If you’re looking for where to start investing in cryptocurrency, then this article can help you. Cryptocurrencies have been enormously volatile since being introduced, but that volatility can create opportunities for profit. But how can you get started if you’re new to the crypto market?
Keep reading the whole article, and you will know what crypto is, how it works, the risks of crypto investing, platforms for investing in cryptocurrencies, where to start investing, and more information about crypto that will help you get started investing in cryptocurrencies.
What is Cryptocurrency, and How Does it Work?
What is Crypto?
A cryptocurrency is a form of digital payment. It’s created using complex algorithms to keep it secure and to ensure that the transactions remain anonymous. It’s a great alternative to traditional payments such as cash or credit cards.
Cryptocurrencies are not only a form of digital currency but also a type of virtual accounting system. This is made possible thanks to the implementation of encryption technologies.
How Do Cryptocurrencies Work?
Cryptocurrencies are based on blockchain technology – a distributed public ledger that records all crypto transactions and is maintained by crypto holders. Cryptocurrency is generated through a process called mining, which requires computing power to solve complex mathematical puzzles that result in the creation of coins.
Traders can purchase digital currencies from brokers, store them securely in their wallets, and then spend them wherever necessary. Wallets are safeguarded with cryptographic technology to ensure that all transactions are safe & secure.
Wallets are a great way to securely store your encryption keys and link them to your crypto assets. They help confirm and verify your identity, making it easier for you to access or transfer cryptocurrencies.
What Types of Cryptocurrency Should You Consider Investing In?
With thousands of cryptocurrencies available, many of which have uncertain value and potential, experts suggest that investors limit their investments to the more established coins such as Bitcoin and Ethereum, if at all. It is recommended to avoid investing in smaller, less established cryptocurrencies.
10 Popular Cryptocurrency
1. Bitcoin
Bitcoin (BTC) is the first and most popular cryptocurrency, known for its high value and volatility throughout its history. Initially created as a digital payment system, experts suggest it is still too volatile for practical usage.
2. Ethereum
Ethereum’s cryptocurrency, Ether (ETH), is the second largest by market capitalization and is used on the Ethereum network, an open-source blockchain that allows for the development of apps and other cryptocurrencies.
Since its creation in 2013, the value of Ether has risen significantly, reaching nearly $3,000 per token as of May 2021, but it still lags behind Bitcoin’s value of nearly $40,000 per coin.
3. XRP
XRP is the cryptocurrency of the Ripple network, designed as a faster and more efficient way to make global power payments. XRP can also be used for other purposes through third-party development on the Ripple network.
4. Tether
Tether (USDT) is a stablecoin, one of the first to tie its value to a fiat currency, in this case, the U.S. dollar. Also, it is the most valuable stablecoin in terms of market capitalization.
5. Cardano
Cardano (ADA) uses a technology called Ouroboros, a peer-reviewed blockchain protocol, to describe itself as a more secure and scalable way to maintain decentralization.
6. Polkadot
Polkadot (DOT) aims to allow different blockchains to exchange information and transactions with one another and focuses on data and identity security and user control
7. Stellar
Stellar’s cryptocurrency is the Lumen (XLM), designed as an open network for storing and moving money and allows for the creation, sending, and trading of digital money.
8. USD Coin
USD Coin (USDC), created by Circle, a global financial firm, is described as the world’s digital dollar and is tied to the U.S. Dollar, making its price more stable than other cryptocurrencies.
9. Dogecoin
Dogecoin (DOGE) was originally created as a meme or parody cryptocurrency but saw a surge in value in early 2021, with Tesla CEO Elon Musk weighing in on it before DOGE’s value decreased significantly in the latter half of the year.
10. Chainlink
Chainlink (LINK) uses real-world data and off-chain computation while maintaining security and reliability.
How to Invest in Cryptocurrency – 5 Steps to Get Started
Before you invest in cryptocurrency, be sure to organize your financials first. Set up an emergency fund and ensure a good debt level. It’s best if you also diversify your investments for added security.
As you begin investing in cryptocurrencies, make sure to take note of the following five points:
1. Understand the Nature of Your Investment
Before investing in any cryptocurrency, ensure that you fully comprehend the nature of your investment. Take the time to research and analyze the various coins, as thousands of them have unique characteristics.
Many cryptocurrencies, such as Bitcoin, have no underlying assets or cash flow to support their value. The value of these coins solely depends on others being willing to pay more for them in the future.
Unlike stocks, where a company’s profits can drive returns, many crypto assets rely solely on market optimism for potential profit.
Before investing, be aware of the potential upside and downside of popular coins such as Ethereum, Dogecoin, Cardano, and XRP. Remember that investments not backed by assets or cash flow may have a significant risk of becoming worthless.
