Cryptocurrency has been the buzzword of the investing world over the last few years. However, if you’re a first-time investor, you don’t really know what cryptocurrency is. You have most likely heard of Bitcoin, Ethereum, Dogecoin, and Litecoin and their returns on investment, but you couldn’t define cryptocurrency.
So before answering the question, “Should I invest in cryptocurrency?” “Should I buy Bitcoin?” You must figure out some aspects to determine if you’re ready to join this volatile market.
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What is cryptocurrency?
Cryptocurrencies are digital assets that can be used for online shopping and investment. You exchange fiat money for digital tokens and invest in a project you believe in. To put it in simpler words, buying cryptocurrency works similarly to swapping your native country’s currency for a foreign one when you have to travel abroad. Dollars are great for buying a meal in the USA, but you need euros if you travel to Italy. Now, it doesn’t mean that you cannot shop online if you don’t hold digital currencies, but their supporters state that crypto offers greater benefits for Internet-based purchases.
Each crypto coin is a unique code line, and no one can alter or copy them. Therefore, anyone can track blockchain-based transactions because the ecosystem is highly transparent.
Still with us? Then let’s move forward and see if digital currencies are the right addition to your investment portfolio.
How do digital currencies work?
Cryptocurrency is a digital currency based on the blockchain and exchanged person-to-person without the involvement of an intermediary. All blockchain-based projects are decentralized. Therefore, no bank or government controls transactions. Depending on their utility and community, their values vary, and they’re usually worth whatever investors are willing to pay for them.
How can I earn money from cryptocurrency?
Suppose you know by now what cryptocurrency is and how it works; you might want to learn how to use it to make a profit. You can get crypto coins by buying or mining them. As mentioned earlier, all crypto projects are based on the blockchain, which grows with each new block validated and added to the chain. The blockchain is a public ledger that holds accountability for all the transactions completed with digital currencies.
Mining is the process through which people solve complex mathematical problems with the help of computers to confirm blocks and ensure crypto transactions are correct. Miners get cryptocurrency as a reward for solving math problems.
After you acquire some crypto tokens (through purchase or mining), you can try various tactics to make a profit.
Trading – you hold the tokens until their value rises and sell them for a profit.
Staking – you hold crypto in your wallet longer and place it in a staking pool or on an exchange for a period.
Lending – you charge interest on the cryptocurrency you loan to other people or organizations.
Giveaways – you earn free crypto in giveaways or airdrops.
Mining – you solve complicated math problems to help with the creation of new coins.
Gaming – you play games that allow you to earn crypto rewards on platforms like Axie Infinity.
Do I afford to lose money?
It’s been in the headlines that many beginner investors lose money when they first start trading crypto. Cryptocurrency doesn’t work as a traditional commodity, so you must approach it differently. Some investors consider it strictly speculation and create trading strategies according to this idea. However, you must understand the basics of this unique market, so you can maximize the profit.
Crypto markets are highly volatile, regardless of the cryptocurrency you choose to add to your portfolio. Although Bitcoin and Ethereum have had an upward trajectory since the start of the year, they could always register a crash (as they did in the past). Price swings are expected daily, and you must ensure you’re comfortable with the associated risk. Investing only the money, you can lose, and nothing more is recommended because even the best strategy exposes your portfolio to risk.
Do I truly understand what I’m investing in?
Did you research the market prior to opening a crypto wallet? Age-old advice says that you must invest only in commodities you are familiar with, and the phrase couldn’t ring truer regarding crypto projects. Several digital currencies could turn into lucrative investment opportunities. However, you must understand how the industry works and what factors are subjected to, so you can adjust your investing behavior according to it.
Keeping illegitimate cryptocurrencies out of your investment portfolio is crucial to protect your funds.
Do I have an exit strategy?
Just like investing in traditional commodities, you need an exit strategy to prevent making decisions based on emotions. Strategies enable you to build a plan around the investment so that you know exactly what actions to take when the asset shows a particular pattern. The crypto sector has several nuances, and it takes time to learn them all. An exit strategy enables you to invest safely and protect your finances.
What cryptocurrencies are available?
Bitcoin is the cryptocurrency that started it all, and therefore everyone knows about it. But it’s not the only digital currency that allows you to make a profit through trading. Even if the crypto market has been shaken over the last year, Bitcoin has remained stable and strong, and its value has started to grow again since January 2023.
Ethereum is the most well-known altcoin and has evolved into a blockchain network with countless utilities. Ethereum allows the creation of fungible and non-fungible tokens and sprang the digital art craze of NFTs.
Dogecoin is the most famous meme coin and was the hottest digital asset to invest in for several years. Numerous celebrities have promoted it online, which led to a boost in value.
Besides these three well-known digital currencies, there are thousands of others, and many more in work. Finding the one that could bring you the best benefits is only up to you.