Against the backdrop of global instability and volatility of the fiat money exchange rate, many people are thinking about increasing their savings with the help of cryptocurrency assets. Although the crypto market is also unstable, there is an opportunity to make a profit by making the right choice of projects and careful diversification — both between investment methods and between currencies.
In this article, we will tell you how to start investing in cryptocurrencies — what you need for this, what investment options exist, and much more useful information. Let’s get started!
Getting Started: Creating a Crypto Wallet
Any digital currency is stored in a special wallet. To be more precise, a crypto wallet stores the keys to it and the history of transactions, on the basis of which the balance is formed (the difference between received and sent coins).
Choosing a good and secure crypto wallet is very important. Many services, for example, centralized crypto exchanges, offer custodial accounts. That is, they control keys themselves and users’ funds. We do not recommend giving preference to this method, even though it is convenient and requires minimal technical knowledge.
Centralized services tend to close, fall under sanctions, block accounts, be attacked by hackers, etc. If you do not want to lose your money, store only the amount you are currently trading on exchanges, and withdraw the rest to an autonomous decentralized wallet. Here are the main types of crypto wallets:
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- Desktop. A program for a computer/laptop that saves keys on a device itself. Examples: Bitcoin Core, Jaxx, Atomic Wallet, Wasabi.
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- Mobile. It is essentially similar to the previous one but is installed as an app on a tablet/phone. Keys are also stored by a user. Examples: Trust Wallet, Trustee, MyEtherWallet.
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- Online wallets. They can be both custodial and non-custodial. Make sure to clarify this issue before using. Web wallets do not need to be downloaded, and they work from a browser. This also includes browser extensions. Examples: Blockchain, MathWallet, Guarda, Metamask, Binance Chain Wallet.
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- Hardware. Keys are stored on a physical device that resembles a USB flash drive, and in addition to cryptographic methods, they are also protected by a pin code in case of loss so that a finder cannot use it. Examples: Ledger, Trezor, Keepkey, SafePal, Coolwallet.
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- Paper wallets are also a physical storage option but less convenient and safe than hardware wallets. In this case, keys are simply printed on paper and stored in a safe place. When you need to use cryptocurrency, you need to upload keys to a software wallet that supports this function.
Key Types of Investment to Know
Now let’s consider the main ways to start investing in cryptocurrencies. All of them are very different and vary in risk degree. Let’s get started!
#1 Hodling
Hodler investors hold assets without selling them for a long time (up to several years) to profit from appreciation in the long term. This is their key difference from traders who rely on short-term profits, albeit lower ones.
Due to the high volatility of cryptocurrencies, traders have plenty of opportunities to open long and short positions frequently. However, hodling provides more security for investors, protecting them from the effects of short-term volatility and mistakes.
#2 Short Term Investment
Short-term investment means investments of the following types:
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- For a few hours. For example, you may trade during the day, fixing profit before going to bed. In traditional markets, a trading day usually ends at 4-7 PM local time, but the cryptocurrency market is available 24/7, so you can determine convenient hours of day trading.
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- For several days. The difference is that here you leave your positions for the night. Typically, range trading is used, that is, within the minimum and maximum prices for the period. Still, you need to conduct a technical analysis to determine the range correctly.
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- For a few weeks. This is similar to position trading in traditional markets. It is still shorter than a long-term investment strategy but longer than day trading and differs in the average level of risk. It is important to identify the market trend and move up or down until the price reaches a resistance or support level.
A resistance level is a conditional market barrier above which the rate cannot rise at the moment and bounces down from it. Accordingly, the resistance level is the same but in the opposite direction. This is the price below which a coin does not fall.
#3 Trading
Trading is a way of investing in cryptocurrencies by speculating on price movements. The high volatility of cryptocurrencies helps greatly since high earnings would be unrealistic without it. But risks are much higher than when trading with less volatile assets.
A trader can open:
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- Long positions if they think that the value of cryptocurrency will rise.
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- Short positions if they think that the value will fall.
Leverage is also an important tool. To start, it is not necessary to have a large deposit — you can get full access to the underlying market using margin trading, that is, using a ‘loan’ from an exchange.
