What Every Investor Should Know about Cryptocurrency
There are more and more industries starting to see the potential of cryptocurrency. Organisations are moving away from traditional notes and coins and instead exchanging chunks of data to represent value. There is nothing new about cryptocurrency, as Bitcoin has been around for more than twenty years. However, with this emerging interest, it might be time for you to show some interest and invest your money wisely.
Start with caution
You are right to approach investing in cryptocurrency with caution. While longevity has proven this fintech development to be neither a bubble or a fad, there is still a maze to navigate. There are an endless number of markets, exchanges and brokers all offering something slightly different and making promises that might or might not be valid.
There is also a volatility to this market that offers both opportunity and risk. Bitcoin has created a huge number of millionaires, known in the lingo as whales, but plenty more have sunk too.
Jumping into a crypto market with huge sums in the hope it returns major highs is both dangerous and unwise. Ask yourself if you would approach the equity market in this same way?It is also slightly more challenging in the cryptocurrency market as regulatory uncertainty continues to suppress the confidence of traders.
Therefore, if intelligent investment is required, then you need to understand the drivers and characteristics of this market.
Here we guide you through the essentials about cryptocurrency to help inform your decision.
Starting to invest in cryptocurrency
You need to begin as you would begin in any market, by sourcing your funds. Even though the interest rates are appealing at the moment, it would be unwise to fund your portfolio with debt. You will be given the option of using a credit card or a bank account to fund your account and we would suggest using cash from an account. Many sites will offer you the option of using a credit card, however some jurisdictions have banned their use to fund a cryptocurrency.
From Fiat to Bitcoin
Everyday currencies such as USD and GBP are called fiat currency. You will be using this fiat currency to make your first purchase of cryptocurrency. You will do this by choosing the crypto you wish to trade and the exchange. Your first investment will be limited to those exchanges that accept fiat, as many only exchange crypto for crypto. Therefore, you will need to do some research.
Coinbase is a popular starting point and has a global marketplace. The security measures are tried and tested and the site has the proven liquidity to support trading. However, with popularity and a certain “establishment” feel comes a reduction in opportunity as well as risk. Therefore, you might find a better deal by approaching another exchange. You might want to explore Binance, LocalBitcouns, Kraken, Chengelly and Coinmama who all cater for Bitcoin in general.
From Bitcoin to Altcoin
Once you have your Bitcoin you can investigate the other cryptocurrency markets, or the altcoins. These smaller coins are less established and have the most possibility for market fluctuations.
Before choosing your coin choose the right wallet to store your coins. Your wallet could be as simple as a piece of paper with the codes for your cryptocurrency. However, we would suggest finding a digital wallet to store these codes and keep them secure.You could keep these in the wallets on the exchanges but it is much better practice to secure you cryptos in private wallets.
Your Crypto Trading Strategy
Getting the mechanics in place, such as your exchange and your wallet are crucial, it is equally vital to formulate a strategy before you begin. You need to do your research and set yourself realistic expectations. You should pay attention to the news and apply critical thinking to the articles written by analysts who may have drunk the kool aid.
Choose your coin. Beginning with a mixture of the larger, establish coins and some of the medium to small markets is a sensible beginning.Pay attention to the market caps when making your decisions.
Decide on your trading duration. This market is no different to any other, in reality. Therefore, it is a sound strategy to have short, medium and long-term positions. The smaller coins will be more volatile, so you would be constantly looking to make short-term investments, maintaining the fluidity of your investment. Larger markets will turn with the speed of an oil tanker, so making money will take time and patience.
As tempting as the short-termism of the smaller coins might seem, it should only represent 20% of your total investment. The 80/20 rule applies in the cryptocurrency market as much as anywhere else. It gives you the opportunity to make gains while giving you a stable foundation and liquidity that supports a future in cryptocurrency investment. Remember that trading is not the only way to make profits out of cryptos or any other financial instruments, digital or not. Mining Bitcoin and other cryptocurrencies is also a common practice that comes at a cost, of course.
Next steps
You have the mechanics with your exchange and your wallet and now you have a strategy; it is therefore time to open your account and begin to trade.Once you begin trading it is essential to maintain your discipline. There is a lot of chatter and talk about the next best crypto-strategy and you should apply the appropriate due diligence with each investment. While it will feel like a computer game, you are still using money with value that you can lose.
Be prepared for making a loss as well as yielding a profit. Leave room to take a hit and have a plan to move forward.