The increasing fascination, acceptance, and financial commitment in cryptocurrency, commonly known as crypto, has piqued the curiosity of numerous investors who wish to enter this realm. This introductory manual aims to elucidate cryptocurrency as a distinct asset class and provide a comprehensive overview of investing in it. Gain knowledge about the nature of crypto, its various forms, factors to contemplate before making an investment, and pertinent information to assist you in determining its suitability for your portfolio. Furthermore, should you determine that you are prepared to commence investing in crypto, you will discover a detailed, step-by-step guide to initiate your journey.
Cryptocurrency functions as a digital form of currency, similar to physical cash, enabling transactions and serving as a store of value. Furthermore, it provides opportunities for investment, allowing individuals to acquire it with the aim of generating financial gains. It is worth noting that cryptocurrency is recognized for its high volatility, characterized by significant fluctuations in its market value.
Cryptocurrencies differ from most traditional forms of currency in that they are decentralized, meaning they are not controlled, supported, or overseen by a central authority such as the U.S. government. These digital currencies, referred to as coins or tokens, are generated through a validation process that relies on blockchain technology, which has applications beyond the realm of cryptocurrency. Blockchain, also known as distributed ledger technology, creates a secure encrypted record of the value of each virtual coin and its corresponding transactions. These records are distributed and interconnected across the network of participants or computers that access the blockchain; theoretically, anyone with an internet connection can access the blockchain. This system was developed with security, transparency, speed, and precision as its primary objectives.
The term cryptocurrency refers to virtual currencies that utilize blockchain technology, with over 2.4 million different cryptos existing as of May 2024, as reported by CoinMarketCap.com. Bitcoin, being one of the first cryptocurrencies developed, continues to be the most recognized. Alternative cryptocurrencies to bitcoin are collectively known as “altcoin.”
In recent years, numerous cryptocurrencies have garnered significant attention, achieved substantial market capitalization, and attracted a wide range of users and investors.
Before making any investment in cryptocurrency, there are several factors that should be taken into consideration.
Cryptocurrencies are known for their volatility, experiencing significant fluctuations in value within short timeframes. This aspect might cause hesitation among those who prefer to avoid risks. It is important to note that anyone has the ability to introduce a cryptocurrency, and the regulations surrounding them are constantly changing. Therefore, it is crucial to carefully evaluate any potential investments in order to steer clear of fraudulent schemes.
It could be beneficial to reflect on the reasons behind your interest in cryptocurrency investment. Are you simply chasing a trend for potential profit, or do you have a well-thought-out investment strategy? Keep in mind that there are no shortcuts to earning significant returns without taking risks, so it’s crucial to avoid investing with the assumption of guaranteed success. Exercise caution, clearly define your goals and expectations in advance. Only contemplate investing in cryptocurrency if you have faith in its future growth and are prepared to endure market volatility.
It is of utmost importance to adopt a long-term outlook when engaging in investments. This is particularly crucial when dealing with assets like cryptocurrencies, as their value can fluctuate rapidly. When investing in highly volatile assets, it is common to succumb to emotional impulses that may lead to poor decision-making, such as buying in a state of fear of missing out or selling hastily during price declines. However, it is essential to recognize that these emotional decisions often have adverse effects on your investments.
Is cryptocurrency a good investment?
There are numerous factors that determine whether crypto will prove to be a lucrative investment for you. Similar to any investment, the answer lies in various aspects such as your risk tolerance, both financially and psychologically, your investment timeframe, and the diversification of your portfolio. The unpredictable nature of crypto results in rapid and occasionally drastic fluctuations in the value of your coins.
Just because a particular asset is tradable does not automatically make it the suitable investment for your circumstances. Furthermore, as mentioned earlier, all forms of investment come with the inherent risk of potential financial loss.
How much should you invest in cryptocurrency?
It is advisable to follow the recommendation of some experts who suggest investing only a small percentage, ranging from 1% to 5%, of your net worth. When deciding how much of your portfolio to allocate to cryptocurrencies, it is crucial to limit your exposure to crypto as a whole. It is important to never invest more than what you can afford to lose. While having a limited exposure to crypto may enhance the risk-adjusted return profile of a diversified portfolio, the specific amount to invest in crypto should be determined by considering your overall investment portfolio and your risk tolerance.
Considering diversification within the crypto market is also an important aspect to take into account. The selection of specific cryptocurrencies to invest in holds significance, as certain coins have better long-term potential and are less susceptible to price manipulation.
Although the cryptocurrency market as a whole is known for its unpredictability and volatility, there is potentially less risk associated with larger, more widely traded cryptocurrencies when compared to smaller, more speculative ones. Nevertheless, even the most prominent and well-established cryptocurrencies can experience significant price fluctuations. Therefore, it is advisable to consider the diversity of cryptocurrencies in your portfolio and carefully evaluate the total amount you invest in them.
Strategies for Maintaining the Security of Your Cryptocurrency
Ensuring the security of your crypto investment is a paramount concern in this particular form of investing. Here are a few suggestions that might prove beneficial:
- Engage exclusively with trustworthy exchanges and digital wallet providers.
- Safeguard your access by employing robust passwords, implementing two-factor verification, and utilizing secure internet connections.