In addition, to increase profits and reduce risks, many traders use derivative contracts (futures, perpetual contracts, options). A derivative tool derives its value from the price of another asset, in this case, a particular cryptocurrency.
Before you start trading, make sure you have a good understanding of the market mechanics, technical analysis, and price movement of different cryptocurrencies since bitcoin is far from the only cryptocurrency.
#4 Mining & Cloud Mining
A government or a bank does not issue cryptocurrencies. Users themselves, network members, are responsible for their creation. Mining is a key process in achieving this goal (although this applies to cryptocurrencies running on the Proof-of-Work algorithm).
When users send transactions to each other, miners confirm their validity. Only a confirmed transaction can be added to the blockchain. The new coins produced by the network are rewarded to miners for their work, and they also receive all the commissions from the transactions they verify.
Mining is an energy-intensive computational activity that requires powerful hardware. Among them, there are:
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- ASIC miners;
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- graphic cards;
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- processors.
The more miners in the network, the higher the competition, respectively, a required power level is growing. Therefore, you need to prepare for significant investments.
Cloud mining is renting equipment from a company. A renter receives income from mining minus a commission. The commission covers the cost of rent, maintenance of equipment and electricity, etc.
We recommend using Hashing24, a cloud mining contract provider for individuals who want to get involved in bitcoin mining. The Hashing24 team has been involved in a mining activity since 2012. Its initial mining power supplier is one of the industry’s leaders — BitFury.
#5 Staking
Staking is another option for confirming transactions and rewarding users. It is used in systems with a Proof-of-Stake algorithm.
Here, a user just needs to keep a cryptocurrency in a wallet in a locked form for a certain period. The larger the amount and the longer the term, the higher the chance this particular staker will be chosen to verify a transaction.
Examples of promising PoS cryptocurrencies:
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- Cosmos
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- Fantom
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- Algorand
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- Harmony
A staking function is supported by some wallets, pools, and crypto exchanges.
#6 Initial Exchange Offering (IEO)
Earlier, especially in 2017, ICO (initial coin offering) was a common way to invest in cryptocurrencies. A new project raised funds for its development and gave investors tokens that could become potentially valuable in return. Although some projects launched in this way did become successful, the vast majority failed, and investors’ money was lost.
IEO (initial exchange offering) is an advanced fundraising option. It passes under the control of a cryptocurrency exchange, which takes over an initial check of a project for quality and prospects. In addition, it is easy to participate in IEO — it is enough to have an account on a stock exchange.
Exchanges with IEO platforms: Binance, Bybit, OKX, Huobi.
#7 Investing in Metaverse Projects
Blockchain-based virtual worlds (metaverses) provide many investment opportunities. At the same time, there are significant risks since the sphere is relatively new and unpredictable.
Here are three main options for investing in the metaverse sector:
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- Buying native tokens. If a project develops actively, then its tokens will grow in price. In addition, these tokens can be used to access various features of the virtual world and trade items on its platform.
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- Purchase of in-game land plots. The worlds are made up of individual land plots that come in the form of NFT tokens and can be used by players at their discretion. Once you buy land, you can rent it out or resell it later at a higher price. Prices are rising since the total number of plots is limited.
Examples of blockchain projects with metaverses: Decentraland, The Sandbox, Axie Infinity, MOBOX.
#8 Investments in NFTs
NFT tokens are a unique blockchain representation of any digital or physical item. The most common options are art objects in the form of NFTs (arts, paintings, drawings) or in-game items (weapons, skins).
NFTs can rise in value significantly, but not always. Thus, it is also a risky investment. Such tokens are traded on specialized marketplaces, for example, OpenSea, Binance NFT, Rarible.
#9 DeFi Farming
Decentralized Finance (DeFi) is a blockchain-based financial service that eliminates the need for intermediaries for transactions. This direction has become incredibly popular in 2020 and has opened up many opportunities for investors to earn money.
Yield farming is earnings on liquidity supply to various decentralized services. Suppliers provide tokens or coins to a liquidity pool, a smart contract that contains all the funds. When liquidity providers block assets in a pool, they immediately begin to receive commissions or interest from actions of other users in this pool (credit operations, trading).
