Add3, Content
August 7, 2023
15.8 min reading
Today, more than a decade into Bitcoin and blockchain’s history, more people are considering investing in cryptocurrency. Even institutional investors are starting to get in the game. And luckily, it’s easier now than ever to invest.
But there are many considerations to make before you start putting money into the crypto market. This guide will walk you through a basic understanding of buying, trading, and holding crypto.
If you’re looking for ways to diversify your investment portfolio, having a small portion in crypto can be a good choice. Here are some of the pros and cons of buying Bitoin and other altcoins.
Cryptocurrencies are digital currencies that use cryptography to secure their transaction history. There are thousands of cryptocurrencies in existence and it’s possible to buy any of them that you want. However, crypto is so volatile and notorious for scams and rug pulls (when a founder steals all investor funds). For this reason, most investors stick with only the top crypto tokens.
Bitcoin is by far the most popular crypto token, followed by Ethereum. Beyond that, there’s a lot of disagreement about what the best crypto investments are. This is where your own goals, risk tolerance, and research become important.
Some of the top cryptocurrencies are:
One of the major benefits of investing in cryptocurrency is decentralization. Unlike traditional financial systems, cryptocurrencies operate on decentralized networks. This means there's no central authority controlling transactions. Decentralizing increases security but also eliminates the need for intermediaries like banks. Cypro can also enable faster and cheaper transactions.
Many people are also attracted to crypto because of the potential for high returns. However, the cryptocurrency market is known for its volatility. This makes it extremely important to invest carefully. If you only have one rule for investing in crypto, it should be – never invest more than you’re willing to lose.
Lastly, investing in cryptocurrencies is the cutting edge of technological innovation. Blockchain, the underlying technology of cryptocurrencies, is poised to revolutionize multiple industries. From art and NFTs, to supply chains and security, crypto is key to the future of technology. By investing in cryptocurrencies, you become part of this innovative journey.
The first thing you should do before investing in cryptocurrency is set some goals and determine your investment strategy. It’s very important to clarify your reason for investing and set some goals.
For example, do you want to buy crypto and hold it for a long period of time? Do you plan to trade and look for short term gains? Would you like to invest in memecoins or specific crypto ecosystems like DeFi or Web3? You are the only person who can determine your own strategy. And it’s worth taking the time to do some research and settle on a strategy.
Once you’ve written down your investment strategy, it’s time to choose your investment tools. You’ll need a crypto wallet and a crypto exchange to start. Most people make their first crypto trades on centralized exchanges (CEXs), but decentralized exchanges (DEXs) are also easy to use and very popular.
Depending on your location, some exchanges may not be available to you so make sure to check. Some exchanges also require KYC (know your customer) and AML (anti money laundering) standards. This means you may have to submit identity verification documentation. It’s also advisable to look at fees for each exchange and choose the best one for your needs.
If you buy your crypto on a centralized exchange, make sure to transfer it to a self-custody wallet. This will help prevent losses in the event that the exchange loses or locks your funds.
Some wallets to consider are:
Next, you’ll need to decide which crypto tokens you want to buy. Investing in Bitcoin is the obvious first step for many investors. In fact, a lot of people consider themselves Bitcoin maximalists and only invest in Bitcoin.
But there are certainly many opinions if you’re looking to diversify your crypto portfolio. You may want to choose your crypto investments based on your confidence in the future returns of cryptocurrencies. Or, perhaps you decide to choose tokens in a certain ecosystem like Solana projects or metaverse related tokens. This is when it’s important to DYOR (do your own research) and avoid relying on others’ advice.
Trading digital assets can feel overwhelming and it can be very risky. That’s why it’s critical to only invest what you’re willing to lose.
As you plan your crypto portfolio, take time for performing due diligence on founders and teams behind tokens you like. Crypto has a reputation for scammers and grifters trying to defraud investors. And, because the crypto industry is largely unregulated, scams can be difficult to spot. If you spend time understanding who started a project and what their vision is, you can avoid obvious scams.
Once you’ve researched potential crypto investments, it’s time to allocate your portfolio. There are several strategies you can take. If you’re a Bitcoin or Ethereum maximalist, crypto portfolio allocation is easy – you simply have 100% in one coin.
However, many people prefer to diversify. Some compose their portfolio with 60% Bitcoin, 30% Ethereum, and 10% altcoins. Others prefer to “degen” into altcoins, hoping to find a 100x return. How you allocate your portfolio is up to you. But make sure to set realistic expectations and have some long-term goals.
“Hodlers” are investors who buy crypto and hold it for the long term. Traders buy and sell crypto regularly. Depending on your risk tolerance and trading skill, you may choose one or the other. Just remember that you will likely have tax implications for all crypto transactions, depending on where you live.
