Cryptocurrency has a major drawback despite the fact that it can overnight produce astronomically massive gains. Investors should determine whether their risk tolerance, time horizon, and liquidity requirements align with their investor profile.
Table of contents:
• Is Cryptocurrency a Smart Investment?
• How To Start Investing in Cryptocurrency
• How much should you invest in cryptocurrency?
What is cryptocurrency?
A source of purchasing power, cryptocurrency is a type of digital money. It can be purchased with the intention of making money, much like other investment assets, and is also a potential investment option.
Despite this, cryptocurrencies are among the most erratic (their prices can swing widely) asset types. The best approach to benefit from this revolutionary technology and its expanding applications is by making long-term investments in cryptocurrencies rather than engaging in speculative trading.
Though the future is impossible to foresee, it appears that crypto and the underlying technology will become more commonplace.
Cryptocurrencies, in contrast to traditional forms of money, are decentralized, which means a centralized organization like the US government does not issue, back, or regulate them.
This decentralization concept, according to Feldman, “is a fundamental component of its design.” Cryptocurrency units also referred to as coins or tokens, are created digitally through a validation process that depends on blockchain.
Blockchain is a potent technology that can be utilized in a wide range of procedures, not just for crypto. Blockchain, often referred to as distributed ledger technology creates a safe, encrypted record of the value of each virtual coin and the transactions connected to it.
In principle, anyone with an internet connection might view the blockchain because those records are dispersed and connected across the network of parties, or computers, accessing it.
Is Cryptocurrency a Smart Investment?
Like all asset classes, there is no assurance that an investment in a cryptocurrency will be profitable. Additionally, it’s critical to keep in mind that cryptocurrencies are speculative and highly volatile. As a result, it’s critical to consider both the benefits and risks of investing in cryptocurrencies before making a choice. Beginners might think about starting with the best crypto to invest in.
Cryptocurrency risks
Cryptocurrency exchanges are more prone to hacking than stock exchanges and are regularly the target of other illegal behavior. Investors who lost their digital currencies due to security breaches incurred severe losses, which led many exchanges and third-party insurers to start offering protection against hackers.
Additionally, it requires more effort to keep cryptocurrencies secure than it does to protect stocks or bonds. On cryptocurrency exchanges like Coinbase (NASDAQ: COIN), Bitcoin (CRYPTO: BTC), and Ethereum (CRYPTO: ETH) can be bought and sold.
However, many users decide not to keep their digital assets on these platforms due to the security dangers involved in providing any corporation access to their holdings.
Storing your cryptocurrency on a centralized exchange suggests that you don’t have total control over your holdings. If an exchange declares bankruptcy or seizes your assets in response to a government order, you might not have any other options to obtain your money back.
Although cold storage has its own set of difficulties, some cryptocurrency owners choose offline “cold storage” options such as hardware wallets. Because you need your private key to access your cryptocurrency, the risk of losing it is the highest.
There is fierce competition among thousands of blockchain initiatives, many of which are pure scams. The bulk of cryptocurrency projects will ultimately fail.
If countries regard cryptocurrencies as a threat rather than cutting-edge technology, regulators may also crack down on the entire cryptocurrency market.
The advanced technological features of cryptocurrencies add to the risks for investors. The technology is still in development and has not yet undergone extensive testing in actual situations.
Benefits of Cryptocurrency
Despite the risks, the market for cryptocurrencies and blockchain technology is expanding. The much-needed financial infrastructure is being built, and institutional-grade custodial services are becoming more readily available to investors.
The resources required to manage and protect their cryptocurrency investments are progressively being made available to both professional and amateur investors.
The development of cryptocurrency futures markets has given several companies direct access to the market. On their well-known platforms, major financial organizations like Block (NYSE: SQ) and PayPal (NASDAQ: PYPL) are making it possible to buy and sell cryptocurrencies.
Other companies, in addition to Block, have put hundreds of millions of dollars into Bitcoin and other digital assets. Tesla (NASDAQ: TSLA) paid $1.5 billion to purchase Bitcoin at the beginning of 2021.
The maker of electric cars stated that as of February 2022, they had almost $2 billion in cryptocurrency. MicroStrategy (NASDAQ: MSTR), a developer of business analytics software, started buying Bitcoin in 2020.
It reported investing $5.7 billion in cryptocurrencies by the end of 2021 and said it will keep doing so with additional operating profits.Although other factors still influence how risky cryptocurrencies are, the market is evolving as adoption rates pick up.
