Crypto Investment Strategies: Making Smart Decisions In A Volatile Market

Investing in trends like crypto can be a daunting task, especially for beginners. However, with the right knowledge and approach, it can be a rewarding venture. Here are some essential things to know before investing in cryptocurrency:

- Understanding the Basics: Cryptocurrency is a digital currency that operates on a decentralised peer-to-peer network, often referred to as a blockchain. It is not regulated by any central authority, and its value depends on market perception.

- Volatility and Risk: Crypto is known for its high volatility, with dramatic price swings. It is a speculative investment, and getting in at the wrong time can lead to significant losses. It's important to be able to stomach price fluctuations and only invest what you're willing to lose.

- Regulation and Security: The crypto industry is evolving, and government regulations are still uncertain. Security is a concern, as online theft and scams are common. It's crucial to research and understand the risks before investing.

- Investment Options: There are various ways to invest in crypto, such as buying it directly, purchasing crypto exchange-traded products (ETPs) or exchange-traded funds (ETFs), or investing in cryptocurrency stocks. Each option has its own risks and considerations.

- Due Diligence: Before investing, conduct thorough research on the project details, your risk profile, and investment goals. Understand the unique investment proposition of each cryptocurrency, be honest about your risk tolerance, and ensure crypto aligns with your larger financial objectives.

- Brokers and Exchanges: Beginners often start by choosing a broker or a cryptocurrency exchange to facilitate their transactions. Brokers like Robinhood and SoFi offer simplicity but may charge higher fees. Exchanges like Coinbase, Gemini, and Binance provide platforms for buying and selling but can be overwhelming for newcomers.

- Storage and Wallets: You can store your crypto on the exchange or transfer it to a crypto wallet, which offers true ownership and added security. Hot wallets are connected to the internet and are more convenient but pose a higher theft risk. Cold wallets, like USBs or hard drives, are offline and provide top-tier security but come with the risk of device failure or losing access codes.

- Diversification: Diversifying your crypto portfolio is essential. You can choose from thousands of altcoins beyond Bitcoin and Ethereum, such as Cardano, XRP, Solana, and Dogecoin. Diversification can increase potential returns and reduce the risk of putting all your eggs in one basket.

Understand the basics of crypto

Cryptocurrency is a virtual or digital currency that can be used as a source of purchasing power. It is also an avenue for investment, and like other investment assets, it can be bought with the objective of financial return.

Cryptocurrency is decentralised, meaning it is not issued, backed, or regulated by a central authority like a government. Units of cryptocurrency, known as coins or tokens, are created digitally through a validation process that relies on blockchain technology. Blockchain is a powerful tool that can be used in a vast array of processes, not just for crypto. It is a distributed ledger technology that produces a secure, encrypted record of the value of each virtual coin and its associated transactions. These records are distributed and linked across the network of parties or computers accessing the blockchain. In theory, anyone with an internet connection can access the blockchain. This system was designed with security, transparency, speed, and accuracy in mind.

While the word cryptocurrency is a generic term for virtual currencies using blockchain technology, there are many different cryptos. As of May 2024, there were over 2.4 million, according to CoinMarketCap.com. Bitcoin was one of the earliest cryptocurrencies created and remains the best known. All other coin-based cryptocurrencies are called "altcoin", or an alternative to bitcoin.

Cryptocurrency offers lower transaction fees, faster transactions, enhanced privacy, and accessibility to financial services for unbanked populations. It is decentralised, meaning it is not governed by a central body, thus lowering the possibility of corruption and centralised control. Every transaction is visible to the public and documented on the blockchain, ensuring accountability and preventing fraud. Cryptocurrencies also employ cryptographic algorithms to protect transactions and make them extremely challenging to counterfeit.

The price volatility of cryptocurrencies is well-known, and their value can fluctuate significantly and quickly, making them potentially risky investments. The landscape of cryptocurrency regulation is continuously evolving, creating uncertainty for users and investors. While cryptocurrencies themselves are secure, the exchanges and platforms that offer crypto trading are susceptible to hacking and other security vulnerabilities.

Research the risks

Before investing in crypto, it is important to be aware of the risks involved. Here are some key risks to consider:

Volatility

The value of cryptocurrencies can fluctuate significantly and is prone to large swings in value over short periods. This volatility is driven by various factors, such as news, tweets, the threat of regulation, and the actions of large crypto investors, which can heavily impact market prices.

