Before Investing in Cryptocurrency
Cryptocurrencies are different from other assets, and investing and trading them is also different. Before you invest in the cryptocurrency space, there are a few essential things to know and have. These include:
Knowledge about the fundamentals of cryptocurrencies.
- A cryptocurrency wallet that’s secure to store your cryptocurrencies.
- A unique investment strategy that aligns with your risk tolerance.
- Only invest what you can afford to lose.
- A broker or cryptocurrency exchange for buying and selling cryptocurrencies.
- An investment strategy for long-term gains rather than short-term ones.
If you’re interested in adding cryptocurrencies to your investment portfolio but don’t know where to begin, the book Cryptocurrency Investing For Dummies by Kiana Danial is a great place to start.
Kiana Danial is an internationally recognized and award-winning wealth management and personal investing expert. She’s the CEO of Invest Diva, and her book will guide you on the fundamentals, how the cryptocurrency market works, and proven strategies.
The paperback published byJohn Wiley & Sons inc is available on Amazon and Goodreads. Audiobooks are also available for free, and you can claim one with an Audible trial.
Basics of cryptocurrencies?
Cryptocurrencies are a new form of digital money which are part of the future economy that aims to solve most of the current problems in the world’s money systems.
A cryptocurrency is a digital asset that enables you to get rid of centralized intermediaries like banks. Cryptocurrencies use blockchain technology, a decentralized digital ledger of transactions, meaning no single entity is in charge of it.
Governments and financial authorities may or may not always have your best interests at heart, and cryptocurrencies function as a valuable alternative. They eliminate the control of money by government agencies and ensure speedier processing and low transaction fees.
You can also use cryptocurrencies to raise finances by creating a decentralized network in initial coin offerings (ICOS). They’re almost similar to initial public offerings (IPOs). However, they involve supporters instead of investors, have no controlling authority and are unregulated.
Cryptocurrency fundamentals checklist
Doing your homework on cryptocurrency fundamentals is vital before you add any digital asset to your portfolio.
Consider the following components while doing your crypto research:
- The crypto’s white paper
A crypto white paper is a document released by developers that explains the purpose and technology of the project. It’s like a new cryptocurrency resume or business proposal that tells prospective investors the purpose of the cryptocurrency and its conception. It includes data to convince prospective investors to invest, including financial details and statistics.
- The team behind the crypto
It’s always wise to assess the team behind a cryptocurrency before investing. Most times, cryptocurrency projects don’t have a working service or product, meaning you’re betting on the team behind the project.
Horror stories abound of people who’ve lost money investing in cryptocurrencies created by teams who didn’t have the know-how to bring them to fruition or never intended to do so.
Find out who they are, their experience, track record, authority, motivations, and whether you can easily reach them.
The right strategic partnerships are necessary for crypto projects to create services and products that will succeed and be adopted. Additionally, seeing who in the industry has their trust in a cryptocurrency you’re considering can help you gauge the level of risk involved.
- The crypto technology
Understanding how the technology behind cryptocurrency works is essential to understand how digital assets work. The more you, the better, and it will make life easier for you when deciding which cryptocurrency to invest in among the multitude of tokens available from blockchain companies.
- The crypto’s contribution to society
You need to determine whether the team behind the cryptocurrency is only trying to get rich or improve society. An excellent choice is a digital asset that will solve a problem that matters to you. Is there a long-term plan to achieve such goals? Answers to such questions can help you decide whether to invest or not.
- The road map
A road map can tell you a lot about a company and their cryptocurrency in a few minutes. Most cryptocurrency companies will have a website dedicated to their road map. It can detail what they’ve achieved, where they come from, and their plans for the future.
Crypto vs Forex Trading
Cryptocurrencies are increasingly becoming mainstream, and as a trader, you may wonder whether you should focus on crypto markets instead of forex or try and get the best of both worlds.
Crypto and forex trading has both similarities and differences. You need an account and a modern trading device with an internet connection to start trading in both markets. If you have experience trading forex in the stock market, you can quickly learn the basics of crypto trading and vice versa.
