Where Investors Are Placing Crypto Bets In 2023

With thousands of cryptocurrencies available, it can be challenging to decide which ones to invest in. The most well-known and original cryptocurrency is Bitcoin, which was created in 2009 and is currently the most valuable. Other popular cryptocurrencies include Ethereum, Tether, Binance Coin, Cardano, and Dogecoin. When choosing which cryptocurrency to invest in, it is important to consider the coin's purpose, market capitalization, and the exchanges where it is listed. Additionally, due diligence is necessary to ensure that any crypto project is legitimate and secure.

How to buy cryptocurrency

There are several ways to buy cryptocurrency, including:

• Cryptocurrency wallet apps, such as the Bitcoin.com Wallet app.
• Brokerages, like eToro.
• Cryptocurrency centralized exchanges (CEXs), like Coinbase, Kraken, Bitstamp, Gemini, Binance, and Bitfinex.
• Peer-to-peer crypto exchange platforms, like Peach Bitcoin.
• Apps, like Cash App.
• Financial derivatives, such as CME's Bitcoin futures.
• Other instruments, such as Bitcoin trusts and Bitcoin ETFs.

• Choose a broker or crypto exchange: There are several well-known cryptocurrency exchanges, including Coinbase, Gemini, and Binance.US. These platforms may have complex interfaces that can be intimidating for new crypto investors. Cryptocurrency brokers, on the other hand, offer user-friendly interfaces but may charge higher fees.
• Create and verify your account: Depending on the platform and the amount you plan to buy, you may need to verify your identity to prevent fraud and meet regulatory requirements. This may include submitting a copy of your driver's license or passport.
• Deposit cash to invest: You can deposit money into your crypto account by linking your bank account, authorizing a wire transfer, or using a debit or credit card. Credit card purchases, however, can be extremely risky and expensive due to higher interest rates and additional cash advance fees.
• Place your cryptocurrency order: With the funds in your account, you can place your first cryptocurrency order. You can choose from hundreds of cryptocurrencies, including well-known names like Bitcoin and Ethereum, or more obscure cryptos like Theta Fuel or Holo. You can also purchase fractional shares of cryptocurrency on most exchanges and brokerages.
• Select a storage method: Cryptocurrency exchanges are not insured by the Federal Deposit Insurance Corp. (FDIC) and are at risk of theft or hacking. Therefore, it is essential to choose a secure storage place for your cryptocurrencies. You can leave your crypto on the exchange, use a hot wallet (online crypto wallet), or a cold wallet (offline crypto wallet).

How to store cryptocurrency

When it comes to storing cryptocurrency, there are several options available, each with its own advantages and drawbacks. Here are some detailed instructions on how to store your digital assets securely:

Understand the Different Types of Wallets:

• Custodial Wallets: These are wallets where a third party, such as a crypto exchange, holds your cryptocurrency for you. They can be hot (online) or cold (offline) wallets, or a combination of both. While they are convenient, you are relying on the security measures of the third party, and there is a risk of them being targeted by hackers. Examples include Coinbase, Gemini, and Robinhood.
• Non-Custodial Wallets: With these wallets, you are solely responsible for storing your private keys. They can also be hot or cold wallets. Hot wallets are more vulnerable to hacking, while cold wallets are considered safer as they are not connected to the internet. Examples include hardware wallets like Ledger Nano X or Trezor Model T.
• Hardware Wallets: These are physical devices, similar to USB drives, that store your cryptocurrency offline. They are considered highly secure, especially when disconnected from the internet. However, they may be less convenient for frequent traders.
• Software Wallets: These are typically browser extensions or mobile, desktop, or web applications. They are easily accessible but carry a higher risk of being hacked.
• Paper Wallets: A simple and cost-effective method is to print out your public and private keys as a paper wallet. However, this option is less user-friendly, and there is a risk of losing the paper or it being stolen.

Choose the Right Wallet for Your Needs:

• For long-term storage of large amounts of cryptocurrency, a cold wallet, such as a hardware wallet or paper wallet, is recommended.
• For smaller amounts that you plan to trade frequently, a hot wallet, such as a software application, can provide easy access and quick transactions.

Security Measures:

• Never share your private keys or seed phrases with anyone.
• Physically record your recovery phrases and store them in a secure location that only you can access.
• Keep your software and operating systems up to date to patch security vulnerabilities.
• Use multi-signature transactions, which require approval from multiple people, to add an extra layer of security.
• Be cautious of phishing attempts and scams aimed at tricking you into sharing your sensitive information.
• Regularly back up your wallet to prevent loss due to computer failure or other issues.

Best Practices:

• It is recommended to use multiple wallets for different purposes. For example, you can use a hardware wallet for most of your holdings and a hot wallet for smaller amounts that you want to keep easily accessible for trading.
• Only keep the amount of cryptocurrency you plan to use in your hot wallet, and transfer the rest back to cold storage after each transaction.
• When choosing a crypto exchange or platform, prioritize those with high security standards and insurance policies to protect your funds.

The pros and cons of investing in cryptocurrencies

Pros:

• Secure and decentralised transactions: Cryptocurrencies are supported by secure, decentralised blockchain technology, independent of traditional banking systems.
• 24/7 trading: Crypto markets are always open, meaning you can trade at any time, any day.
• Potential for high returns: Cryptocurrencies can experience sudden spikes in value, leading to hefty returns for investors.
• Protection from inflation: Most cryptocurrencies have a fixed supply, meaning their value can increase with demand and protect against inflation.
• Lower transaction fees: Cryptocurrencies can lower transaction fees when compared to traditional online payment methods.
• Accessible and inclusive: Anyone with a smartphone and internet access can participate in the global financial system, opening up opportunities for economic empowerment and inclusion.

