Cryptocurrencies have emerged as one of the most exciting new tradable asset classes in the world. What many investors don’t know, however, is that there are more ways to invest in crypto than buying just Bitcoin online. While Bitcoin still remains the most traded and popular cryptocurrency globally, there are now over 10,000 altcoins in the crypto market.
But how do you know which are the right coins to invest in? Read on to learn about picking the right crypto investments and the best ways to invest in cryptocurrency.
Cryptocurrencies explained for beginners
Before learning how to invest in cryptocurrencies, it’s imperative to understand what cryptocurrency is and how it works. Cryptocurrency is a digital currency or asset that operates on a cryptographically secured, decentralised peer-to-peer blockchain network that enables the trustless recording, storing, and transfer of data.
Today, there are thousands of cryptocurrencies available in the market. So, how do investors pick one that is worth investing in? Let’s that a look at that next.
How to pick a cryptocurrency to invest in?
Before getting started with investing in a cryptocurrency, conducting some research is essential. Follow this checklist below to deep dive into a new coin that might pique your interest:
- Start with the whitepaper to learn about the technology and vision
- Read publicly-available research reports covering the project
- Find out who is behind the cryptocurrency to see whether they are reputable entrepreneurs with a successful track record
- Look at the cryptocurrency's tokeomics
- Check out the cryptocurrency’s community
- Analyse market factors, such as price history, trading volumes, and market capitalisation
Once there is a good understanding of what a cryptocurrency is all about, investors can formulate an opinion on it and decide whether it should be in their investment portfolio or not.
How to invest in cryptocurrency?
In the early days of crypto, investors could only invest in cryptocurrency by buying it online on largely unregulated exchanges. Today, there are numerous ways to invest in cryptocurrency.
Let’s take a look at the most popular:
- Choose a cryptocurrency investment option. First, it’s important to choose how to invest in cryptocurrency. For example, is it preferred to buy cryptocurrency outright and store it in a cryptocurrency wallet or to buy cryptocurrency CFDs so crypto storage isn’t an issue? Alternatively, investors can also invest in digital assets by purchasing exchange-traded crypto products or invest indirectly by buying shares in publicly-traded crypto companies.
- DYOR and find cryptocurrencies to invest in. Next, investors need to conduct their own research and choose which digital assets they would like to trade or invest in. Successful investors only invest in what they understand. If a cryptocurrency doesn’t make sense, it’s probably not wise to invest in it.
- Determine how much money to risk. When it comes to investing, the rule of thumb has always been to invest only what you can afford to lose. Cryptocurrencies are high-risk investments because of how volatile they are. Therefore, investors need to consider what percentage of their portfolio to allocate to cryptocurrency. A higher percentage means higher risk. However, it could also mean higher returns if an investor manages to pick the right crypto assets.
- Store crypto safely (if using CFDs, monitor trades). Investors buying crypto in the spot market need to make sure they securely store their assets in a cold wallet or with a qualified custodian. Crypto CFD holders don’t need to worry about digital asset storage but need to keep an eye on their positions to make sure that funding fees aren’t eating into the investment performance too much.
- Keep track of the investment portfolio and watch the space closely. While checking crypto prices every hour is probably not a good idea, keeping track of crypto investments is. It’s also important to follow crypto market developments in general to get a better idea of how markets are doing and in what direction they may go next.
Best ways to invest in cryptocurrencies
There are various ways to invest in cryptocurrencies. Below, we take a look at four ways that any traders can use to invest in crypto.
- Crypto spot trading: Spot trading in cryptocurrency is the continuous process of buying and selling coins such as Bitcoin or Ethereum at real-time prices for immediate delivery. The spot price is the current price of a coin or token that it can be bought or sold for in the marketplace for immediate settlement. Crypto spot traders typically buy and sell a range of cryptocurrencies throughout the day with the aim to make daily trading profits.
- Crypto CFDs: Similar to spot trading, crypto traders also like to trade cryptocurrency CFDs. With crypto CFDs, traders and investors don’t need to worry about secure digital asset storage as they are not buying or selling the actual cryptocurrency. Instead, they are trading contracts for difference, so only the difference between the buy and sell (or sell and buy) price is settled in cash with the broker. Learn more about CFDs.