Charts for both markets are also widely available, and execution is fast to help you concentrate on your trading. Supply and demand also influence crypto markets like forex markets, and you’ll be able to use familiar chart patterns and indicators when trading crypto.
While they may look similar on the screen, there are many differences between crypto and forex trading, including:
Number of Instruments
With forex trading, you typically concentrate on major currency pairs like EUR/USD, and there are periods of calm trading for days or weeks. On the other hand, the entire cryptocurrency market is cumbersome, with over 11,000 different cryptocurrencies currently available.
You’ll find many cryptos to choose from, and it’s impossible to track all of them. Additionally, most are only known to hardcore crypto enthusiasts.
The world of cryptocurrencies is very volatile, while forex markets are more stable. Cryptocurrencies can make huge moves in a short period and pull back just as fast, which is rare in forex markets. As a result, it’s easier to control risk in forex trading than crypto trading, although the latter has the potential for more significant profits.
Forex markets are heavily regulated, while crypto markets are still in their early development stages. Appropriate regulations for cryptocurrencies are still under development in various countries, and risks of scams and hacking are still prevalent. Because the forex trading industry is well-developed, the chances for scams are few.
However, it’s good practice to check the history of a trader and the regulations of where they’re registered.
Forex trading occurs 24 hours a day for five days from New Zealand to Wall Street in New York. Crypto markets are open 24/7, creating a vast difference from a lifestyle point of view. While you can switch off and enjoy the weekend as a forex trader, you always have to be in touch with the market as a crypto trader.
When choosing between crypto and forex markets, it’s vital to consider your financial goals, risks to personal finance, trading style, lifestyle demands and available capital. You’ll be more informed when you try both on small accounts and see which market suits you best.
What factors influence cryptocurrency price fluctuations?
While all financial markets experience price fluctuations that occasionally move up and down, cryptocurrencies have a higher degree of volatility. Various factors that influence cryptocurrency price fluctuations include:
The price of a cryptocurrency can depend on the purpose it serves. If it has little to no practical use, it will likely have a lower price. When the cryptocurrency is usable in the blockchain environment, its utility and value improve.
- Supply and Demand
At the basic economic level, supply and demand influence the price of cryptocurrencies. The price can change depending on its availability, where less demand and higher supply translates to lower prices, but if it’s harder to obtain, the higher the price.
- The Media
The alteration of positive or negative news causes fluctuations in the price of cryptocurrencies. Existing media information can influence the decisions of potential investors and their level of acceptance. Depending on the unique risk tolerance of an investor, the news or type of information dominating the media can cause them to sell or buy and shift the market quickly.
- Regulatory Environment of the Industry
As cryptocurrencies become increasingly mainstream, they attract regulations from the government. Although it may be limited, there are a few ways government regulation can affect cryptocurrency prices. It can increase the cost of doing business in the crypto industry, impose controls that make the assets scarce or control buying and selling actions in the market.
The increased integration and acceptance of cryptocurrencies as a medium of exchange in the mainstream can also affect the prices. As more outlets, payment and banking systems adopt and trade in crypto, the prices may rise.
How to buy cryptocurrency?
You can buy cryptocurrency through a few easy steps:
Step 1: Choose a crypto exchange or broker
Crypto exchanges offer standard trading platforms where sellers and buyers meet to trade crypto. Brokers reduce the complexities involved by providing easy to use interfaces that interact with exchanges for you.
Ensure the brokerage or exchange you choose allows fiat currency purchases and transfers.
Step 2: Create and verify your account
The next step is to sign up and open an account. You may need to verify your identity depending on the platform and the amount you plan to buy.
Step 3: Deposit cash to invest
You need to have money in your account to buy crypto. You can deposit money into your crypto account through a credit or debit card, a wire transfer or by linking your bank account.
Step 4: Place your cryptocurrency order
You can make your cryptocurrency once you have money in your account. You’ll see hundreds of cryptos to choose from, and you can select the right cryptocurrency for you based on market sentiment and value. Once you decide, simply enter its symbol like BTC for Bitcoin and choose how many coins you want to purchase.
