The world of finance has undergone a revolutionary shift in recent years with the advent of cryptocurrencies. Cryptocurrency is regularly featured in mainstream media, and prominent people like Elon Musk chat about it on social media. Understanding the basics of cryptocurrency investing can be daunting for someone with little to no prior knowledge of this domain. This article aims to provide an easy-to-digest introduction to cryptocurrency investing fundamentals, giving beginners a platform to build their portfolios.
Understanding Cryptocurrency
Cryptocurrency is a form of digital or virtual currency that uses cryptography for security. Unlike traditional currencies, which governments and central banks issue, cryptocurrencies operate on decentralized networks based on blockchain technology. The blockchain is a distributed ledger that records all transactions across a computer network, ensuring transparency and security.
Although countries where cryptocurrency is legal tender are rare, many retailers accept cryptocurrency for payment. Companies such as Microsoft, Newegg, AMC Theatres, and various Bitcoin betting sites allow customers to use multiple cryptocurrencies to pay for their products and services.
Many cryptocurrency users do not use their digital currency for everyday purchases; they invest and trade them on exchanges similar to stock markets worldwide. The value of cryptocurrencies often fluctuates wildly, much more than traditional stocks, and this natural volatility lends itself to traders looking to take advantage of short-term price fluctuations to secure profits.
Key Cryptocurrencies
Over 10,000 cryptocurrencies exist in the digital realm, but not all are created equally. Bitcoin is the most prominent and important cryptocurrency. Introduced in 2009 by an anonymous person or group known as Satoshi Nakamoto, Bitcoin was the first cryptocurrency and remains the most well-known.
In 2010, one Bitcoin was worth a mere $0.09, mostly because cryptocurrency was in its infancy and not discussed or used outside computer scientists’ forums. By May 2017, Bitcoin’s price soared to $2,000 and then to $19,345 by December.
In April 2021, Bitcoin hit an all-time high of $63,558 but then plummeted to around $18,000. Currently, one Bitcoin costs $72,000; we told you its price was volatile!
Getting Started: Wallets and Exchanges
Before you invest in cryptocurrency, you need a secure digital wallet to store and manage your assets. Wallets come in various forms, including hardware, software, and online wallets. Hardware wallets are physical disc drives considered the most secure of the three wallet types. Spend plenty of time deciding which wallet you want, ensuring it aligns with your preferences and security needs.
The next step is to choose a cryptocurrency exchange. These exchanges act as platforms for buying, selling, and trading cryptocurrencies. You must use a well-known and respected exchange because there are many scam exchanges on the internet due to cryptocurrency’s unregulated and decentralized nature. Popular exchanges include Coinbase, Binance, and Kraken.
Risk Management and Research
As mentioned, cryptocurrencies are infamous for their volatility, with prices often experiencing rapid fluctuations. You must approach cryptocurrency investing with a clear understanding of the associated risks. Like any other form of investing, you must only invest what you can afford to lose. For every investor who turns a small amount into a life-changing sum, hundreds or thousands of other investors lose out.
Thankfully, the Internet is full of information about cryptocurrencies, market trends, technological developments, and regulatory changes. Indeed, you’ll find all that information and more here at Coin Edition.
Long-Term versus Short-Term Strategies
Every investor has a strategy, which always boils down to long-term or short-term investments. Which you settle on depends on your financial goals and risk tolerance.
Long-term cryptocurrency investors are known as “HODLers.” These investors purchase cryptocurrency assets, expecting their value to increase over time, sometimes over several years.
Short-term investors frequently buy and sell assets, often dozens of times per day, hoping to capitalize on cryptocurrency’s inherent price fluctuations.
Security Measures
Security is paramount in the cryptocurrency world, not least because there are an unfathomable number of cybercriminals hoping to take advantage of beginners or investors embarking on a get-rich-quick scheme.
Commonsense is an investor’s first line of defense. Keep your wits about you so you do not fall for an elaborate scam. Sticking to well-known, reputable, and respected exchanges and wallets reduces the chances of losing your investment and more. Stay clear of new exchanges that promise you the world if you open an account.
Furthermore, do not pay someone online to invest your money in cryptocurrency, especially if they claim to be elite-level traders. Ask yourself this question: if someone was making $1 million a year or more as an investor, why would they offer their services for $100? They wouldn’t, is the correct answer. Nobody can guarantee you returns on your investments; they lie if they claim they can. Similarly, if you lose funds to a scam, it is impossible to reclaim lost crypto assets, so do not pay anyone claiming they can recover stolen assets.
Aside from keeping your wits about you, it is essential that you implement strong passwords that are 12-16 characters long and consist of upper- and lowercase letters, numbers, and special symbols. Activate two-factor authentication (2FA) where possible, and lock away your private keys so they do not fall into the wrong hands.
Conclusion
Embarking on a journey into cryptocurrency investing is exciting and potentially profitable, but it requires a combination of caution, knowledge, and a willingness to adapt to a rapidly evolving landscape. Understanding the basics of cryptocurrency is the first step of your investment journey. Learn how crypto works, the purpose behind each coin, and the factors that could affect its value.
Choose secure wallets and exchanges to store and trade your assets, and manage the risks associated with cryptocurrency by conducting thorough research and implementing robust security measures. Before you know it, you’ll have transcended from a mere beginner to a seasoned cryptocurrency investor. Good luck!
