What started as something that had no tangible future back in 2009, cryptocurrencies have grown a lot in value and popularity over the years. The global adoption of digital; currencies have been on the rise for the past couple of years as more people are learning more about it and investing in it.
Keep reading to learn more about how to invest in cryptocurrency as a beginner.
What Is Cryptocurrency?
According to Wikipedia, a cryptocurrency is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
Unlike traditional fiat currency, crypto is decentralised, which means it is not controlled by any external body, organisation or government. No governing authority over cryptocurrency decides its rules, regulations and how it is used.
Crypto units are called coins or tokens, and they are made digitally through a validation process that depends on blockchain technology. Blockchain technology is a powerful technology used in a wide range of functions and not only cryptocurrency. Known as distributed ledger technology, blockchain securely stores the value and transactions associated with each virtual coin and encrypts them.
As of December 2022, there are more than 12,000 cryptocurrencies, but the most popular is Bitcoin. Bitcoin was launched in 2009 and was the first-ever crypto to be created. Today, Bitcoin is the largest in the world by market cap (329.23 billion), followed by Ethereum (155.62 billion).
Cryptocurrency is a digital currency that, like fiat currency, is a source of purchasing power. Crypto can also be used as an investment tool, and like other investment types, it can be purchased with the goal of financial return.
Risks To Consider Before Investing In Cryptocurrency
Before you decide to take that step to invest in your first crypto asset, you must be aware of some risks that it holds.
1. Volatility:
One of the significant features of the crypto market is its volatility. The prices of cryptocurrencies are almost always unstable and could experience huge fluctuations anytime between a year, a quarter, a month and even a day. One of the most significant market dips happened between December 2017 and December 2018, when Bitcoin fell from $19,000 to less than $3,000. Within a year, Bitcoin declined by 83%.
2. Scams and Hacks:
Although cryptocurrency blockchains are very secure and difficult to hack, over the years, there have been numerous cases of hackers carting away millions of dollars worth of crypto from crypto exchanges.
Have you ever heard about Thodex? Thodex was a Turkish crypto exchange company established by Faruk Fatih Özer in 2017. Özer fled from Turkey and never returned as he made away with over $2 billion from over 100,000 investors.
Check out this article to learn more about the risks associated with investing in cryptocurrency.
How To Invest In Cryptocurrency
Step 1: Understand The Industry and What You Are Getting Into
It is not enough to have a quick rundown of what a cryptocurrency is from online crypto influencers; you need to delve deeper and research extensively on the crypto industry to know exactly what you are getting into. Like every other investment type, cryptocurrency is risky and should not be ventured into blindly. Take your time to understand the core of it and if it is a suitable investment for you.
Step 2: Choose What Crypto Asset You Want To Invest In
As mentioned earlier, there are more than twelve thousand crypto coins, and you can only possibly invest in some of them. So, it is essential that when you are conducting your research, you also look into what crypto you want to invest in; their features, history, market cap etc.
One of the reasons why it is so important for you to do this is to avoid pump-and-dump schemes or Ponzi schemes.
You must ensure the cryptocurrency is legit and will yield you profit in the future instead of it becoming a failed cryptocurrency.
Step 3: Choose a Crypto Exchange Platform:
A crypto exchange is a platform that facilitates the buying and selling of cryptocurrencies. There are hundreds of crypto trading platforms out there, and they have distinct features and advantages which set them apart. When searching for a suitable exchange platform, you should consider factors such as security, trading fees, trading limits, customer service availability, cryptocurrencies available, region etc.
For Example, if you are a crypto investor or trader in Nigeria or Ghana and are looking for suitable exchanges to sell Bitcoin for Naira or Cedis, Breet is the number one choice.
Step 4: Invest In An External Storage Wallet
A crypto wallet is a digital wallet where you store your crypto and use it to conduct transactions. There are two types of crypto wallets- a cold wallet (also known as a hardware wallet) and a hot wallet (also known as a software wallet). These two wallet options have their distinct characteristics and edges over each other.
Due to numerous hacks and scams, crypto enthusiasts have been advised against keeping their funds and assets on crypt exchanges; instead, they should store them in external wallets.
Some popular hardware wallet options are Ledger Nano S, Trezor Model One etc.
Step 5: Decide On How Much You Want To Put Into Crypto
You have learnt more about the crypto industry, you have chosen what crypto assets you want to invest in, you have purchased your external wallet to store your cryptocurrencies, now you have to decide how much you actually want to allocate to your crypto assets and portfolio and how much crypto you want to purchase for a start.
Due to the mentality of most people that crypto is a get-rich-quick scheme with no risks involved, they tend to put a lot of money into it, some even being their entire life savings because they think a high ROI is guaranteed, but this is wrong.
A famous crypto tip says, “do not invest more than you can afford to lose, ” which is correct.
Investments are pretty risky, and cryptocurrency is not an exception. So, it is vital that you only put in an amount that you are comfortable losing when the worst comes.
A bonus tip is investing only a small amount in testing it out first. But when you want to decide how much exactly to put, check out the minimum deposit the crypto exchange platform allows.
Step 6: Manage Your Investment Portfolio
While some people put money into an investment and completely look away from it for a long time, it is also essential that you learn to manage your portfolio well. This involves monitoring the assets and the market, so you will know what steps to take, when to buy more, when to sell etc.
You get the most out of your investments when you manage them well instead of abandoning them for years and hoping to return to a huge profit.
Conclusion
Cryptocurrencies are also pretty risky, so make sure to look out for potential pitfalls when investing in them.
There are significant risks in digital currencies, such as their volatility and unregulated nature, so it has no legal backing in most countries.
When investing in cryptocurrency, especially as a newbie, it is essential that you research extensively and not rush into it.
