A beginner’s guide to cryptocurrency investing is what this article is. It’s no “how-to” guide. Rather, I’ll discuss the very basics of what Cryptocurrency investing is, how to pick the Cryptocurrencies, some technicalities and of course the basic investing rules.
If you’re a complete beginner, this article will clear most of your basic doubts and get you started. If you’re a veteran, well, relive your early days and see if you’ve forgotten something?
Let’s get started then?
What is Cryptocurrency investing?
Because this is a beginner’s guide, let me start from the basics.
Cryptocurrencies are digital assets whose value increases and decreases with time. In the long run, for the past 13 years or so, they’ve had an overall growth though. Massive growth to be exact.
Investing in these Cryptocurrencies is simply buying the right cryptocurrency and selling them when they increase in value. Or of course you can hold them forever.
Do note that “investing” and “trading” aren’t the same thing. Investing generally is for the long run, where you buy a Cryptocurrency and keep holding it for a very long time. Trading on the other hand involves more frequent buying and selling of Cryptocurrencies.
Now for the technicalities, which Cryptocurrencies to invest in? That’s one of the topics we will cover in this piece.
How to pick the right Cryptocurrencies to invest in?
Well, isn’t that the million (or even a Billion) dollar question?
While there’s no magic wand that just tells you the right Cryptocurrencies, there are a few key metrics.
When picking your cryptocurrency, you can look at these metrics:
- Reason to exist: Why does Cryptocurrency exist? Every cryptocurrency that exists has a reason. Sometimes it’s a very stupid reason, but a reason exists. The best coins are those that solve a real-world problem.
- Who’s behind it: Look behind the curtains. Who’s the founder and the team? What’s their history and experience?
- Trade volume & capitalization: Trade volume is the total number of coins that have been traded over X no. of minutes/seconds/days/weeks etc. The higher this is, the better the Cryptocurrency is. Market cap too is a metric that tells us the total value of the coins in circulation for any given coin.
- Regulations: It’s important to understand how the Cryptocurrency is perceived by the government. Some Cryptocurrencies (e.g. Monero) are outright hated by the law while others (BTC, LTC, and so on) have a less negative environment.
There are tons of other key metrics you should look at before picking a coin. However, starting with these points generally is a good stepping stone.
Where to invest in Crypto?
Once you’ve decided which Cryptocurrency to invest in, you’ll need a platform that lets you invest in the cryptocurrency.
This platform is often called an exchange. You can use an exchange to convert one Cryptocurrency into another.Most exchanges first allow you to buy Cryptocurrencies using your fiat money (cards/ online payments/ bank transfers/ P2P etc). that you can later convert to other Cryptocurrencies.
There are two types of exchanges. The more traditional, KYC-requiring exchanges that also are taxed and monitored by third-parties such as the law and govt.
The more anonymous, no-signup exchanges that let you convert cryptocurrencies without any KYC, identification or tax consequences. Exolix is one of my favorite exchanges that functions as an anonymous BTC to XMR exchange but also lets you exchange about a dozen other Cryptocurrencies.
Anonymous exchanges also offer less restrictions on minimum/maximum amounts, do not let geopolitical laws affect you much and are just more in sync with the core Cryptocurrency belief- privacy.
Difference between Exchanges and wallets
A major security risk most new investors run is not knowing the difference between exchanges and wallets.
So, you need an exchange to swap your Cryptocurrency from X to Y or vice-versa. And yes, you can use exchanges to hold your cryptocurrencies for as long as you want.
The problem is, on most traditional exchanges, you do not get the “keys” to your crypto. In other words, the exchange has access to your funds and may run away with it if they want to.
Note: This isn’t true for “all” exchanges. It’s mostly on traditional, centralised exchanges such as Binance. On most anonymous exchanges you still hold your own keys and the exchange has no access to your funds.
On the other hand, wallets are for long term crypto investing. There are multiple types of wallets (software/hardware/paper etc.) The core functioning is the same, that they let you store your cryptocurrency. Unlike an exchange, most wallets do not support instant exchange of one Cryptocurrency to another. What they offer however is more security and almost full anonymity.
In short, use an exchange to invest in the Cryptocurrency of your choice but then you should move your funds to a wallet for long term holding.
Rules of Cryptocurrency investing
Like any other investment, Cryptocurrency investments carry major risks. Well, there are a few rules that should minimise the losses and increase your profits for you:
- Only invest what you can afford to lose. Cryptocurrencies are extremely volatile.
- Do your own research. Social media and online platforms can be very misleading. There are groups whose sole function is to hype one Cryptocurrency that probably doesn’t have any value whatsoever.
- Always set as many security measures as possible for your funds. Both on an exchange and wallet, use 2-FA/rotating OTPs/IP-locks and everything else that’s available.
- Do not put all your eggs in one basket. That’s investing 101. It’s best to diversify your portfolio amongst the coins you most believe in.
Final words- A Beginner’s Guide to Cryptocurrency Investing
I hope you’ve got at least some idea what Cryptocurrency investing is and how to get started. You need to first convert your fiat to a Cryptocurrency supported on the exchange, and then exchange your initial coin to any other coin you wish to invest in.
Be sure to implement the security features and keep in mind the investing rules we’ve discussed above.
Do note that everything on this piece is for educational and research purposes only. Nothing here is financial advice. Do your own research before investing.
