Investing in cryptocurrency is no longer considered exotic and has become commonplace for many people. The article will help to understand how to invest in cryptocurrency, what are the pros and cons of cryptocurrency assets, what to pay attention to when choosing a currency.
Top 5 options for investing in cryptocurrency
Getting income from investing in cryptocurrency is possible in different ways. By studying the advantages and disadvantages of each of them, it is easy to choose the most suitable option.
Trading
A trader makes money from speculating with cryptocurrency and its derivatives, such as CFDs (Contracts for Difference). Unlike long-term investments, with trading you don’t need to invest for a long period of time, but rather to make short- or medium-term transactions on a regular basis.
Minus of trading is necessity to spend some time for analysis of current market situation and carrying out of trading operations. Time expenditures can be reduced (as well as risks during transactions) by placing special orders – stop-loss and take-profit. They will close the deal automatically when the predetermined price threshold is reached.
The advantages of trading include:
No need to “freeze” money for a long period of time. The trader makes short-term investments, so at any time he can go into cash without losing a lot of money, even with an unfavorable rate reversal.
It is possible to earn without having a considerable initial capital. Even an amount of one thousand rubles will already allow them to start trading on the cryptocurrency exchange.
The ability to earn income not only when the growth of crypto, but also when the value of the decentralized currency falls. The trader only needs to make a correct prediction on the rise or fall.
Fast results. If an investor has to wait years to see if his strategy works, a trader receives feedback almost immediately. This allows him to react more flexibly and change his trading strategies more successfully.
Potential profit maximization. In trading one earns both on short-term and medium-term market movements, both on bearish and bullish trends. Therefore, an experienced trader has an opportunity to make a simply huge income in a short time, which a long-term investor cannot boast of.
Long-Term Investments
Another option is to buy bitcoins or other decentralized digital currencies and wait for them to rise in value significantly. The fact that cryptocurrencies will grow over a long period of time is not doubted by most experts. Therefore, such a strategy is very likely to turn out to be a winning one and in a few years or decades will actually bring the investor an excellent profit. This method is similar to trading, only instead of trading cryptocurrencies day in and day out, the investor keeps his assets for a long period of time.
However, it is worth understanding that in the case of long-term investments, the money cannot be withdrawn at any point in time. And over a long period of time, crypto can fall seriously from time to time. In addition, you should keep in mind that even if the asset will show steady growth, the amount of earnings on it will depend on the amount of invested capital. That’s why for long-term investments large initial investments are desirable, otherwise the profit will be insignificant.
Mining
Bitcoins, dollars, and mining equipment
Mining is the mining of cryptocurrency money using computing power. Cryptocurrency is made up of blocks or chains of blocks, called blockchains. To get digital currency, you have to decipher the correctness of the blockchain. It is impossible to do this manually because the mathematical calculations prove to be very difficult for humans. Therefore, miners must use powerful computer equipment.
The main advantages of mining are:
No time commitment – computers decode blockchains without the user’s supervision;
complete anonymity – all the coins earned by the miner are not visible to the regulatory authorities.
But there is a very significant disadvantage of mining – it is impossible to make good money on an ordinary computer. To get more or less normal income you need to first buy expensive equipment, and then to upgrade it regularly. It turns out that a miner has to make a solid initial investment. It is good, if the rate of currency will go up, and the user can recoup the costs and get additional income. But if the crypto falls in price, the miner will be left with serious losses.
Getting cryptocurrency for completing tasks
You can earn bitcoins and other independent currency if you register and start performing tasks at one of the sites that operate on the principle of PTC – Paid To Click, which translates to “pay per click” in Russian. These sites pay users in crypto for viewing ads or for clicking on links given by advertisers.
But since this activity does not require any skills, the payment is very low. Most often the user can earn only several hundreds or even tens of satoshi in an hour. (Satoshi is a minimum transferable value in BTC payment system. It is one hundred millionth part (10-8) of bitcoin).
That’s why this way will suit users who have a lot of free time and don’t know what to do with it. But for most of them it is better to use other variants.
Indirect Investments
Another way to invest in crypto is to invest indirectly without buying coins. Indirect investments in cryptocurrency assets can be:
Buying ETFs that use bitcoin or some other liquid crypto as the underlying asset.
Buying units of funds that are partially invested in cryptocurrency.
Buying securities that are invested in industries related to crypto in one way or another. For example, it could be shares in a company that makes mining equipment. Or shares of a particular cryptocurrency exchange.
But it should be understood that with such investments, a significant part of the profit will go to intermediaries, and if the loss is fixed, the investor will not receive even the minimum compensation. For example, a bitcoin-ETF management company will take its remuneration in case of growth or decline in the value of its units.
And a company that produces mining equipment can pay bonuses to employees at any time, which will reduce the company’s capitalization. There is also a risk that the firm will simply begin to develop another line of business, and the shareholder’s investment will not even be indirectly related to crypto.
Advantages of investing in cryptocurrency
The advantages of investing in cryptocurrencies include:
High returns. Cryptocurrencies are much easier and faster to earn than fiduciary currency pairs, bonds, stocks, mutual funds and other assets. . If you examine the growth rates of most relatively promising cryptocurrencies, they break new records every season. The most striking example here is bitcoin. Every year, the rate of this cryptocurrency grows not arithmetically, but exponentially.
Availability of liquidity. With the growth of a large number of cryptocurrencies, the demand for this resource grows as well. Because of this, we can always quickly buy and sell cryptocurrency, instead of waiting for a buyer to appear. This fact gives us several actions at once, getting the maximum profit from the investment
Decentralization of digital money. Cryptocurrency rates are not controlled in any way by state structures or individual large banks. Therefore, large market players cannot influence the growth or decline of crypto.