Step 5: Select a storage method
It’s vital to have secure storage for your cryptocurrencies since they’re not backed by protections and are at risk of hacking or theft. You can choose crypto wallets, hot wallets, or cold wallets to secure your investment.
How to sell cryptocurrency?
There are two ways you can convert cryptocurrencies to cash and move them into your bank account. The first is using a third-party exchange broker like a debit card or bitcoin ATM. It’s simple and secure, and they’ll exchange your cryptocurrency for cash at a given rate.
You can also sell your cryptocurrency using a peer-to-peer transaction. It’s a more anonymous and faster method since you’re selling the cryptocurrency directly to another person. You can decide the payment method you want buyers to use, allowing for fewer fees and faster transactions.
Top 10 cryptocurrencies (Feb 2022)
From Bitcoin to its alternatives like Litecoin, thousands of different digital currencies present new financial opportunities for investors.
Here are the top 10 cryptocurrencies as of Feb 10 2022:
1. Bitcoin (BTC) – Market value of over $846 billion
2. Etherium (ETH) – Market value of over $361 billion
3. Tether (USDT) – Market value of over $79 billion
4. Binance Coin (BNB) – Market value of over $68 billion
5. U.S. Dollar Coin (USDC) – Market value of over $53 billion
6. XRP (XRP) – Market value of over $37 billion
7. Terra (LUNA) – Market value of over $ 34 billion
8. Cardano (ADA) – Market value of over $33 billion
9. Solana (SOL) – Market value of over $33 billion
10. Avalanche (AVAX) – Market value of over $22 billion
What are FCA approved crypto exchanges?
Crypto exchange firms that carry out crypto asset activities in the U.K. must be registered and compliant with the FCA to prevent money laundering and terrorist financing.
- Archax Ltd
- Ziglu Limited
- Gemini Europe Ltd
- Zumo Financial Services Limited
- BABB Platform Ltd
- Coinpass Ltd
- Gemini Europe Services Ltd
- COMMERCIAL RAPID PAYMENT TECHNOLOGIES LIMITED
- Baanx.com Ltd
- ICONOMI LTD
- Digivault Limited
- Zodia Custody Limited
- Fidelity Digital Assets LTD
- Trustology Limited
- Bottlepay Ltd
- Wintermute Trading LTD
What are the risks of cryptocurrency?
In a short paragraph, sum up the article here by educating the reader on the risks one will Even the best investments have some level of risk, and you need to be aware of the present risks before you trade in cryptocurrencies. Prices can fall very fast because of the volatilities involved, making it easy to make losses.
You can also lose your money to fraudsters and scams or hackers. If you lose or forget the codes for accessing your account, you can also lose your investment.
It’s vital to do your homework and increase your knowledge before investing in cryptocurrencies. It ensures you can enhance your profits and minimize any mistakes.
How Do Beginners Invest in Cryptocurrency?
Beginners should start by learning and researching about crypto. Then you can choose a brokerage or crypto exchange, open an account, deposit funds to purchase crypto and select a storage method.
Is Cryptocurrency A Good Investment?
Yes! Cryptocurrency is part of the future economy, and it’s here to stay. With the right advice and guidance, you can make significant returns despite the risks involved.
How Much Bitcoin Should A Beginner Invest?
You’ll only require a few dollars to start investing, and most crypto exchanges have a minimum of $5 or $10.
How Does Crypto Work For Dummies?
Cryptocurrencies are the go-between digital assets and currencies. You can use them to make purchases or invest in them for long-term gains.
Is cryptocurrency safe?
Keep in mind that the central institutions won’t protect your crypto investment, so you could lose your investment if your account is compromised. Only invest what you can afford (don’t go into debt for your investment).
Look for cryptocurrency exchanges that provide offline cold storage and offer various strong password protections to ensure theft is not a risk; if the crypto assets exchange offers an independent insurance policy, even better.