2. Don’t Trade in the Past
Many new investors make the error of assuming that past performance can predict future success. While it’s true that Bitcoin’s value has risen dramatically in the past, it’s important to consider whether that growth will continue in the future, even if at a slower pace.
Instead of focusing on an asset’s past performance, investors should look toward the future and determine what factors will drive future returns. Those who invest in cryptocurrencies today seek future gains, not past ones.
3. Be Aware of the Volatility
The prices of cryptocurrencies can fluctuate wildly and unpredictably, sometimes dropping sharply in response to rumors that later prove false.
This volatility presents an opportunity for experienced investors who can quickly make trades based on market trends and fundamentals, but it can be a challenge for new investors who lack these skills or access to high-powered trading algorithms.
Volatility
The volatility of an asset is a measure of the degree of its price fluctuations over a period of time. The volatility of cryptocurrencies is mainly for experienced traders who are constantly trying to outsmart each other.
A new investor can easily lose money in this market because of the volatility, as they may become scared and sell their assets at a loss, while more experienced traders buy at a lower price.
4. Risk Management is a Must
When trading any asset, it is important to manage risk, particularly when dealing with volatile assets such as cryptocurrency. As a new trader, you must understand how to manage risk effectively and establish a process to minimize losses.
Long-term Investing Risk Management
For a long-term investor, risk management may simply mean holding onto their investments and not selling, regardless of the current price. The long-term mindset allows investors to remain committed to their positions.
Short-term Investing Risk Management
For a short-term trader, risk management might involve implementing strict rules for when to sell, such as when an investment drops 10%. By adhering to these rules, the trader can limit the potential damage of a relatively small decline before it becomes a significant loss.
One strategy for newer traders is to set aside a specific amount of trading money and only use a portion initially. This way, even if a trade goes against you, you will still have reserve funds to trade with later.
The key takeaway is that you cannot trade if you do not have any money. Managing risk is crucial, but it’s important to note that it can be emotionally challenging. It may be difficult to sell a position that is not performing well. However, it’s important to do so to prevent larger losses in the future.
5. Invest the Money You Can Afford to Lose
Do not put the money you cannot afford to lose in speculative assets. Keep funds that may be required in the near future, such as for a house down payment or an important purchase, in secured accounts where they can be easily accessed.
Lastly, it is important not to overlook the security measures of the exchange or broker you use for your cryptocurrency investments. Though you may legally own the assets, someone still needs to secure them, and it is crucial that the security is robust.
Some traders may choose to invest in a crypto wallet to hold their coins offline and away from the reach of hackers or other security threats.
Reliable and Efficient Platforms for Buying and Selling Cryptocurrency
Cryptocurrency exchanges are similar to online brokerage platforms, which allow you to purchase and sell digital currencies like Bitcoin, Ethereum, and Dogecoin. This answers the question, “where to buy cryptocurrency ?”
When buying crypto and selecting a crypto exchange, it’s important to consider factors such as the types of assets offered, transaction fees, available payment options, and security measures. Some of the Best Places to invest in Cryptocurrencies include:
Kraken
Kraken, established in 2011, is one of the most reputable cryptocurrency exchanges worldwide. With low fees, it allows investors to buy, sell, and store over 185 cryptocurrencies on its professional-grade trading platform, Kraken Pro.
Pros
- Kraken offers a wide range of supported cryptocurrencies,
- Kraken Pro has low fees on trades,
- Kraken has a high level of liquidity in its exchange.
Cons
- Not available in all U.S. states,
- Fewer account funding options.
Coinbase
Coinbase, founded in 2012, was initially created for buying, selling, and storing Bitcoin. Today, it is a publicly traded cryptocurrency exchange with over $36 billion market value.
Pros
- Coinbase is available to users in all 50 U.S. states
Cons
- Limited or inadequate customer support,
- Coinbase holds control of users’ private keys.
Crypto.com
Crypto.com, launched in 2016, offers an excellent mobile crypto trading experience with a wide range of products, features, and many supported assets. It is now available in 90 countries worldwide and supports over 250 cryptocurrencies.
Pros
- Crypto.com has high liquidity on its exchange
- Crypto.com supports over 250 different cryptocurrencies
- Crypto.com offers a variety of cryptocurrency products and services
Cons
- Negative feedback from customers regarding customer support
Gemini
Gemini, launched in 2014 by the Winklevoss brothers, stands out for its emphasis on security and compliance. The New York-based exchange has hot wallet insurance to ensure user funds remain safe in case of a security breach and requires an identity verification process to reduce the potential for fraud.