Low entry threshold. An investor can invest a minimum amount of fiduciary money to purchase a cryptocurrency with it.
Low costs. The securities market has a cumbersome infrastructure of intermediaries (bank clerks, custodian employees, and others), who “pluck” their percentage from each transaction. But the cryptocurrency market operates without bureaucracy, which allows not to give numerous commissions to intermediaries. Blockchain becomes another advantage of working with cryptocurrency, because thanks to it we do not need to go to the bank, wait for transfers and pay commissions.
Investor anonymity. When opening a bank account, the user reveals a lot of data about himself. While for the purchase of cryptocurrency, no personal information is requested.
Great choice. If you find a good exchange to work with, it will offer you not only safe, but also extremely productive working conditions. The tools from the exchange and the availability of a large number of available cryptocurrencies will help make the investment process. Study the markets and invest in what seems to be the most promising;
Using the listed benefits correctly will have a positive impact on your cryptocurrency operations. If you take the time to study the markets, strategies and ways to invest, this resource can bring excellent profits
Disadvantages of cryptocurrency investments
The minuses of investing in cryptocurrency are:
The volatility of most cryptocurrencies is still quite high – the price of crypto can change significantly over several days and sometimes hours. Therefore, an investor should not invest in cryptocurrency assets with money that may be needed in the near future. After all, in the case of an unfavorable reversal of the currency, you will have to sell it at a loss. But this disadvantage applies more to mining and long-term investments. But in the case of trading, on the contrary, with a competent approach it is possible to make a good profit on volatile assets.
Now more and more people are starting to invest in crypto, which means that in the near future the market will become more predictable and opportunities to make huge profits will disappear. Therefore, it is better not to put off the decision to invest in cryptocurrency, but to start acting now.
Some countries impose bans on the use of cryptocurrencies. This does not apply to Russia, though. In Russia, it is legal to conduct transactions with cryptocurrency – sell, buy, exchange, leave as collateral. However, the official currency unit is still the ruble, and it is undesirable to pay for goods, works and services with cryptocurrencies, because it is impossible to appeal to a Russian court in case of a claim.
Risks of cryptocurrency investments
It is worth remembering that investments in crypto cannot be considered completely safe. The risks of investing in cryptocurrency include:
The risk of digital currency prohibition and invalidation of completed transactions at the legislative level. Although Russian legislation, on the contrary, is beginning to change in the direction of increasing recognition of cryptocurrencies, and discussions are already underway to allow certain types of digital coins as a means of payment.
The risk of systemic currency declines. However, this risk is inherent in all investment assets without exception – you can never give a one hundred percent guarantee in the growth of something’s value.
The risk of losing coins due to hacking. To avoid such an outcome, you should use cold wallets. This is what cryptocurrency storages are called without constant access to the network, which makes it difficult for hackers to attack and ensures the safety of digital money.
How to choose a promising currency for investment
The choice of cryptocurrency for investment
In addition to promoted and all known bitcoin at the moment there are already more than a thousand digital coins. To select suitable options for investment from the rating of cryptocurrencies, it is necessary to pay attention to:
Liquidity of the currency. If no one needs the coin and it is difficult to find buyers for it, it is better not to risk investing in it.
Volatility of the cryptocurrency. If the value of a coin changes sharply, only experienced traders can invest in such an asset. And it is better for beginning investors to choose a less volatile crypto.
Security of financial transactions. If the cryptocurrency is traded on obscure, unregulated platforms, it is worth to bypass, because the probability to run into fraudsters will be close to 100%.
Absence of a bubble. Very often people believe loud statements of inexperienced analysts and believe in the sudden burst of price of an asset. But aggressive and obtrusive advertising and dizzying growth of the price of a specific crypto can be a sign of a financial bubble. And the more people invest in a bloated cryptocurrency, the faster it will rise in value. Eventually, the bubble will inflate and burst – the cryptocurrency project will depreciate and drag down investors who were greedy and followed herd instinct.
Short-term and long-term investment strategies
The short-term investment strategy works as follows: we buy several packages of cryptocurrency and divide them into groups. Then, when the value of the resource rises, we sell it and make a profit. We need to constantly buy more cryptocurrency in small batches to be able to sell it in case of a sharp rise in the rate.
Long-term investments work differently: we also buy several groups of cryptocurrency, but we don’t sell it as soon as the rate goes up. Since we are buying a larger amount of digital currency here, we should expect a significant increase in its value, after which we can gradually start to sell. Generally, as a long-term investment we should continually increase the amount of cryptocurrency in our portfolio.
Tips for Beginner Investors
In order for beginners not to be disappointed in cryptocurrency assets, it is necessary to follow simple rules:
Choosing a service. Purchase currency only on regulated platforms – firms that work without a license and do not comply with any standards are likely to disappear along with investors’ money.
Market research. You will have to read news about cryptocurrency often and a lot. It is better to subscribe to some channel in messengers, where information about the latest developments in this area is constantly posted. If you know English, this will be a big plus, because most of the data first appears on foreign sources.
Building a strategy. From the very beginning it is best to take as the basis a strategy and, if necessary, edit it to fit your interests and capabilities. Do not work at random, because one luck in investing will not do.
The choice of cryptocurrency. If possible, diversify your investments – invest part of the capital in reliable, time-tested currencies like BTC, and invest in promising, but not yet widely promoted crypto.
If you buy cryptocurrency for long-term storage, then keep it in a cold wallet.
It is better to start applying the listed tips in your investment practice from its very first steps. In this way, you will avoid unnecessary risks and failures, which are often faced by novice investors.
Briefly about the main points
Cryptocurrency is a promising investment option. You can invest in crypto in different ways, but trading is considered to be more effective because cryptocurrency speculation allows you to earn quickly and profit from both the rise and fall of assets.