Cryptocurrency has gradually become a part of the mainstream investment asset class. It is growing to become a part of the diversified investment portfolio, but it may still be difficult to figure out how to invest in Crypto. Moreover, a cryptocurrency exchange is currently unregulated, thus making the investment a bit thought-provoking.
What is Cryptocurrency?
Cryptocurrency is a digital asset that is secured by cryptography. It works on a decentralized network that remains outside the jurisdiction of the government authorities. Bitcoin and other cryptocurrencies are very different from the FIAT-based economies and cannot be influenced by any external forces.
Yes, there may be uncertainties involved in its price movement, but its economics is expected to keep the prices skyrocketing. Various cryptocurrencies exist in the market right now. Creating a new currency is easy, and the new coins can use the existing blockchain of a well-established cryptocurrency exchange like coin base, which makes it easy to trade.
How to select a cryptocurrency for investment?
Before you invest in some tokens or coins, you must do some research. Firstly it is important to understand that the concept of Cryptocurrency is different from stock. While investing in a stock is like having part ownership in the company, investing in a cryptocurrency provides ownership in a digital asset having no intrinsic value.
Cryptocurrencies are being treated as the future of investment, and it is believed that their value will grow tremendously. Since Cryptocurrency is decentralized, it is thought that the market cap will not be affected by inflation. Blockchain technology is also seen as an advantage as it is a decentralized process that is more secure than traditional systems.
The valuation of Cryptocurrencies has been increasing each day, but some people treat it to be speculation since there is no real cash flow involved. A currency needs to be stable, but Cryptocurrencies have been volatile. What affects the price of a cryptocurrency is the simple rule of supply and demand.
So, when you evaluate a cryptocurrency investment decision, you must evaluate how the supply increases and analyze the factors that drive its demand.
You need to research the coin’s roadmap and see if there is a spark in demand. Try to be a part of a community of people who are active investors in Cryptocurrency to get a better understanding. It is also important to analyze the money flow in the currency. A very high market cap may not have a huge potential to grow.
Investing in the Cryptocurrency safely
You can buy the cryptocurrencies by following four basic steps:
- Finalize what you want to buy
- Choose the mode of payment
- Keep the account funded
- Select the Cryptocurrency
There are numerous ways to buy Cryptocurrency, but the most likely way is to go through a centralized cryptocurrency exchange like coin base. Centralized exchanges are like a third party that takes care of the customers’ transactions. These exchanges sell Crypto and charge a fee for the services.
Though centralized exchanges are convenient to use but are at times a target for hackers as the crypto volume that flows through them is huge. Regular investors can trade through decentralized exchanges too.
Thousands of cryptocurrencies around the world are available for investment. Generally, they accept payment in fiat currencies like the U.S. dollar. You have to purchase the coins using this currency. If you are an existing trader, you may barter your existing crypto coins for another coin.
You must keep the linked account funded before purchasing the coin. The exchanges link your bank account for debit or bank transfers. Some exchanges also allow the use of your credit card. If you are an existing investor, you can transfer existing coins to a digital wallet and carry out a future purchase. The exchange will charge fees, so you must get all the clarity in advance.
There are thousands of cryptocurrencies available for investors, so you need to set your investment goal before buying one! You must compare the growth levels and see the increase in value. You must be aware of the underlying technology and apps used. These will make it easier for you to make a decision.
The most common currency is Bitcoin which is also the most valuable Cryptocurrency. Ethereum is another common coin used for financial transactions. A co-founder of Ethereum leads Cardano. Litecoin is like Bitcoin, launched to make payments easier. Dogecoin has grown tremendously in the cryptocurrency market. Nearly 19,000 cryptocurrencies are traded around the world. The total value of these cryptocurrencies in April 2022 was over $1.85 trillion.
Making money by buying cryptocurrencies can only happen if your purchase is backed by proper research and you are confident enough to be on this wild ride. You need to evaluate all the options before investing. The investment will pay off, and the returns will be higher than other asset classes if the research behind the purchase is strong enough. Be vigilant and happy investing!