In order to invest huge sums of money directly in cryptocurrencies, both businesses and individual investors are looking to do so.
How To Start Investing in Cryptocurrency
The crypto bear market in 2023 severely affected the price of thousands of tokens, with the majority of them being many percentage points below their peaks, making it difficult for investors to generate regular returns.
The ability to invest in cryptocurrencies is expanding every day. There are several exchanges that resemble those used for conventional investments. You cancreate an account in a few minutes.
But, like with investing in any asset, it may be a good idea to do some research on a particular currency before making a decision. The following five steps will help if you’re unsure about how to invest in cryptocurrencies for the first time.
Here’s the process on how to start investing in cryptocurrency:
· Decide which cryptocurrency to invest in.
You’ll want to comprehend and thoroughly assess the many, distinctive properties of each cryptocurrency you’re thinking about investing in, just as you would research the potential hazards and financial stability of a company before purchasing its stock. You can decide to invest in a single cryptocurrency or a variety of them.
Because cryptocurrencies have become a common platform for fraud, such pump-and-dump scams, vetting them can be more challenging. These riskscould make you wonder how to invest in cryptocurrencies without becoming a target of fraud.
· Choose a cryptocurrency exchange in step two.
It is necessary to purchase cryptocurrency through an exchange or investment site like Stash.
When choosing an exchange, you might want to take into account things like security, fees, trading volume, minimal investment requirements, and the kinds of cryptocurrencies that can be bought there.
· Consider a digital wallet and storage options.
You need a digital location to keep the coins you owe as cryptocurrencies are fully digital. As the cryptocurrency market has grown, the majority of newer participants have decided to store their crypto investments on the investment platform they are already utilizing.
Try to choose a platform that will be in charge of looking after your assets; such a platform will be governed, well-protected against hacking and other online risks, and carry a lot of financial insurance.
· Determine your investment amount.
The amount you decide to invest in cryptocurrencies will rely on a variety of criteria, including your budget, risk tolerance, and investing plan, just like any other investment.
Additionally, keep in mind that transaction fees and minimum investment requirements differ between crypto exchanges.
Most exchanges enable you to invest on a dollar basis, rather than buying a whole coin, so you don’t have to come up with tens of thousands of dollars to invest in Crypto.
· Manage your investments.
Because it can be used to make purchases as well as long-term investments, cryptocurrency is a special kind of investment. How you handle your crypto holdings will depend on your investing objectives and strategy. Applying the Stash Way, which emphasizes consistent investing, diversity, and long-term investing, may be something you want to think about doing.
With automated investment portfolios that have exposure to cryptocurrencies, Stash can assist you in managing your cryptocurrency investments.
How much should you invest in cryptocurrency?
Some experts advise investing 1% to 5% of your net worth or less. Feldman advises that “limiting your overall exposure to crypto is key and it’s critical to never invest more than you could afford to lose” when deciding how much of your portfolio to invest in cryptocurrencies.
Although a little amount of exposure to cryptocurrencies may help a diversified portfolio’s risk-adjusted return profile, how much money you should invest overall in cryptocurrencies should be determined by your whole investment portfolio and risk tolerance.
In light of this, another factor to think about is diversification within the cryptosphere. The specific crypto assets you own matter a lot, according to Feldman.
For instance, some coins might have more potential long-term use cases and be more resistant to price manipulation. Although the entire cryptocurrency market is highly unstable, there may be less risk in the bigger, more liquid cryptos than in the smaller, more speculative ones.
Even the biggest, most well-known cryptos, however, experience significant price fluctuations. In addition to the overall amount of cryptocurrency in your portfolio, you should take into account the variety of cryptocurrencies you own.
How to secure your cryptocurrency Arrow pointing upward
One of the particular worries associated with this kind of investing is taking measures to keep your cryptocurrency investment secure.
The following suggestions could be helpful:
• Reputable exchanges and providers of digital wallets are your only options.
• Secure internet connections, two-factor authentication, and strong passwords can all be used to protect access.
• Watch out for phishing schemes that prey on cryptocurrency users.
• Never reveal your password or key to anyone.
Conclusion
As with any investment, be cautious to consider your investment goals and current financial situation before making an investment in cryptocurrencies or particular companies that have a substantial stake in them. Cryptocurrency’s price can drop dramatically with just one tweet, and purchasing one is still quite speculative. This suggests that you should spend wisely and sensibly.