- Cryptocurrency ETFs: Cryptocurrency exchange-traded funds (ETFs) and other exchange-traded financial products are another way to invest in crypto. For traditional investors who are not comfortable dealing in actual cryptocurrency, crypto ETFs, ETNs, and ETPs offer familiar investment vehicles that track the price of underlying cryptocurrencies. Crypto ETF holders also don’t need to worry about crypto storage or wallet management as the ETF provider handles that on behalf of the investor.
- Invest in shares of companies connect to cryptocurrencies: Investing directly in crypto requires a steep learning curve for first-time investors. However, there are other ways to invest in crypto without actually purchasing crypto. In addition to buying crypto CFDs or investing in a crypto ETF, investors can also buy shares in publicly-traded crypto companies. Currently, there are several dozen cryptocurrency and blockchain companies trading on securities exchanges across the globe. However, when investing in shares of a crypto company the value of the “crypto” investment will also be affected by the performance of the company itself and the stock market.
With the recent rebrand of Facebook to Meta, and their exploration into the Metaverse, large globally recognised organisations are becoming more and more open-minded on the technology behind crypto.
Advantages to investing in cryptocurrency
While investing in cryptocurrencies is high risk, crypto can be a great investment opportunity.
- For starters, cryptocurrencies like Bitcoin have been incredibly successful, outperforming all major asset classes in the last five to ten years.
- Secondly, some cryptocurrencies, such as Bitcoin, have additional utility. This means that besides investing in them, people can also use them to pay for goods and services. Other crypto tokens may also grant access to projects or services and discounts linked to that project.
- Thirdly, cryptocurrencies can be an excellent asset class for diversification as they are largely uncorrelated to stocks and bonds.
Disadvantages to investing in cryptocurrency
While crypto offers excellent investment opportunities, there are also disadvantages when it comes to investing in this new digital asset class.
- Firstly, cryptocurrencies are very volatile and can be considered high-risk investments. While some cryptocurrencies will likely succeed, most crypto projects will probably fail, leading to losses for investors. Moreover, sharp price swings can affect portfolio value substantially, which may be difficult for new investors.
- Secondly, some regulatory uncertainty remains surrounding cryptoassets. The classification of digital assets keeps changing across the globe, adding regulatory risk to the crypto markets.
FAQ
How much money do I need to start investing in cryptocurrency? How much money an investor needs to start investing in cryptocurrency largely depends on the exchange or trading platform they plan to use, as different exchanges have different trading minimum requirements. For instance, one exchange can have a minimum trade of $5 while another can have a minimum trade of $20. While the minimum trade might seem affordable, factor in transaction fees. Some exchanges might take a bigger chunk out of investments as fees, especially, when users are trading small amounts of crypto. When trading crypto as a CFD, the use of leverage means you can gain exposure to a larger amount with less capital. But of course, leverage is a double-edged sword, as it can magnify both wins and losses.
What cryptocurrencies are professional investor’s interested in? Below are three of the most popular cryptocurrencies in the current market, all with a stable position in the top 10 crypto coins by market capitalisation.
- Bitcoin (BTC) was the world’s first cryptocurrency. Since its inception in 2009, bitcoin has grown in leaps and bounds to become a widely adopted digital currency, a popular store of value, and an exciting investment asset. Most first-time crypto investors start with Bitcoin. It’s by far the largest cryptocurrency in terms of market capitalisation, has the most industry support and financial backing, and boasts millions of users across the globe.
- Ethereum’s Ether (ETH) is a popular choice among new investors. Ethereum is the world’s leading smart contract computing platform that enables the development of smart contracts and decentralised applications that operate without the need for centralised authorities. Ethereum is also home to decentralised finance (DeFi), non-fungible tokens (NFTs), blockchain games, and a wide range of other autonomous blockchain applications.
- Cardano (ADA) is an up-and-coming cryptocurrency venture that aims to compete with Ethereum by offering a more affordable and scalable blockchain infrastructure. While Cardano is still relatively young compared to Bitcoin and Ethereum, it boasts a vibrant community, a long list of prolific blockchain partnerships, and a development roadmap where new milestones are reached almost every month.