Market Manipulation

The unregulated and anonymous nature of digital asset markets makes them susceptible to price manipulation by crypto exchanges, media owners, and influential investors. Strategies such as wash trading, dark pool trading, pump and dumps, and shilling are commonly used to manipulate prices.

Security and Cyber-Security Risks

The decentralised nature of cryptocurrencies means that they are stored in digital wallets, which are vulnerable to online theft and hacking. Security breaches and crypto seizures can also impact the price of cryptocurrencies.

Regulatory and Tax Uncertainty

The lack of clear regulatory frameworks around cryptocurrencies creates uncertainty for investors. There is a concern that future restrictions may impact the value of cryptocurrencies or even lead to bans. Additionally, the tax treatment of cryptocurrencies varies across jurisdictions, and the lack of clear guidance may deter investors.

Loss of Private Key

For cryptocurrencies like Bitcoin, the loss or destruction of the private key associated with a digital wallet can result in the permanent loss of access to the wallet and its contents.

Platform and Exchange Risks

Digital currency trading platforms and exchanges are largely unregulated and provide limited transparency. Cases of fraud, business failure, or security breaches have been reported, and investors may not always be compensated for losses.

Loss of Confidence

As cryptocurrencies are not backed by central banks or national/international organisations, their value is solely determined by market participants. A loss of confidence in digital currencies could lead to a collapse in trading activities and an abrupt drop in value.

Dilution and Competition

The creation of new cryptocurrencies and "forks" in blockchain networks can lead to dilution and competition, impacting the value of existing cryptocurrencies.

Limited Market Adoption

The market adoption of cryptocurrencies remains low due to various factors, including regulatory concerns, technology shortfalls, market volatility, and public misunderstandings. There is a chance that this new asset class may never be broadly adopted, resulting in a complete loss of value.

Consumer Rights and Recovery

In the event of lost or stolen cryptocurrencies, investors cannot recover their assets, and mistaken transactions cannot be reversed. Cryptocurrencies also lack official safeguards or insurance, and rebates on lost investments are dependent on the organisation's discretion.

Country-Specific Risks

Each country has its own regulatory stance on cryptocurrencies, and certain jurisdictions may restrict the right to acquire, own, hold, sell, or use digital currencies. It is important to understand the legal status and any applicable restrictions in your country of residence.

Peer-to-Peer Transaction Risks

Digital currencies can be traded directly between parties without the involvement of intermediaries. In such cases, all risks, such as double-selling, are borne by the transacting parties.

Currency-Conversion Risks

Policies or interruptions in the deposit or withdrawal of fiat currency on trading platforms can impact investors' ability to convert between fiat and digital currencies.

Taxation

There is a lack of clarity on the tax treatment of cryptocurrencies across different jurisdictions. Investors should seek specific tax advice to ensure compliance with the regulations in their home jurisdiction.

Network Slow-Down

A high volume of transactions on a blockchain network can lead to slowdowns in processing and validating blocks, impacting the efficiency of the network.

Complexity and Understanding

The complexity of the cryptocurrency markets and the underlying technology can be challenging to understand for some investors. Making informed investment decisions requires at least a basic knowledge of blockchain technology and the ability to navigate the technical aspects of investing in this space.

Emotional Decision-Making

The volatile nature of cryptocurrencies can lead to emotional decision-making, such as buying when the price is rising out of fear of missing out or selling when prices drop. It is important to approach crypto investing with a long-term perspective and a well-thought-out strategy.

Choose a platform

Choosing a platform to trade cryptocurrencies is an important step in your investment journey. There are several factors to consider when making your decision. Here are some key points to keep in mind:

User Interface and Ease of Use:

Look for a platform with a user-friendly interface that makes it easy to navigate and execute trades. Some platforms, like Gemini, offer a simple and intuitive user experience, making them ideal for beginners.

Security and Protection:

Security is a critical aspect of choosing a crypto trading platform. Ensure the platform has robust security measures in place, such as two-factor authentication, encryption, and cold storage of assets. Gemini, for example, is known for its high-security standards and compliance with regulatory requirements.

Range of Cryptocurrencies:

Consider the number and variety of cryptocurrencies offered by the platform. While some platforms, like Coinbase, provide access to a vast array of coins, others may have a more limited selection. If you're interested in investing in a specific cryptocurrency, ensure the platform supports it.

