaction fees when buying crypto because these fees can vary widely among currencies.
Due to the riskiness of cryptocurrency as an asset class, it’s important not to invest more money in crypto than you can afford to lose.
Is investing in cryptocurrency a good idea?
While cryptocurrency may be a good investment, analysts advise investors about the volatile nature and unpredictability of cryptocurrencies. However, some investors are willing to take the risk for the potential earnings. The important thing is to do your research beforehand to determine if investing in cryptocurrency is right for you.
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