Security is extremely important when investing in cryptocurrencies. In fact, whatever you’re doing for security – it’s probably a good idea to do more. Not only is there volatility in cryptocurrencies, it’s also very easy to lose crypto investments by user error or hacking and scams.
Here are some of the most important things you can do to secure your crypto:
You should also plan ahead to to avoid scams and fraudulent activities. Do this by thoroughly vetting projects before you invest in them. Ensure you’re following security best practices to avoid getting your wallet drained by hackers and scammers. And keep your crypto keys safe at all costs.
More important things to understand about investing in cryptocurrency are dealing with market volatility and managing emotions. Because prices can move so fast, it’s easy to get taken on an emotional rollercoaster. This is when it’s imperative to set an investment strategy and stick to it, removing emotions from the equation.
After you’ve researched crypto, planned your investment strategy, and bought some crypto tokens, you’re not done. Crypto space moves fast and staying updated on news and market trends will help you manage your investments.
Some investors buy crypto, put it in a wallet, and forget about it. Sometimes this works out, other times it doesn’t. For most crypto enthusiasts, it becomes important to read crypto headlines and possibly even follow crypto Twitter (CT).
Listening to industry experts, podcasts, and joining communities are also great ways to get involved in the crypto industry. The more involved you are, the more comfortable you can become with your crypto portfolio.
One of the frustrations crypto investors face is a lack of regulatory clarity for the crypto industry. In many jurisdictions, there are not clear laws and regulations about how crypto fits into the larger financial system. However, that doesn’t mean you won’t have to pay taxes.
Depending on the country you live in, there are different tax implications and regulations. It’s worth consulting a tax professional or accountant before making any crypto investments. Keeping detailed documentation or all your crypto transactions is also something you should do from the very beginning.
Crypto investors should also be aware of local regulations and legal frameworks. For example, some apps and exchanges are not legal in certain countries or states. Make sure you understand what is and is not allowed in your location.
Beyond simply buying and trading crypto tokens, there are other ways to invest in crypto. Here are a few of the popular ways to get crypto exposure without buying tokens.
Crypto futures are contracts that allow traders to speculate on the future price of a cryptocurrency. It's like making a bet on whether the price will go up or down. With crypto futures, you don't actually own the underlying asset, but you're betting on its future value.
Crypto funds are investment pools that let you invest in a bunch of different cryptocurrencies all at once. These are similar to index funds. Crypto funds are managed by professionals who handle the buying and selling for you.
Crypto exchange or broker stocks are shares of companies that run cryptocurrency exchanges or provide brokerage services.These companies facilitate the buying, selling, and trading of cryptocurrencies. They allow you to indirectly invest in the crypto market's growth.
Blockchain ETFs are investment funds that track the performance of various companies involved in blockchain technology. This can give you exposure to the broader blockchain industry without buying individual stocks.
Now let’s address some common questions that many new crypto investors have. There’s an infinite amount to learn about the ever-changing crypto space, but getting a good foundation starts with the basics.
Yes, investing in cryptocurrency comes with risks. The market is highly volatile, and prices can fluctuate dramatically. Always carefully evaluate your risk tolerance and invest only what you can afford to lose.
To choose a cryptocurrency exchange, consider factors like security measures, user interface, available cryptocurrencies, fees, and customer support. Research and compare different exchanges before making a decision.
A digital wallet is a secure place to store your cryptocurrencies. You will have a unique address to send and receive funds. It's important to choose a reputable wallet that offers strong security features to protect your investments.
Diversification is generally recommended in cryptocurrency investing. But because so many crypto tokens are considered “shitcoins” and extremely high risk, be very careful investing in any coin.
Always use strong and unique passwords. Enable two-factor authentication, and keep your software and devices updated. Consider using hardware wallets or cold storage options for added protection.
Tax regulations for crypto vary by jurisdiction. Consult with a tax professional or accountant to understand the specific tax obligations and reporting requirements in your location.
Yes, you can start investing in cryptocurrency with a small amount of money. Many cryptocurrencies allow fractional investments, meaning you can buy a fraction of a coin.
Investing in cryptocurrency can feel overwhelming at first. Before you dive in, it helps to read up and do some research. But don’t succumb to analysis paralysis either. Get yourself a crypto wallet and start exploring the various crypto exchanges. You can even begin to slowly dollar cost average (DCA) a small amount every week or month, dipping your toes in the water.
The deeper you get into the crypto industry, the more exciting it can become. Who knows, one day you may even be launching your own crypto coin on a platform like Add3! Many people who start with a curiosity for crypto become enthusiastic members of projects, communities, and DAOs. What are you excited about for your crypto journey?