- Remain vigilant against phishing scams that specifically target crypto users.
- Refrain from sharing your password or key with anyone.
How to invest in cryptocurrency in 2024
Are you considering investing in cryptocurrency? It is essential to have a clear understanding of where and how to purchase and store it. Just like traditional investment platforms, there are various exchanges to choose from, and setting up an account is a straightforward process. However, it is highly recommended to conduct extensive research on each currency before making any investments. If you are a beginner wondering how to get started, follow these five steps:
- Select the cryptocurrency you want to invest in.
- Choose a reputable cryptocurrency exchange.
- Explore different storage and digital wallet options.
- Decide on the amount you wish to invest.
- Stay informed and manage your investments wisely.
Step 1 : Select the cryptocurrency you want to invest in.
When considering investing in cryptocurrencies, it is essential to conduct a thorough evaluation of each one’s unique characteristics, similar to how you would assess a company’s risks and financial stability before purchasing its stock. Cryptocurrencies have unfortunately become susceptible to fraudulent activities like pump-and-dump schemes, making the vetting process more challenging. To steer clear of potential scams, it is advisable to refrain from investing in smaller or newer cryptocurrencies that are aggressively promoted on social media platforms. It is crucial to carefully analyze the investment risks associated with each cryptocurrency, as recommendations from social media influencers may not always align with your best interests.
Despite the potential to reduce the risk of fraud and cybersecurity threats by investing through a well-established and trustworthy platform, it is important to acknowledge that the lack of industry regulation makes it impossible to completely eliminate this risk. A notable example is the case of FTX, a platform that was previously regarded as reputable but was later discovered to be operated by individuals with malicious intentions who misused clients’ funds. This unfortunate revelation occurred in 2022. Subsequently, on November 2, 2023, the founder of FTX, Sam Bankman-Fried, was found guilty of engaging in fraudulent activities and money laundering. As a consequence, on March 28, 2024, Bankman-Fried received a 25-year prison sentence as determined by the court.
Step 2 : Choose a reputable cryptocurrency exchange
Cryptocurrency can be acquired by utilizing an exchange or investment platform, like Coinbase, Gemini, or Kraken. When deciding on an exchange, it is important to take into account various factors such as security measures, fees, trading volume, minimum investment prerequisites, and the range of cryptocurrencies accessible for purchase on a specific exchange.
Step 3 : Explore different storage and digital wallet options.
Cryptocurrency is a fully digital form of currency, which means that you need a digital storage solution to keep your coins secure. One option is to store them on the same platform where you are investing. This is a popular choice among new cryptocurrency investors. However, it is important to choose a platform that takes responsibility for the custody and security of your assets. These platforms are regulated, have strong protection against hackers and online threats, and offer financial insurance.
If you prefer not to store your cryptocurrency on popular platforms, you will need a crypto wallet. These wallets hold the private keys that allow you to access your crypto by unlocking the digital identity associated with your ownership, which is recorded on the blockchain. You can choose between a “hot” or “cold” digital wallet. A hot wallet is accessible through the internet and is generally more convenient. On the other hand, a cold wallet is a physical storage device, similar to a USB drive, that keeps your cryptocurrency keys completely offline and offers greater security. Storing your cryptocurrency in a wallet adds an extra layer of protection.
Step 4 : Decide on the amount you wish to invest.
The decision of how much to invest in cryptocurrency is influenced by various factors, including your financial resources, risk tolerance, and investment strategy. Additionally, it is important to take into account the minimum investment requirements and transaction costs associated with different crypto exchanges.
If you are interested in investing in a cryptocurrency with a high value per coin, many exchanges offer the option to invest based on a dollar amount rather than purchasing a whole coin. This means that you do not need a large sum of money to invest in cryptocurrencies like Bitcoin. Instead of focusing on the number of coins you want to buy, consider the total amount of money you wish to invest.
It is crucial to always remember not to invest more than you can afford to lose. At Stash, we advise limiting your exposure to any single cryptocurrency to no more than 2% of your overall investment portfolio. This helps mitigate the specific risks associated with cryptocurrencies.
Step 5 : Stay informed and manage your investments wisely.
Cryptocurrency presents a distinctive investment opportunity as it serves both as a means of purchasing goods and as a viable long-term investment. The approach to managing one’s crypto holdings is contingent upon individual investment strategies and objectives. It may be prudent to contemplate adopting the Stash Way, a philosophy centered around consistent investing, diversification, and long-term investment goals.
Cryptocurrency investing FAQ
What do I need to know before buying cryptocurrency?
Investing in cryptocurrency carries inherent risks, therefore it is important to be aware of the potential drawbacks. The digital currency market is highly unpredictable, lacks significant regulation, and presents uncertainties regarding its future trajectory.
What to look forth in a cryptocurrency investment
Each cryptocurrency varies, therefore the most suitable choice is contingent upon your specific situation. However, novice investors might consider delving into more well-known currencies, as there is ample information available regarding their functionality and historical performance.
How much should you invest in cryptocurrency as a beginner?
It is advisable to refrain from investing an amount that exceeds what you are willing to lose. Stash suggests maintaining a maximum of 2% of your total portfolio in any single cryptocurrency to mitigate risks specific to the crypto market.Read More
