The Crypto Investment Guide: Strategies For Success

Investing in cryptocurrency is a risky business. It's a volatile market, and you could lose all your money. But if you're willing to take the risk, there are big gains to be made.

If you're new to the world of crypto, you'll need to choose a broker or a crypto exchange, such as Coinbase, Gemini, or Binance.US. You'll then need to create and verify your account, deposit cash to invest, and place your first cryptocurrency order.

There are thousands of different cryptocurrencies available, and it can be tricky to know which to invest in. You'll need to do your research, but it's worth noting that Bitcoin is the most widely used cryptocurrency, and it's well-established and widely adopted.

Once you've made your investment, you'll need to store your cryptocurrency in a software or hardware wallet.

Remember, investing in cryptocurrency is risky, so make sure you understand the market before you part with your cash.

Buying crypto outright

The most straightforward way to gain exposure to cryptocurrency is by investing directly in the coins you're interested in. This is most commonly done via a traditional investment platform or crypto exchange.

There are some unique aspects to this strategy. For example, buying crypto outright gives you exposure to the industry in as little as minutes. Entering an order on a traditional investment platform or an exchange can also provide hands-on experience with the buying process, which can be useful for better understanding how crypto works.

However, there are also risks to be aware of. Before buying crypto outright, consider learning the basics of crypto cybersecurity first. Like any digital asset, crypto is vulnerable to online theft. Transferring coins is also a multi-step process where even small errors could mean losing access to investments forever.

• Pick a Broker or Cryptocurrency Exchange: You can purchase bitcoin and other cryptocurrencies either through a broker or a cryptocurrency exchange. Examples of cryptocurrency brokers include Robinhood and SoFi, while cryptocurrency exchanges include Coinbase, Gemini, and Binance.US.
• Set Up an Account: After selecting a cryptocurrency broker or exchange, you will need to create an account. This generally requires signing up and providing personal information to verify your identity, such as your driver's license or passport.
• Add Funds to Invest: Before you can begin investing in crypto, ensure that funds are available in your account. You can add money to your account through various methods, including connecting it to your bank, initiating a wire transfer, or using a debit or credit card for payment.
• Initiate Your Cryptocurrency Transaction: Once your account is funded, decide on the cryptocurrency you wish to buy, enter its symbol (e.g. BTC for bitcoin), and specify the quantity of coins you want to purchase. Many exchanges and brokers permit purchasing fractional shares of cryptocurrencies with high values.
• Keep Your Cryptocurrency Secure: Cryptocurrency exchanges are vulnerable to theft or hacking. Losing or forgetting the access codes to your account could result in the loss of your investment. Thus, keeping your cryptocurrencies in a safe storage place is crucial. You can add an extra layer of protection by using a "hot" or "cold" digital wallet. A hot wallet is accessible via the internet and is generally more convenient, while a cold wallet is a physical storage device, like a USB drive, that keeps your cryptocurrency keys completely offline and more secure.

Buying crypto ETPs or ETFs

There are two ways to gain exposure to the crypto industry through funds: buying crypto exchange-traded products (ETPs) or buying crypto-related exchange-traded funds (ETFs). Both options offer a more indirect route into the crypto market, without needing to buy the coins directly.

Crypto Exchange-Traded Products (ETPs)

Crypto ETPs give you direct exposure to a cryptocurrency's value without needing to buy the coin. This option may be preferable for those unfamiliar with the nuances of crypto cybersecurity. ETPs can be purchased through traditional routes such as brokerage accounts, IRAs, and trusts, which may simplify tax and estate planning considerations. However, it's important to note that ETPs don't provide direct ownership of the cryptocurrency and come with unique trading limitations and investment risks. For example, ETPs can only be traded during traditional market hours, which may be a disadvantage in the fast-paced crypto market. Additionally, spot bitcoin ETPs are still new, and there is a possibility of liquidity issues.

Crypto-Related Exchange-Traded Funds (ETFs)

Crypto-related ETFs offer exposure to a diversified basket of cryptocurrency stocks or the futures of a specific cryptocurrency or a basket of cryptocurrencies. These ETFs provide investors with a more convenient way to invest in the industry as a whole, rather than buying individual coins. Similar to ETPs, ETFs don't provide ownership of actual cryptocurrencies, so they can't be used for transactions. Additionally, the upside associated with individual cryptocurrencies may be diluted due to the diversified nature of ETFs.

Buying crypto stocks

Another way to invest in crypto is by buying individual stocks of companies in the crypto industry. Examples include crypto exchanges, bitcoin mining companies, and banks that provide solutions for crypto companies.

Crypto stocks offer a way for investors to bet on which companies will lead the industry. And while buying crypto on an exchange incurs trading fees, most major brokerages allow you to trade stocks without fees (though they may still charge a spread).

However, buying crypto stocks comes with risks. Crypto's inherent volatility, poor earnings reports, negative industry trends, and other factors can all cause a stock's value to plummet. Less-experienced investors may want to diversify their portfolio by including crypto-related ETFs.

