Is Now A Good Time For Crypto Investment?

Investing in cryptocurrencies is risky due to the potential for high losses from security breaches. However, it can also be lucrative. For instance, the price of Bitcoin has grown by 11,280% since May 2016.

There are several ways to invest in crypto, from buying coins directly to investing in crypto funds and companies. You can also buy crypto through an exchange or a broker-dealer.

If you're thinking about investing in crypto, it's important to do your research and understand the risks. Make sure you only invest money you can afford to lose, and consider the long-term outlook and your tolerance for risk.

Crypto's volatile nature: a double-edged sword

Cryptos Volatile Nature: A Double-Edged Sword

Cryptocurrencies are widely considered to be highly volatile assets. This volatility is mainly due to the crypto market being relatively new and still in its high growth phase. The total crypto market cap is a fraction of the size of the U.S. stock market, and the asset class is still considered an outlier compared to traditional assets.

The Risks of Volatility

Volatility is a measure of how much the price of an asset has moved up or down over time. Generally, the more volatile an asset is, the riskier it is considered to be as an investment. Crypto's volatile nature means it carries a high level of risk, with the potential for significant upward and downward movements over shorter time periods. This volatility is further exacerbated by the relatively small size of the crypto market, which results in less liquidity and depth to accommodate larger traders.

The Rewards of Volatility

However, the volatile nature of crypto also presents opportunities for higher returns. The potential for significant gains is a major attraction for investors, who are willing to assume greater risk for the chance of netting a profit. Additionally, the high volatility of crypto creates opportunities for short-term trading strategies such as "buying the dip".

Factors Affecting Crypto Volatility

Several factors contribute to crypto volatility, including news events, speculation, and unique characteristics of the crypto market, such as the lack of comprehensive regulation and the 24/7 trading cycle. Another critical factor is the distribution between supply and demand, which can create conditions where sudden increased demand can put even greater upward pressure on prices, as seen with Bitcoin's limited supply cap.

Managing the Risks of Volatility

Investing in cryptocurrency carries inherent risks due to its volatile nature. It is crucial for investors to carefully consider their risk tolerance and conduct thorough research before investing. Diversification and dollar-cost averaging are strategies that can help mitigate the risks associated with crypto volatility. Additionally, investors can explore stablecoins, which are designed to have lower volatility by pegging their price to a reserve asset like the U.S. dollar.

Crypto wallets: storing your assets

Crypto wallets are essential for storing your assets. When you buy crypto, you're issued with a public key and a private key. The public key is like a bank account number that you can share with third parties to receive crypto without compromising your assets. The private key, on the other hand, signs transactions and allows you to send and receive crypto. It's crucial to keep your private key secure and secret, as anyone who has access to it will also have access to your crypto assets.

There are several types of crypto wallets, each with its own benefits and drawbacks. Hot wallets, for example, are connected to the internet and are usually convenient to use. However, they are vulnerable to online attacks. Examples of hot wallets include web-based, mobile, and desktop wallets. Cold wallets, on the other hand, keep your private keys offline and out of reach of online threats. Examples of cold wallets include paper and hardware wallets.

Another way to categorise crypto wallets is by whether they are custodial or non-custodial. In a custodial wallet, a third party controls your private keys and, therefore, your assets. In contrast, non-custodial wallets give you full ownership and control of your crypto and its associated private keys.

When choosing a crypto wallet, it's important to consider the level of security and convenience that best suits your needs. For example, if you plan to actively trade or use your crypto frequently, a hot wallet might be more convenient due to its ease of access. On the other hand, if you're looking to store a large amount of crypto for the long term, a cold wallet might be more suitable as it provides enhanced security by keeping your private keys offline.

Crypto's regulatory landscape: the good, the bad, and the ugly

Cryptos regulatory landscape: the good, the bad, and the ugly

The regulatory landscape for cryptocurrencies is complex and constantly evolving. While some countries have embraced cryptos and implemented favourable regulations, others have taken a more cautious or restrictive approach, and a few have even banned them outright. Here is an overview of the regulatory landscape, highlighting the good, the bad, and the ugly aspects.

