How to Get Started with Cryptocurrency Investing
With the meteoric rise of cryptocurrencies, many are drawn to this new form of investment. But unfortunately, diving into the world of crypto isn't as simple as downloading an app or opening a brokerage account. In this article, we'll give you everything you need to know to get your crypto investing journey started.
Introduction to Cryptocurrency
What is Cryptocurrency?
Cryptocurrency, at its most basic level, is a form of digital or virtual currency that uses cryptography for security. The first and most well-known cryptocurrency is Bitcoin, created in 2009 by an unknown person using the pseudonym Satoshi Nakamoto.
Cryptocurrencies operate on a technology called blockchain—a decentralized technology spread across many computers that manages and records transactions. Because of its decentralization and cryptographic features, cryptocurrency is secure from political interference and fraud.
The History of Cryptocurrency
Bitcoin's creation in 2009 marked a significant stride in digital asset innovation. It offered an alternative to traditional financial systems by propagating a peer-to-peer (P2P) transaction model free from centralized authorities such as banks or governments. Numerous cryptocurrencies, known as altcoins, were developed after Bitcoin. Examples include Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and many others. Currently, there are thousands of cryptocurrencies, each with its own unique features and use cases.
Understanding Cryptocurrency Investing
Why Invest in Cryptocurrency?
Investing in cryptocurrency attracts investors due to its potential for high returns. For instance, according to the historical data on CoinMarketCap, Bitcoin was worth essentially nothing when it was first created; but as of November 2021, a single Bitcoin had shot up in value to nearly $65,500.
Bitcoin hits All-time-high, Source: CMC
Furthermore, there is a prevailing perspective that cryptocurrencies serve as the "digital gold" of our era, presenting a novel method for safeguarding and accumulating value over time. Beyond this, a substantial portion of the community regards cryptocurrency not merely as a standalone entity but as an integral component within the realm of cutting-edge technologies, such as blockchain and the burgeoning landscape of decentralized finance (DeFi).
This dual nature of crypto, as both a store of value and a pivotal player in transformative technologies, underscores its multifaceted significance in the contemporary financial and technological landscape.
Risks of Cryptocurrency Investing
Investing in cryptocurrencies comes with its share of risks. The notable volatility in this market can lead to substantial financial losses over a short timeframe, with the value of cryptocurrencies frequently experiencing swings of 20% to 30% within a single day.
Additionally, cryptocurrencies' decentralized nature provides users with freedom from traditional banks but also reduces consumer protection. If your digital assets are stolen or lost, whether due to hacking or misplacing your wallet's private keys, there is typically no way to seek compensation. It is crucial to be aware of these risks and take precautions when engaging in cryptocurrency investments.
Getting Started with Cryptocurrency Investing
Before you start investing in cryptocurrency, it is crucial to understand that similar to stocks and bonds, price is a function of supply and demand. Despite this, as crypto is a new asset class there are not the same rules and regulations about what qualifies something as investable to protect investors. This makes it critical to thoroughly vet any possible investments, understand your risk tolerance and only invest what you can afford to lose.
Choosing the Right Cryptocurrency for Investment
When starting with cryptocurrency investing, most people think about Bitcoin or Ethereum due to their popularity. However, various other cryptocurrencies may also be worthwhile investments. Your choice should be based on careful research into factors such as the coin's use case, technological foundation, the team behind it, market cap, and price history.
In addition to individual research tools like CoinMarketCap or Coingecko, consider subscribing to informative newsletters (like Beluga's "Beluga Pod") that provide well-researched insights on various cryptocurrencies.
Setting Up a Cryptocurrency Wallet
To buy your first cryptocurrency, you must have a digital wallet to store it. There are two types of wallets: software-based ones that can be on your computer or smartphone, and hardware devices that provide extra security by keeping your coins offline.
Types of crypto wallets, Source: DBS
Most exchanges offer their digital wallets when you sign up for an account, but for enhanced security, consider a hardware wallet like Trezor or Ledger. These wallets store your private keys offline in "cold storage," making them immune to online hacking attempts.
Buying Your First Cryptocurrency
Now, you need to pick a place to buy and trade cryptocurrencies. Some well-known ones around the world are Coinbase, Binance, and Kraken. These websites let you buy cryptocurrencies using regular money like USD, EUR, or GBP.
Just remember, each platform is a bit different. They have different features, fees (costs), how safe they are, and the kinds of cryptocurrencies they support. Take Beluga, for example. It has tools that can help you a lot when you're new to crypto. These tools give you useful information about your crypto and make it easier to keep track of.
So, when you're starting with cryptocurrencies, choose an exchange that suits you best. It's like picking the right tool for the job, and it can make your experience with digital money smoother and more successful.
Maintaining & Growing Your Crypto Investment
Once you've bought your first cryptocurrency, the journey doesn't end there. Monitoring your investments and making strategic decisions is key to growing your digital wealth.
Monitoring Your Cryptocurrency Investment
Effective cryptocurrency investing involves staying vigilant about market trends and individual coin performance. Streamline your tracking process by leveraging tools like the Beluga Portfolio Tracker, providing a centralized hub to monitor your balances across various wallets and exchanges efficiently.
