When people start investing in cryptocurrency more and more, they might wonder how and where to start and if it’s a good idea. This is what you need to know about the risks of investing in cryptocurrency and how to start. There’s no jargon here.
What Is Cryptocurrency?
If you think about it, cryptocurrency is supposed to be a virtual currency kept and traded online. In reality, it’s a digital asset that can go up or down in value in the same way that stocks and bonds can go up or down.
People who own cryptocurrency can trade, buy, or sell with coins, tokens, or units, just like people who own stocks do in the corporate world. You can buy a coin, token, or unit from any company that helps people buy, sell, and trade cryptocurrency, just like people who own stocks do in the corporate world.
Cryptocurrency is different from standard money because it’s “decentralised.” There isn’t a single person or group that controls the currency, as there is with legal funds.
For example, the Federal Reserve is in charge of the national currency of the United States, which impacts prices, interest rates, and the total amount of money in the economy. Bitcoin does not have this kind of oversight.
However, a cryptocurrency is usually kept up by a “system.” This system, which a cryptocurrency company generally runs, keeps track of all the units of cryptocurrency and the people who own them. The computer will also decide when new crypto units can be made all right, which sounds like the Federal Reserve to me. There isn’t a central server or place where units are kept when it comes to cryptocurrencies. It’s not possible to open a virtual account at a bank.
There are also different operating systems for programmes and apps, like macOS, Windows, Linux, and Android. There are also other types of blockchains.
These blockchains are just for cryptocurrencies and digital payments, like Bitcoin, Bitcoin Cash, Monero, and Dogecoin. Others can run smart contracts and full-fledged decentralised applications (DApps), which run on a distributed virtual machine.
Ethereum, Binance Smart Chain, Solana, and Avalanche are some of the most popular intelligent contract-capable blockchains. Each of these has its own set of popular DApps, some of which are useful and safe, while others aren’t. In addition, you’ll need a separate bank account for each of them to work together.
These can be very different in how they look and what kind of things they do. This means that each one has its own set of opportunities and risks.
Now and then, new blockchains can make intelligent contracts appear. Some of these blockchains succeed, while others either don’t meet their goals, pivot to a new use case, or fail altogether.
What Are Crypto Wallets?
Anyone who wants to use or invest in cryptocurrencies will need a wallet of some kind to manage and store their money. Cryptocurrency wallets can be very different in terms of how they look, how they work, and how safe they are.
In general, wallets can be divided into two types: custodial and non-custodial:
Custodial wallets: These are wallets held with a third party — such as an exchange like Binance or a platform dealing with digital assets such as Nexo. They usually have the advantage of being easy to use, connected to a wide range of products and services, and supporting a wide range of cryptocurrencies. However, they have a significant flaw: they don’t give you access to your private keys. People who use the platform will lose their money if it goes offline for maintenance or is hacked.
Non-custodial wallets: These wallets don’t depend on third parties to hold or protect your private keys. People who don’t have a non-custodial wallet have complete control over their money and are responsible for keeping it safe. They also have a lot of apps and software wallets, and hardware wallets. They have the advantage of being available at all times, but they can be challenging to use and have a high risk of user error. They can also be more challenging to use and have an increased risk of user error.
You’ll almost certainly need to use an exchange platform to invest in cryptocurrency. These often let you buy, sell, or trade a wide range of cryptocurrencies in a secure, user-friendly environment.
Exchanges are classified as either centralised (CEX) or decentralised (DEX) in general (DEX). Centralized exchanges are often faster, cheaper, and easier to use, but they come at the expense of your privacy and asset custody. Decentralized exchanges typically offer a more comprehensive range of assets and allow you to maintain complete control over your assets, but they are more challenging to operate and expensive.
Most skilled cryptocurrency traders will employ both in their trading approach and may use exchanges to go long, short, or both in order to maximise the number of opportunities they catch.
To start with cryptocurrency investments and basic trading, you’ll probably want to start with either a broker like Coinbase or a spot trading platform like Binance. You can then progress to more complicated financial instruments, like as futures, options, prediction markets, and leveraged tokens, to speculate.
What Do You Need To Invest In Cryptocurrency?
Beginner investors may be intimidated by cryptocurrencies, but the criteria to get started are modest. You only need the following to learn how to invest in cryptocurrency:
- Personal identification documents
- Bank account information
- Secure internet connection
That concludes our discussion. Buying cryptocurrencies through a stockbroker is also an option. In this instance, most of your personal and financial data will already be on file. Let’s get started investing now that you have all you need.
You’ll need an investment strategy as an investor unless you plan to trade like Mr Goxx, a well-known hamster who outperforms the stock market by exchanging bitcoins at random.
Investment techniques differ significantly from person to person depending on the character, beginning capital, risk tolerance, and a variety of other characteristics. Some people choose to day trade for quick profits without thinking about the bigger picture, while others prefer to play the long game and hold assets for months or even years before selling.
Consider adopting dollar-cost averaging to limit your exposure to volatility if you’re in it for the long term. Read more; What To Look For In A Crypto Exchange
Technical analysis (TA) and fundamental analysis will be used as part of your asset selection process and entry/exit choices in general. At the very least, you’ll need a method for identifying promising investment possibilities and an awareness of when to take profits and cut losses.
Though we can’t advise you precisely what to invest in or how to manage your money, there are many tools and resources available to assist you in making better financial decisions. However, the better informed you are about the market, the better you will be able to predict it.
We’ve compiled a selection of tools and resources that may be useful to you as you begin your financial journey:
- Make a portfolio and track it.
- With the CoinMarketCap ICO Calendar, you can keep track of forthcoming ICOs, IEOs, and IDOs.
- Learn about the principles of trading.
- Learn how to short to trade downtrends because the market doesn’t always go up.
- Trade like the pros with data analytics from Nansen.
Managing your risk is absolutely critical if you want to survive in the cryptocurrency investment space, and it’s one of the best ways to ensure you stand a good chance of making a profit.
In practice, this involves keeping track of the size of your positions and carefully selecting assets based on the correct metrics. Never invest more than you can afford (and are prepared) to lose in any investment, and never put all your eggs in one basket.
The bitcoin environment is becoming more diverse, and competition is increasing within each market segment. As a result, whereas it used to be a realistic strategy to simply pour all of your money into anything and hope for a profit, there are now more duds than winners – albeit the winners typically still perform exceptionally well. Read also; Top 10 Free Crypto Trading Courses that Beginners can Apply For
Maintaining a broad portfolio can help you average out your volatility risk while also increasing your chances of picking a big winner.
Unlike many other markets, the cryptocurrency market has its own set of hazards that must be understood, considered, and avoided. Exit scams, protocol failures, government crackdowns, hacks, and breaches all have a considerably higher chance of occurring. Understanding and avoiding these can be crucial to risk management.
Unfortunately, like many businesses that deal with money, the cryptocurrency industry is full of scams. These scams are primarily for people who aren’t very good at investing. There are a lot of more sophisticated or complicated scams that can fool even the most experienced investors from time to time.
The best way to avoid these scams is to have a broad understanding of the cryptocurrency world and a basic understanding of how the most popular cryptocurrencies work.
However, if you stay away from certain places where scams are expected, you can lessen your chances of being scammed. Social media and texting apps like Twitter, Telegram, Reddit, and Discord are full of scammers, so don’t use them.