The Good

Some countries have legalized and regulated cryptocurrencies, creating a favourable environment for businesses and investors. These countries often have strong innovation-driven economies and recognize the potential of blockchain technology. Here are some examples:

• The United Kingdom: All crypto-related businesses must register with the Financial Conduct Authority, and they can apply for the 'Authorized Payment Institutions' license. Crypto businesses also have to comply with anti-money laundering (AML) and counter-terrorism financing (CFT) measures.
• Singapore: Trading in cryptocurrencies is legal and regulated by the Monetary Authority of Singapore under the Payment Services Act. Cryptocurrency businesses must obtain a license to operate, and public offerings or issues of digital coins are regulated under the Securities and Futures Act.
• Canada: The Canadian Securities Administrators (CSA) have clarified that securities law requirements will apply to crypto businesses, and money laundering laws require entities dealing in virtual currency to register with the Financial Transactions and Reports Analysis Centre of Canada and implement AML/CFT measures.
• Indonesia: After initially banning cryptocurrencies, Indonesia legalized crypto asset trading as commodities under the supervision of its Commodity Futures Trading Regulatory Agency. Entities dealing in crypto assets must comply with AML/CFT norms and report to the Indonesian Financial Transaction Reports and Analysis Center.

These countries provide a regulatory framework that helps to protect investors, combat financial crimes, and promote innovation in the crypto space.

The Bad

Some countries have proposed regulations or are in the process of developing them. While this shows a willingness to embrace cryptocurrencies, the lack of clear and established rules can create uncertainty for businesses and investors. Here are a few examples:

• United States of America: Some states, like New York and Wyoming, have taken steps to regulate cryptocurrencies, while others are considering laws to do so. The federal government has also issued draft laws and strategies to combat illicit uses of cryptocurrencies and promote law enforcement expertise in this area.
• Pakistan: The State Bank of Pakistan initially advised against the use of virtual currencies but later stated that its circular was not meant to ban crypto but to caution citizens about its unregulated use. The Securities and Exchange Commission of Pakistan has also published a position paper proposing measures for regulating cryptocurrencies.
• Brazil: A bill aiming to define and regulate cryptocurrencies is currently under discussion in the Brazilian Parliament. Cryptocurrencies are recognized as financial assets, and transactions above a certain threshold must be reported to tax authorities.

While these countries are moving towards regulation, the lack of finalized laws and consistent standards across different states or regions can create challenges and slow down the adoption of cryptocurrencies.

The Ugly

A few countries have taken a hard line against cryptocurrencies and banned them outright. These countries often have regressive economic and social policies, and their actions can create significant challenges for crypto enthusiasts and businesses. Here are some examples:

• China: While China has not prohibited its citizens from holding or transacting in cryptocurrencies, it has severely restricted the ownership and use of crypto assets. Financial institutions are required to sever all ties with crypto exchanges and custodians.
• Bangladesh: The central bank of Bangladesh issued a notice in 2017 stating that cryptocurrencies are illegal in the country, as they violate existing foreign exchange, money laundering, and terrorist financing regulations.
• Algeria: Algeria has prohibited the purchase, sale, use, and possession of virtual currency, making it a punishable offence.

These countries' actions can create significant barriers for the development and adoption of cryptocurrencies, and they may miss out on the potential benefits of blockchain technology and innovation.

Crypto mining: what it is and how it works

Crypto mining is the process of validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger. Crypto mining also involves creating new coins as rewards for miners who secure the network. Miners are responsible for preventing the double-spending of digital currency on a distributed network.

Crypto mining is similar to mining precious metals. While miners of precious metals unearth gold, silver, or diamonds, crypto miners trigger the release of new coins into circulation. Crypto miners use machines to solve complex mathematical equations in the form of cryptographic hashes. A hash is a truncated digital signature of a chunk of data that is generated to secure data transferred on a public network. Miners compete to be the first to crack the code and receive the reward.