Pros
- Gemini has a high level of liquidity on its exchange
- Gemini ensures funds are held in its hot wallet for added security
- Gemini has a strong security framework in place
Cons
- High fees on some trades
- Supports fewer cryptocurrencies compared to other exchanges
BitMart Exchange
BitMart, incorporated in the Cayman Islands, is a leading trading venue for small and mid-cap cryptocurrencies. It offers more assets and trading pairs than its market-leading peers, and users can access trading fee discounts by holding the exchange’s native token, BMX.
Additionally, users can use the exchange’s Earn feature to receive interest on crypto assets held with the exchange.
Pros
- BitMart offers opportunities to earn interest on crypto assets
Cons
- Has had a history of large-scale security breaches
- Negative customer reviews
Cash App
Cash App, launched in 2013 by Block, Inc., is a mobile banking app geared towards peer-to-peer payments and has an investment component. Users can invest in stocks, ETFs, and Bitcoin, and unlike its peers, it allows users to withdraw Bitcoin to third-party wallets.
Pros
- Cash App offers a straightforward way to buy and sell cryptocurrency
- Cash App has a user-friendly interface
- Cash App allows users to withdraw to external wallets
Cons
- Only supports one cryptocurrency, Bitcoin
- Does not provide users with control over their private keys
- Has limits on deposits, sales, and other transactions
Bisq
Bisq is an open-source, decentralized cryptocurrency trading software launched in 2014. It enables peer-to-peer trading of a range of digital currencies and tokens worldwide without needing a Know Your Customer (KYC) identity verification process.
Bisq supports over 120 digital assets and various payment methods, including bank wire transfers, ACH transfers, and cash deposits.
Pros
- Bisq supports the Bitcoin Lightning Network,
- Bisq is accessible to users worldwide,
- Bisq offers a high degree of privacy as no ID verification is required,
- Bisq offers over 50 different payment options for buying and selling cryptocurrencies.
Cons
- Transactions can be slow on the platform,
- The volume of trades can be low,
- Not optimized for active trading.
What Other Ways to Invest in Cryptocurrency
There are various ways for traders to gain exposure to cryptocurrency other than investing directly in digital assets. These include:
Crypto Futures
A way to bet on the price movements of Bitcoin is through leverage, which can result in substantial gains or losses. It’s a fast-moving market that amplifies the volatility of crypto.
Crypto Funds
Some funds like Grayscale Bitcoin Trust allow you to invest in the price swings of Bitcoin, Ethereum, and other altcoins, making it a convenient option to invest in crypto through a fund-like product.
Crypto Exchange or Broker Stocks
Investing in companies that stand to profit from the growth of cryptocurrency, such as Coinbase or Robinhood, generates a significant portion of their revenue from crypto trading.
Blockchain ETFs
An ETF that allows you to invest in companies that could benefit from the development of blockchain technology.
The top blockchain ETFs provide exposure to prominent publicly traded companies in the industry, but it’s worth noting that these companies often have diverse business interests, which can dilute your exposure to cryptocurrency and limit potential gains or losses.
It’s important to consider the risks and exposure to cryptocurrency before investing in any of these methods.
How Many Funds Do You Need to Start Investing in Cryptocurrency?
It is possible to invest in cryptocurrency with a small amount of money. Many crypto exchanges have a minimum trade of around $5 or $10. However, trading platforms may charge large fees for small investments, so it’s important to find a broker or exchange that offers low fees.
Some “free” brokers may also include hidden fees in the cryptocurrency’s price, known as spread mark-ups. It’s important to know all fees when making small investments in crypto.
Blockchain: How it Works
Blockchain technology is the foundation of cryptocurrency, a type of database that records and timestamps every entry into it. It functions as a running record of transactions for cryptocurrency.
The database is often run on decentralized computer networks where multiple computers operate to verify and ensure the accuracy of transactions. In case of any discrepancy, the networked computers work to resolve it.
How to Mine Cryptocurrency?
To verify transactions on a blockchain, some cryptocurrencies use a process called mining. Miners, who are involved in this process, use powerful computer systems to solve complex mathematical problems to validate the transactions. In exchange for their efforts, they receive a pre-determined reward in the form of cryptocurrency.
The process of mining requires a significant amount of energy as it requires powerful processing units.
Many miners operate large facilities, known as mining farms, that are equipped with multiple mining rigs to extract these rewards. As of late 2022, the energy consumption for mining Bitcoin alone is equivalent to that of a medium-sized country.
Bottom Line: Where to Start Investing in Cryptocurrency
If you’re looking to get started with cryptocurrency trading or investing, choosing where to start investing in Cryptocurrency is essential. Investing in cryptocurrency is considered a high-risk endeavor, and many experienced investors prefer to invest their money in other opportunities.
For beginners who want to start trading crypto, however, the best advice is to start small and only use money you can afford to lose. Consider your objectives and priorities, and select the exchange that aligns with your needs.