Some examples of crypto stocks include:

• Crypto exchanges: Robinhood, Coinbase, Gemini, and Binance.
• Bitcoin mining companies: These companies provide the infrastructure for mining bitcoin and other cryptocurrencies.
• Banks that provide solutions for crypto companies: This includes traditional banks that have started offering crypto-related services, as well as crypto-focused banks.

Understanding the risks

Volatility and Price Swings

Cryptocurrency prices are highly volatile and can experience dramatic swings. The values of cryptocurrencies, even the most established ones, can fluctuate wildly and are much more unpredictable than stocks or other traditional investments. These price swings can be influenced by various factors, including rumours, regulatory changes, and market trends.

Regulatory Uncertainty

The regulatory environment for cryptocurrency is uncertain and evolving. Changes in government regulations can significantly impact the value and legality of cryptocurrency. In the worst-case scenario, cryptocurrency could become illegal, rendering investments worthless.

Security and Fraud Risks

Cryptocurrency exchanges and investors are vulnerable to theft, hacking, and fraud. The decentralised nature of blockchain technology makes it challenging to recover funds in the event of a security breach. Additionally, the lack of government regulation means transactions may not have legal protection.

Limited Liquidity

The liquidity of cryptocurrencies, especially smaller altcoins, can be limited compared to other asset classes. It may be challenging to convert cryptocurrencies into cash quickly, especially during periods of high market volatility.

Lack of Fundamental Value

Many cryptocurrencies, including Bitcoin, are not backed by any hard assets or the cash flow of an underlying entity. Their value is purely based on market sentiment and the willingness of others to pay more for the asset. This lack of fundamental value means that cryptocurrencies could potentially become worthless if market sentiment shifts negatively.

High-Risk Nature

Investing in cryptocurrency is a speculative and high-risk endeavour. The potential for substantial gains is counterbalanced by the risk of significant losses. It is crucial to remember that there is no guarantee of returns, and the value of investments can plummet.

Emotional Decision-Making

The volatile nature of cryptocurrency can lead to emotional decision-making. Investors may buy out of fear of missing out during price surges or sell out of panic during downturns. It is essential to make informed, rational decisions based on research and strategy rather than emotions.

Tax Consequences

Investing in cryptocurrency has tax implications that investors need to understand. Buying, selling, or using cryptocurrency to purchase goods and services can trigger taxable events, and it is important to consider the potential tax burden when investing.

Cybersecurity Risks

As with any digital asset, cryptocurrency is susceptible to online theft and cybersecurity risks. Investors need to prioritise cybersecurity measures, such as two-factor authentication, strong passwords, and secure internet connections, to protect their investments.

Uncertain Future

The future of cryptocurrency is uncertain. While it has gained popularity and seen significant growth, there is no guarantee that it will endure in the long term. The success of cryptocurrency depends on various factors, including regulatory changes, market adoption, and technological advancements.

In conclusion, investing in cryptocurrency carries significant risks that all investors should carefully consider before making any financial decisions. It is crucial to conduct thorough research, understand the technology, and assess your risk tolerance before investing in cryptocurrency.

Choosing a broker or exchange

Reputation and Security

It is advisable to choose a reputable, well-known exchange with a large selection of currencies. The security of your investments is crucial, so ensure that the exchange has strong protection against hackers and online threats. The cryptocurrency space is constantly evolving, so it is important to stay informed about new developments that may affect the security of your crypto holdings.

Fees

Transaction fees can vary widely among currencies and exchanges, so it is important to consider the fees charged by the broker or exchange. Some trading platforms may take a significant chunk of your investment as a fee, especially if you are trading small amounts of cryptocurrency. Look for a broker or exchange that minimizes fees, as these can eat into your profits.

Volume of Trading

Consider the volume of trading on the exchange. Top players in the market, such as Coinbase, Kraken, and Binance, tend to be the most competitive on price. However, there are dozens of other options available, and conducting research to find the best fit for your needs is essential.

Investment Options

Different exchanges offer different types of cryptocurrencies for purchase. If you are interested in investing in a specific cryptocurrency, ensure that the exchange you choose offers that particular currency. Some exchanges may also have minimum investment requirements, so it is important to consider your budget and investment strategy when making your choice.

User-Friendliness

Some cryptocurrency exchanges can be overwhelming for new investors, with complex trading platforms that may be challenging to navigate. User-friendly exchanges often have higher fees compared to standard trading platforms. If you are a beginner, you may want to consider starting with a more straightforward platform and gradually transitioning to a standard trading platform as you gain experience.

Regulatory Compliance

The cryptocurrency industry is still largely unregulated, and the regulatory environment is uncertain. However, it is important to choose an exchange that complies with any existing regulations and knows how to navigate the evolving regulatory landscape. This can help protect your investments and ensure that you are operating within the boundaries of the law.

Frequently asked questions