Each block in the blockchain uses a hash function to refer to the previous block, forming an unbroken chain that can be easily verified by peers on the network. Over time, as miners deploy more advanced machines, the difficulty of the equations on the network increases, along with competition among miners, increasing the scarcity of cryptocurrency.

To start mining cryptocurrencies, you need computers with special software specifically designed to solve complicated cryptographic mathematic equations. In the early days of Bitcoin, mining could be done using a simple CPU chip on a home computer. However, over the years, CPU chips have become impractical due to increasing difficulty levels. Today, mining cryptocurrencies requires a specialized GPU or an application-specific integrated circuit (ASIC) miner.

There are different methods of mining cryptocurrencies, such as CPU mining, GPU mining, and ASIC mining. Each method varies in terms of computational power, cooling requirements, and cost. Cloud mining is also becoming a popular option, allowing individual miners to leverage the power of major corporations and dedicated crypto-mining facilities.

Mining pools are another important aspect of crypto mining, where miners combine their computational resources to increase their chances of finding and mining blocks on a blockchain. The reward for a successful block is distributed across the mining pool based on the amount of resources contributed by each miner.

Crypto mining requires substantial hardware and software investments, and it is important to consider the hash rate, electric power consumption, and overall costs when deciding whether to mine cryptocurrencies. Additionally, the legality and tax implications of crypto mining vary across jurisdictions and should be carefully considered before starting.

Crypto investing 101: how to get started

Understanding Cryptocurrency

Cryptocurrency is a digital currency that operates outside the regulation of governments and financial institutions. It is secured by blockchain technology, which makes it transparent, secure, and resistant to fraud. The first cryptocurrency, Bitcoin, was introduced in 2009, and since then, thousands of others have been created.

There are several benefits to investing in cryptocurrency, including its decentralised nature, accessibility, and potential for high returns. It can also act as a hedge against inflation and currency devaluation. Additionally, crypto can be used to diversify investment portfolios as its performance doesn't always correlate with traditional assets.

Risks of Crypto Investing

The most significant risk of investing in crypto is market volatility. Crypto prices can fluctuate dramatically due to various factors, including technological developments, market sentiment, and global economic events. Regulatory changes can also impact the value and legal status of cryptocurrencies. Security is another concern, as scams and fraud are prevalent in the crypto space.

Getting Started with Crypto Investing

• Pick a Broker or Cryptocurrency Exchange: You can purchase crypto through a broker, such as Robinhood or SoFi, or a cryptocurrency exchange like Coinbase, Gemini, or Binance. Brokers may be more user-friendly but often charge higher fees.
• Set Up an Account: You'll need to provide personal information, such as a driver's license or passport, to verify your identity when creating an account.
• Add Funds to Invest: Fund your account using methods like bank transfers, wire transfers, or debit/credit cards. Avoid using credit cards as they often categorise crypto purchases as cash advances with high interest rates and extra fees.
• Initiate Your Crypto Transaction: Decide on the cryptocurrency you want to buy and specify the quantity. Many exchanges allow purchasing fractional shares of high-value cryptos.
• Secure Your Crypto: Cryptocurrency exchanges are vulnerable to theft, so consider using a hot wallet (software-based) or a cold wallet (hardware-based) to store your crypto securely.

Crypto Investing Strategies

There are several investment strategies for crypto, including:

• Long-Term Holding (HODLing): Buying and holding crypto for the long term, regardless of market fluctuations.
• Regular Buying through Dollar-Cost Averaging (DCA): Investing a fixed amount regularly to mitigate the impact of volatility.
• Swing Trading: Holding crypto for a short period to capitalise on expected market shifts.
• Day Trading: Buying and selling crypto within the same day, requiring constant market analysis.
• Intelligent Portfolios: Using platforms that offer automated, data-driven investment decisions and diversified asset allocation.

Final Tips

• Start small: Begin with smaller investments and gradually increase your exposure as you gain experience and confidence.
• Monitor and manage your investments: Keep track of market trends and regulatory news, and adapt your strategy accordingly.
• Only invest what you can afford to lose: Crypto investing is risky, so don't put in more money than you are willing to lose.

Frequently asked questions