Cryptocurrencies are good investments if you want to get direct exposure to the demand for digital currencies, but a safer option is to buy shares of those companies that deal with cryptocurrencies. Cryptocurrency mining stocks are also an option you can consider.
It’s possible to get filthy rich by investing in cryptocurrency in 2021. But you could also lose all of your money. How can both be true? Investing in crypto assets is risky but also potentially extremely profitable.
With cryptocurrency being young, and the market being historically volatile, there is no ‘yes or no’ answer about the wisdom of investing in cryptocurrency. It is with this in mind that we cover some pros and cons and friendly (but not professional) advice.
Is cryptocurrency safe and a good investment ?
Just like anything else in life, cryptocurrencies come with their own baggage of risk. Whether you trade cryptos, invest in them, or simply hold on to them for the future, you must assess and understand the risks beforehand. Some of the most talked-about cryptocurrency risks include their volatility and lack of regulation. Volatility got especially out of hand in 2017, when the price of most major cryptocurrencies, including Bitcoin, skyrocketed above 1,000 percent and then came crashing down. However, as the cryptocurrency hype has calmed down, the price fluctuations have become more predictable and followed similar patterns of stocks and other financial assets. Regulations are another major topic in the industry. The funny thing is that both lack of regulation and exposure to regulations can turn into risk events for cryptocurrency investors.
How to invest in cryptocurrency
Cryptocurrency is absolutely on fire these days and many investors are looking to profit on its white-hot rise. Well-known cryptos such as Bitcoin have surged again, and other popular digital currencies are rallying, too. Experienced traders have been speculating on crypto for years, but what if you’re new to the market and looking to get a piece of the action?
Here’s how to start investing in cryptocurrency and what you need to watch out for.
1. Allocate Only a Small Percentage of Your Portfolio to Cryptocurrencies
You’ll have to decide in advance how much of your portfolio you want to allocate to cryptocurrency. With recent advances, particularly in the price of Bitcoin, it can be difficult to make a rational decision. All investing is ruled by a combination of greed and fear, and it may be hard to keep the greed part under control given the advances cryptos have shown in recent years.
2. Choose Your Cryptocurrency to invest
This is one of the real complications of cryptocurrency. There isn’t just one, but hundreds. Maybe even more than a thousand.
Complicating the issue is that more are coming online all the time. That has to be counterbalanced by the reality that hundreds of cryptocurrencies have come and gone already. And the whole concept of cryptocurrency started only about a decade ago.
Right now, the largest cryptocurrency is Bitcoin. It’s also the crypto that’s drawing the most attention and investment dollars. In a very distant second position is Ethereum, and there are others like Zcash, Dash, and Ripple.
Given its dominant position,Bitcoin seems to be the most reliable among all the many cryptocurrencies available. In fact, Bitcoin has become practically synonymous with “cryptocurrency.” What’s interesting about the connection is that while the media has been carefully following the price action of Bitcoin, some cryptocurrencies have performed even better.
Most of the cryptocurrencies that have come on the market in the past decade have either flatlined or disappeared completely. That means any investment you make could go all the way to zero. And given the price volatility that’s common with cryptocurrencies, your investment could disappear completely with very little notice. This makes the traders constantly looking for the next big thing (one example is NFTs, read about it here).
3. Choose a Platform to Buy Cryptocurrencies
One of the disadvantages of buying cryptocurrencies is that you can’t get them in all the usual financial places. Banks don’t offer them and neither do investment brokerage firms.
For the most part, you’ll be limited to buying, holding, and selling cryptocurrencies on dedicated cryptocurrency exchanges.
Some of the largest of these exchanges include: Best Crypto Exchanges Of 2021
4. Store Your Cryptocurrency in Wallets
There are two types of Wallets one Software which is digital one Hardware Wallets.
The digital one most Exchanges offers them but there are others as well.