Cons:

• Extreme price volatility: Cryptocurrency prices can be extremely volatile and vulnerable to speculation, price fluctuations, and even a single tweet.
• Uncertain long-term viability: Cryptocurrencies have only been around for just over a decade, so it's uncertain whether they will remain viable in the long term.
• Scalability issues: As the blockchain reaches its capacity limitations, it can slow down the rate at which transactions are processed.
• Security risks: While cryptocurrencies themselves are secure, the exchanges and wallets where they are traded and stored can be vulnerable to hacking, phishing, and other malicious attempts.
• Uncertain regulations: The regulatory landscape around cryptocurrencies is still evolving, creating uncertainty for investors and businesses.
• High energy consumption: Cryptocurrency mining requires a lot of computational power and electricity, leading to high energy consumption and environmental concerns.

The future of cryptocurrency

Firstly, the number of cryptocurrency investors has been steadily increasing, and the profile of these investors has evolved. Everyday consumers, particularly older ones, have begun to view crypto as a way to pad their portfolios with potentially rewarding, albeit risky, assets. This shift has been accelerated by the rise of meme stocks and the distribution of stimulus checks during the pandemic.

Secondly, the entry of corporations and institutional money into the crypto market has changed the power structure. Crypto was initially created to shake up the exclusive world of finance and create a widely accessible way to move money. However, the mining network has become dominated by a few companies with the resources to mine at scale, making it difficult for independent users to participate.

Thirdly, the regulatory landscape is evolving. While governments have traditionally taken a hands-off approach to cryptocurrency, there is increasing support for regulation, including from investors. The Biden administration in the US, for example, has assembled a team to steer the cryptocurrency regulation process. However, investors worry that regulation could limit the peer-to-peer nature of crypto and its anonymity, which were part of its initial appeal.

Finally, the environmental impact of cryptocurrency has come under scrutiny. Crypto enthusiasts value the decentralised and democratic nature of crypto, but mining consumes large amounts of energy and has a significant carbon footprint.

In conclusion, the future of cryptocurrency is difficult to predict. It will depend on how these various factors play out, including the balance between regulation and the preservation of crypto's unique characteristics, as well as addressing its environmental impact.

The risks of investing in cryptocurrency

There are several risks associated with investing in cryptocurrency. Here are some key considerations:

• Price Volatility: Cryptocurrencies are known for their extreme price volatility, with sharp and sudden swings in value. This makes it challenging for investors to build confidence and secure gains. Volatility is driven by market sentiment, speculation, and manipulation. The unregulated and anonymous nature of digital asset markets contributes to price fluctuations.
• Unregulated Market: Cryptocurrencies are currently unregulated by governments and central banks, creating uncertainty for investors. The lack of regulatory frameworks also means there is a risk of future restrictions or bans on cryptocurrencies.
• Security Risks: Cryptocurrency exchanges and personal wallets are susceptible to hacking and theft. Investors may not be able to recover lost or stolen assets, and transactions cannot be reversed. Cryptocurrencies also lack official safeguards or insurance typically associated with traditional investing.
• Technical and Human Errors: There is no foolproof method to prevent technical glitches or human errors, which can lead to financial losses.
• Forks and Discontinuation: Cryptocurrency trading carries the risk of hard forks or discontinuation, which can impact the value of investments.
• Limited Market Adoption: Cryptocurrencies are still in their infancy, and market adoption remains low due to regulatory concerns, technology shortfalls, public misunderstandings, and the emerging nature of the technology. There is a chance that this asset class may never be broadly adopted, leading to a complete loss of value.
• Tax Treatment: The tax treatment of cryptocurrencies varies across jurisdictions, and the lack of clear regulations can deter investors.
• Network Slow-Down: Cryptocurrencies like Bitcoin rely on mining to create new coins and verify transactions. If the rewards for mining are insufficient or there is a high volume of transactions, the network may experience slowdowns.
• Competition and Forks: The emergence of competing cryptocurrencies or forks in the blockchain can dilute the value of existing coins.
• Loss of Private Key: Cryptocurrencies are typically stored in digital wallets secured by a private key. If the private key is lost, destroyed, or compromised, investors may lose access to their digital assets.
• Peer-to-Peer Transaction Risks: Digital currencies can be traded on various platforms, including unregulated marketplaces that do not provide clearing or intermediary services. In such cases, all transaction risks are borne by the parties directly involved.
• Trading Platform Risks: Digital currency trading platforms often provide limited transparency and are largely unregulated. Investors may face challenges in being compensated for losses due to fraud, business failure, or security breaches.
• Loss of Confidence: Cryptocurrencies are not backed by central banks or other traditional financial institutions. Their value is determined solely by market participants, so a loss of confidence could lead to a collapse in trading activities and a sharp drop in value.
• Currency-Conversion Risks: Policies or interruptions in depositing or withdrawing fiat currency from trading platforms can impact investors' ability to convert between fiat and cryptocurrencies.
• Taxation: The tax treatment of cryptocurrencies varies across jurisdictions, and there is uncertainty regarding whether they are considered assets or currency. Investors may face unexpected tax liabilities.

These risks highlight the speculative and volatile nature of the cryptocurrency market. It is crucial for investors to thoroughly understand these risks and consider their risk tolerance before investing in cryptocurrencies.

Frequently asked questions