Remaining updated on news events is equally paramount, given their potential to sway the crypto market. Keep an eye out for political announcements on regulations or significant shifts within a coin's development team, as these factors can significantly impact prices. Being well-informed about these external influences enhances your decision-making capabilities in the dynamic realm of cryptocurrency, allowing you to navigate the market with increased awareness and adaptability.
Strategies for Growing Your Cryptocurrency Investment
The DCA Method:
Among the many strategies involved in buying cryptocurrencies, Dollar-cost averaging (DCA) stands out as of one the most favored methods by retail users. Timing the market properly is extremely difficult, but by regularly purchasing a fixed amount of digital assets over time, regardless of market fluctuations, investors benefit from an average cost per coin. DCA helps mitigate the impact of short-term volatility, allowing for a more stable and disciplined investment approach. This method minimizes the risk associated with trying to time the market and promotes long-term wealth accumulation.
Another strategy is diversifying your cryptocurrency investing across different coins due to high market volatility. Just like traditional investing strategies advise against putting all your eggs in one basket, owning more than one type of coin can spread out potential risks.
The HODL Strategy:
For long-term investors, a strategy called "HODLing" (Hold On for Dear Life) involves buying a promising coin and holding onto it, regardless of market fluctuations. Growing your cryptocurrency investment isn't just about picking the right coins—it's also about understanding when to buy and sell. Tools like the Beluga Crypto Calculator can help assess potential return on investments based on various factors such as price volatility.
Tips To Know Before Venturing Into Cryptocurrency Investing
Before delving into the realm of cryptocurrency investment, it's crucial to be aware of a few key aspects:
Capital Gains Tax Implications:
Treat cryptocurrency like any other asset such as stocks or property, as it falls under the purview of capital gains tax. Upon selling crypto and realizing a profit, you'll be obligated to pay taxes on the earnings. This consideration is vital for budgeting throughout the year and planning for tax obligations.
Short-Term Nature of Cryptocurrency Investment:
Due to its inherent volatility, many investors view cryptocurrency as a short-term investment rather than a long-term one. While there's speculation that crypto might evolve into a stable investment with substantial long-term gains, this remains uncertain. Given the current trend of fluctuating cryptocurrency values, attempting to time the market for potential profit becomes a high-risk endeavor. If the goal is sustained appreciation over an extended period, traditional investments like long-term bonds, index funds, or IRAs may present more stable alternatives. Understanding these facets is paramount for making informed decisions in the unpredictable landscape of cryptocurrency.
Conclusion: The Future of Crypto Investing
Though making definitive predictions is challenging, the outlook for cryptocurrency investing appears optimistic. The ongoing progress in blockchain technology, coupled with the increasing endorsement from conventional financial institutions, suggests that cryptocurrencies are poised to exert a substantial influence on the future of finance.
Nevertheless, prospective investors should approach this evolving landscape with a sense of caution. A crucial aspect of navigating the dynamic realm of cryptocurrency is maintaining a well-informed stance regarding associated risks. In addition to risk awareness, diversifying investments across a spectrum of cryptocurrencies and staying vigilant by consistently monitoring market trends are pivotal strategies. By adopting these prudent measures, investors can enhance their ability to make informed and judicious decisions throughout their cryptocurrency investing journey.
As the crypto landscape continues to evolve, strategic awareness and adaptability become essential tools for those seeking success in this dynamic financial space.
How should a beginner invest in cryptocurrency?
For beginners, start by understanding what cryptocurrency is and how it works. Choose reputable exchanges like Coinbase or Binance to buy your first cryptocurrency—usually Bitcoin or Ethereum. Use secure wallets to store your digital assets and stay updated on market trends.
How much do I need to start investing in crypto?
You can start investing in crypto with as little as two units of local currency. Remember that the key isn't how much you start with but making informed decisions to grow your investment over time.
Can you make $100 a day with crypto?
Making consistent profits from daily trading requires knowledge and experience due to crypto's volatility. It's important to understand that while some day traders may profit significantly others may lose money.
Which cryptocurrency is best for beginners?
Bitcoin and Ethereum are typically recommended for beginners due to their established platforms and widespread use.
What is the safest crypto to invest in?
Larger cryptocurrencies like Bitcoin and Ethereum are generally considered safer because of their larger market capitalization and more significant user base. However, safety also depends on factors such as storage practices.
How much does it cost to invest in Bitcoin to become a millionaire?
This depends on Bitcoin's price, which fluctuates frequently. For instance, if Bitcoin's price is $50,000, you would need to buy 20 Bitcoins (assuming no change in price) to have a million-dollar worth of Bitcoin.
Is it worth buying $100 dollars of Bitcoin?
Every investment comes with its risks and rewards. While you can start investing in Bitcoin with $100, the returns depend on market trends and when you sell.
How much would $500 in Bitcoin be worth today?
This depends on when you invested the $500. If you bought it when Bitcoin was priced at, say, $10,000 per bitcoin and today's price is $50,000 per bitcoin, then your investment would now be worth $2,500.