Good wallet software has more functionality, including the ability to back up private keys (encrypted with a passphrase) either to a user’s hard drive or to a cloud storage server somewhere, to generate one-time use addresses for privacy, to hold addresses and private keys for multiple cryptocurrencies. Some are even integrated with exchanges to allow userscryptocurrencies. Some are even integrated with exchanges to allow users to convert between one cryptocurrency and another directly from within the wallet software. But generally, they’re different from traditional wallets and come in different formats and levels of security.
The Hardware Wallet
Private keys are stored in chips on small handheld devices. Two popular hardware wallets are called ‘Trezor’ and ‘Ledger Nano,’ but there are others.
These devices are specifically designed to store private keys securely and only respond to certain pre-programmed requests, for example, ‘Please sign this transaction,’ and not, ‘Show me the private key you are storing’. Because the private key is stored on hardware that is not connected to the internet and can communicate with the outside world only via a limited set of pre-programmed interfaces, it is much harder for a hacker to gain access to the private keys.
You can’t get involved in the cryptocurrency market without a crypto wallet.
More Types of Cryptocurrency Wallets
- Desktop wallets are installed on your personal computer. Since storage is on your own computer, the information is safer than with online wallets.
- Online wallets are on the cloud and can be accessed from any computer. They’re more convenient to use, but your private key is stored online and controlled by a third party. This makes them less secure.
- Mobile wallets. As the name implies, this type of wallet is an app on your smart device. They have the advantage of being able to be used to make purchases where various cryptocurrencies are accepted.
- Hardware wallets. These stores your private key on a hardware device, such as a USB device. They’re more secure because the private key isn’t stored online, where it could be accessed by unauthorized parties. They also let you access your cryptocurrency from multiple devices.
Popular cryptocurrencies as long-term Investments
Two cryptocurrencies that are most talked about are Bitcoin and Ethereum. First and second in the cryptocurrency market respectively (according to the market caps), let us evaluate how these two digital coins will fare in the future.
Many cryptocurrencies like Bitcoin and Ethereum are launched with lofty objectives, which may be achieved over long time horizons. While the success of any cryptocurrency project is not assured, if a cryptocurrency project achieves it goals, then early investors could be richly rewarded over the long term.
For any cryptocurrency project, however, achieving widespread adoption is necessary to be considered a long-term success.
Bitcoin benefits from the network effect, people want to own Bitcoins because Bitcoin is owned by many people. It is currently known as “digital gold” and it was also responsible to make a lot of people wealthy. Because the supply is fixed, experts believe that Bitcoin’s value increases slowly. Investors who believe in Bitcoin supremacy state that Bitcoin will eventually become the world’s first truly global currency.
Ether is the coin that is native to the Ethereum platform, the first of its kind to support smart contracts that boosted the DeFi sector. While Bitcoin is digital gold, Ethereum is digital silver. There are several applications built on Ethereum’s platform which create many opportunities for Etherum to benefit from the network effect and create long-term value. The Ethereum network collects Ether from users in return for executing smart contracts. With the Ethereum platform increasingly being used worldwide in the banking, real estate sector, and to create other cryptocurrencies, Ether token increases in utility and value. Some say Ether has a better future in the long run than Bitcoin on the basis of utility.
Are cryptocurrencies a good investment? Should you get involved?
Owning some cryptocurrency can increase your portfolio’s diversification since cryptocurrencies such as Bitcoin have historically shown almost no price correlation with the U.S. stock market. If you believe that cryptocurrency usage will become increasingly widespread over time, then it probably makes sense for you to buy some crypto directly as part of a diversified portfolio. For every cryptocurrency that you invest in, be sure to have an investment thesis as to why that currency will stand the test of time.
If your transaction is a one-time thing and you don’t want to hear anything about your crypto assets for the next ten years, you still must gain the knowledge necessary to determine things like the following: What to buy, When to buy, How much to buy, When to sell. I will make an article regarding that. Always with Crypto is important to watch the latest news and check daily price chart likely we offer that.
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