Fees and Charges:

Trading fees, deposit fees, withdrawal fees, and conversion fees can vary significantly between platforms. Compare the fee structures to find the most cost-effective option for your trading needs. Some platforms, like Binance, offer fee-free trading for certain currency combinations.

Customer Support:

Opt for a platform that provides reliable and responsive customer support. 24/7 support is ideal, especially for beginners who may need assistance during their trading journey.

Regulatory Compliance:

Additional Features:

Some platforms offer unique features such as crypto staking, rewards programs, and educational resources. For example, Coinbase offers educational modules and rewards users with free crypto for completing them.

Reputation and Track Record:

Consider the reputation and track record of the platform. Read reviews, check forums, and look into the platform's history to ensure it has a good standing in the crypto community.

Remember, it's essential to do your own research and compare different platforms before making a decision. Each platform has its own unique features, fees, and offerings, so find one that aligns with your investment goals and risk tolerance.

Set up an account

Setting up an account is the first step to trading crypto. This involves opening a crypto exchange account on a platform that allows users to buy and sell crypto. Examples of the best crypto brokerages on the market include Binance and Coinbase. To open an account, you will need to share some personal information, including your date of birth, personal address, email address, and, in the United States, your Social Security number.

After setting up your crypto exchange account, you will need to fund it. This can be done by connecting your bank account to your trading account and transferring fiat money through bank deposit, debit card, or wire transfer. Wire transfers usually have the lowest fees.

It is important to note that the process of creating a crypto wallet can be overwhelming, so it is recommended to consider factors such as security, fees, the number of supported cryptocurrencies, and customer service when choosing a wallet provider.

Add funds to your account

To add funds to your account, you will need to set up your fiat wallet on the Crypto.com app by adding a bank account directly connected to your profile. Here is a step-by-step guide:

Step 1: Verify Your Crypto.com Trading Account

Log in to your Crypto.com account and verify your identity. Crypto.com KYC Verification is necessary whether you want to sell, store, or add a bank account to your profile. If you fail to complete the verification, transferring money from a financial institution won't be possible.

Step 2: Add Bank Accounts or Fiat Currencies Cards to Your Profile

After verification, you can add a bank account to the Crypto.com app without any major problems. This will allow you to set up your fiat wallet, for instance, in United States dollars. You will also be able to withdraw money using the linked bank account. However, keep in mind that withdrawing money will incur a fee.

Step 3: Start a Bank Account Transfer to Fund Your Crypto.com Profile

Now that your bank account has been added to the app, you can transfer funds from your bank account to your Crypto.com profile. There are two options for doing this: ACH transfers and Wire Transfers. Depending on the option you choose, you will receive a routing number to complete the operation efficiently.

To do this:

• Go to your recently created fiat wallet (it will be available after verification) and tap on "Deposit".
• Select ACH transfer or Wire Transfer. ACH transactions are cheaper, but there will still be fees depending on the amount you want to add.
• Wait for 3 to 5 business days for the money to reach your Crypto.com account.

Remember that you won't be able to withdraw or deposit money on the app if the information of the bank account doesn't match the previously completed user verification process.

Alternative Method: Add Money to Your Crypto Wallet

If you have an external wallet on another exchange but want to sell or manage those funds on Crypto.com, you can fund your account using crypto. Here is how to do it:

Step 1: Complete Verification on the Crypto Exchange

You can't receive funds in your account if you don't complete the verification. Go to the Crypto.com exchange and fill in all the information needed by the platform. If you want to experience a safer environment, be sure to enable multi-factor authentication on your profile.

Step 2: Go to "Transfer", "Deposit" and Look for the Crypto

Now, tap or click on the "Transfer" button and look for the specific crypto you want to fund. Remember that choosing a different wallet might cause your funds to be lost forever.

Step 3: Get the Wallet Deposit Address

Copy the wallet address of the crypto you want to fund. If you are having trouble finding your address, read the Crypto.com Wallet Address blog post. Now, you need to send funds from the external exchange to your wallet address on Crypto.com.

After that, you can sell, withdraw, or do whatever you want with your funds. Alternatively, you can directly sell or buy cryptocurrencies using your bank information, but you would have to follow all the previously mentioned steps in this guide.

Frequently asked questions