Investing In Cryptocurrency – How to Invest In Cryptocurrencies
The cryptocurrency party is in full swing thanks in large part to the surge in value of token juggernauts like Bitcoin and Ethereum, both of which have were up more than 400% and 5,000% in early 2017.
Given the incredible rise of the price of these cryptocurrencies, more and more investors are scrambling to learn how to break into the blockchain-based marketplace. The problem is that entering the cryptocurrency space can be very confusing, as it is almost completely different from traditional investment approaches applied to stocks or commodities.
Buying pieces of Bitcoin and Ethereum is not like purchasing shares, instead, you are buying digital crypto tokens that have a specific functionality and address a certain real-world problem.
Bitcoin, for instance, is a decentralized and semi-anonymous currency for those who want an alternative way to pay for goods, or in Ethereum’s case, a token that acts as fuel for decentralized applications and smart contracts for making safe payments across the Ethereum platform.
As an crypto investor, your expectation is that the widespread adoption of these technological innovations will translate into an increased demand for certain digital coins and tokens, thus allowing you to make a return on your investment.
The following cryptocurrency investment guide is meant for beginners, and will discuss the safest ways to participate in the cryptocurrency market in the easiest way possible.
While getting started in investing in cryptocurrencies is a little more difficult than setting up a traditional brokerage account, you can easily get started in less than a few days without any previous technical knowledge. Don’t let technical jargon and overly complex terms scare you off, here’s how to start investing in cryptocurrencies today.
Choosing A Crypto Exchange
Cryptocurrencies are bought, sold, and traded on their own exchanges. But, just like the NASDAQ and New York Stock Exchange offer different types of companies to invest in, crypto exchanges offer different sets of tokens.
The first step to purchasing cryptocurrencies is to choose an exchange. To make sure your trades go through in timely manner, it’s best to create an account with one of the larger established exchanges. Exchanges such as Kraken, Bitfinex, Coinbase, and Bittrex tend to have good amounts of volume for major cryptocurrencies.
The primary difference between exchanges lies in their fee structure and interface. If you only plan on trading in Bitcoin and Ethereum, Coinbase and Kraken are good options. But, if you plan on creating a diverse portfolio made up of a wide variety of “alt coins”, then Poloniex and Bittrex are solid options since each one offers over 80 different verified cryptocurrencies to trade. The downside to these two platforms is that you can only fund your account with Bitcoin or Ethereum.
On the flipside, other exchanges like Coinbase will only accept USD and other fiat currencies and requires connecting your bank account to the exchange account. The crypto exchange(s) you choose will depend on your own needs as an investor. For more information on this, check out our guide on how to choose a cryptocurrency exchange.
Which Crypto Tokens Should I Buy?
The specific tokens you decide to buy as part of your portfolio will depend on your goals. Up until late 2016, Bitcoin was really the only cryptocurrency out there worth buying. Other cryptos, referred to as altcoins, have always been seen as the equivalent to penny stocks and pump-and-dump schemes designed to help miners stay in business.
But in late 2017 and beyond, this is no longer the case. While Bitcoin was once the major shareholder for the entire cryptocurrency market, it’s share has fallen significantly from 90% to less than 40% in 2017. Part of this is the resulting rise of Ethereum, which is being backed by major political figures and institutions. Another part of this is a result of the divide within the Bitcoin community over block sizes, which led to a Bitcoin ‘fork’ and the creation of ‘Bitcoin Cash’.
As more and more investors see cryptocurrencies and blockchain technology as a viable money-making opportunity that has the ability to make a positive impact in the real world, the more altcoins are able garner mainstream traction.
While Bitcoin should still be seen as a staple to any crypto token portfolio, it’s no longer the only viable asset. So what other cryptocurrencies should you invest in? A good starting point are the following tokens:
· Ethereum – The second-most popular cryptocurrency, Etherum’s value has skyrocketed over 3,000% from late 2016 to mid-2017. But, even with all this growth, the price of Ethereum remains at a fraction of the value of Bitcoin, making it a smarter value buy for investors who lack the funds to attain profits trading Bitcoin.
· Litecoin – Litecoin had risen over 2,000% over the course of the past year. Litecoin acts as a digital payment system similar to Bitcoin, but it’s relatively low prices make it a good first investment choice for new crypto investors.
· Ripple – Ripple allows for near instant online transactions with super low fees. Ripple has already been implemented into the systems of major banking institutions like Bank of America, UBS, and BBVA. The primary difference between Ripple, Bitcoin, and other peer-to-peer payment systems is that Ripple is decentralized and uses pre-mined resources.
· Bitcoin Cash – Bitcoin experienced its first fork in August 2017, wherein the cryptocurrency “split” into two separate coins: Bitcoin and Bitcoin Cash. Practically identical to Bitcoin, Bitcoin Cash differs in that its block sizes have more storage space. Bitcoin Cash started with around a $300 valuation, with it eventually hitting $600 before dropping to around $400 as of this writing. Expect the price of Bitcoin Cash to rise as it’s adopted by more users for its fast transactions.
· Monero – Monero offers users what Bitcoin does, but Monero benefits from additional layers of privacy, security, and anonymity. Monero’s price has risen drastically over the 2016 year, with its market cap swelling from $5 million to $185 million thanks largely to its use on major darknet market AlphaBay. AlphaBay was shut down in July 2017, causing the price of the digital token to drop exponentially. Regardless, Monero remains a useful cryptocurrency due to its private nature.
· Many more
Researching Cryptocurrencies
As mentioned above, each cryptocurrency serves a very specific purpose and solves a real problem. Before you go out and invest in every token you can get your hands on, it’s important to read up on what problem the token addresses.
The first thing you should look at in a prospective crypto token is its “market cap” value. A token’s market cap basically points to the total value of a token’s full value. Sure, it’s not a perfect metric, but it’s a good way to realize a cryptocurrency’s current perceived value by the market.
Next, you want to understand the founder’s vision. Find out who created the crypto token and why. Is the project backed by any major institutions or high-profile individuals? If so, this is a good indication that this is a legitimate long-term business with lots of potential.
While this isn’t mandatory, it is ideal to relate to the problem a cryptocurrency is trying to solve. By understanding and relating to a cryptocurrency, you’re able to see the long-term benefits of something that others cannot. This can be a good way to spot cheap undervalued tokens with high ceilings.
For example, if you’re a trader, you can understand what Enigma Catalyst is offers. Enigma Catalyst will serve as a niche marketplace for programmers, data scientists, and traders who can safely purchase trading systems across their decentralized platform. If you’re not a trader, then you probably can’t fully appreciate the magnitude of the Enigma Catalyst token as a game-changer for traders.
Likewise, Aventus solves a problem for event ticket buyers and sellers. If you’ve ever been forced to overpay for a pair of tickets to a live event because of a price monopoly created by resellers, then you understand the problem that Aventus addresses.
The list goes on and the problems solved by blockchain-based tokens will become endless. With this said, it’s important to understand that there are and will be multiple crypto tokens that address the exact same problem.
While these coins may address the problem in a slightly different way, they essentially have the same function. When researching a potential token investment and you find a similar coin with the same function, look to forums for advice from professional crypto traders on which coin has more potential.
In the end, the cryptocurrencies you decide to invest in and use as part of your portfolio will depend on your own research and instinct.