In short, this allows you to receive passive income in a decentralized way, without intermediaries. The profit is immediately credited to a connected crypto wallet.
Examples of decentralized apps with the possibility of yield farming:
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- Compound
Usually, a platform pays out profits in its native tokens. Some of these tokens significantly grow in value and also provide an opportunity to participate in project management.
#10 Investments in Stablecoins
Before you start investing in high-risk cryptocurrencies, you can master low-risk investments. Stablecoins are coins whose exchange rate is pegged to the dollar or another traditional asset. It always stays at the same level, with fluctuations usually no more than 1% in plus or minus. The exception is algorithmic stablecoins, which can sometimes deviate significantly from the norm.
What does investing in stablecoins give if it is almost impossible to make money on fluctuations in their exchange rate?
Firstly, they perfectly cope with the role of auxiliary assets for trading other cryptocurrencies on exchanges. For example, the most popular trading pair among all those existing on the crypto market is BTC/USDT — bitcoin and a dollar stablecoin USDT.
Secondly, they help protect savings from inflation. For example, you can buy USDT for your local currency and store it in a cryptocurrency wallet — it will be much faster, more convenient, and more profitable than buying dollars in a bank.
Thirdly, stablecoins can be used almost everywhere in the cryptosphere: yield farming, buying cryptocurrencies on token sales, investing in metaverses or NFTs, paying for cloud mining contracts, etc. That is, these are universal assets, without which it is difficult to imagine the modern blockchain industry.
How to Choose a Cryptocurrency for Investment?
A classic option for a novice crypto investor is to build a portfolio of 10-15 top cryptocurrencies by market cap. These coins are time-tested, supported by large investors and companies, and enjoy the well-deserved trust of thousands of users.
You can diversify your portfolio with more risky assets. Still, they should be no more than 5-10% of the total amount. These include new tokens that everyone is talking about, but it is not yet certain that they will explode.
Crypto analysts advise avoiding new coins that parasitize on meme coins (dogs, Elon Musk, etc.). It is good if a token already has a working product or if famous people in the blockchain industry support it. Still, you should not blindly follow investment advice from various telegram channels. Most often, their guesses are not confirmed in practice.
Where to Buy Cryptocurrency?
If you’re wondering how to buy some crypto, you should definitely think about doing it at Switchere. Switchere is one of the most reliable online exchanges for buying cryptocurrencies. The company is a licensed financial services provider with guaranteed legal compliance and a secure infrastructure system for fast crypto exchange services at fair prices.
On our platform, you have an opportunity to buy all leading cryptocurrencies in the fastest and most convenient ways using any available payment method. Moreover, we offer some surprising bonuses! Users of our platform enjoy a 0% service fee for the first order.
Also, Switchere is characterized by the fastest order processing and instant delivery — in fact, you get your ordered amount of crypto within minutes after making a payment.
Key Tips for Investing in Cryptocurrencies
Develop a strategy for trading. It should be based on your personal risk tolerance and financial capacity. And most importantly: stick to your strategy no matter what, even if market conditions make it necessary to make an unscheduled trade.
Control risks. Set limits on how much you invest in a particular digital currency. Place stop-loss and take profit orders that automatically close positions when a certain rate level is reached.
Don’t forget to diversify. You should not invest too much in one single cryptocurrency — it is better to distribute money among several coins with varying degrees of volatility.
In most cases, it is better to hold than to sell when it comes to top proven cryptocurrencies. The market is not going anywhere, and in a few weeks or months, there is a chance that you will be able to withdraw more profits.
Use trading bots. These programs allow you to automate trading in accordance with the strategy that is embedded in them. It is very convenient and allows you not to spend all your free time on trading.
Conclusion
Some cryptocurrencies have skyrocketed in value over the past few years. But before you start investing in cryptocurrency, you should carefully evaluate all the risks and your strengths. There is no point in just following the opinions of other traders. The fact that someone makes a good profit is also not decisive. We can say that it is worth entering the crypto market for those who truly believe in blockchain technology and its prospects. Also, you definitely shouldn’t take loans or invest your last money in digital assets.
What was the first cryptocurrency in your crypto portfolio? Feel free to share your experience in the comment below, and have a great weekend!
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