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In 2022, How Should You Invest in Cryptocurrency?
The cryptocurrency market has been around for a little over a decade, but it has made tremendous progress in that time. The market cap briefly surpassed $3 trillion near the end of 2021, and it appears to be just getting started. The technology has the potential to transform our traditional financial systems, which have excluded the majority of the population by concentrating wealth in the hands of a few powerful individuals.
Cryptocurrencies are decentralized, which means they return power and autonomy to the individual. Many of them can be used as payment methods, as well as tradable assets with unrivalled ROI (Return on Investment) compared to other asset classes. This article will go over several ways you can invest in cryptocurrency today, as well as some of the things you should be aware of before entering the market.
Methods of Investing in Cryptocurrency
Today, there are four main ways to invest in cryptocurrency. All of them are simple and straightforward, and if you follow our instructions, you should be able to successfully use any of the listed methods to invest in the cryptocurrency of your choice.
Invest in Cryptocurrency on an Exchange
The first and most common method of purchasing cryptocurrencies is through a Cryptocurrency exchange. Binance is one of the top leading exchanges in the crypto industry, but readers should conduct their own research before depositing funds in any exchange. According to reputable market tracking platforms, there are over 10,000 different coins in circulation today.
Before purchasing cryptocurrency on an exchange, you need a wallet. There are two types of cryptocurrency wallets that allow users to store their private keys and there are both types of wallets software and hardware.
Websites, desktop apps, and mobile apps are all examples of software wallets. They are easily accessible and convenient for traders and individuals who use their coins on a regular basis. Guarda, BitGo, MetaMask, Exodus, Atomic Wallet, and many other software wallets are popular examples.
After purchasing a wallet, open an account with a reputable exchange and go through the Know Your Customer (KYC) process. For verification, you must submit a photo of your ID/passport, proof of residence, and a picture of yourself. Activate two-factor authentication to secure the account (2FA). Then, fund the account and proceed to purchase the token of your choice, after which the coins will be transferred to your private wallet.
Purchase Cryptocurrency Fractions on an Exchange
When it comes to cryptocurrency investments, there are a few myths to avoid. One of them is that you must purchase the entire coin. You will realize that this may not be possible because some coins, such as Bitcoin, are extremely expensive, currently costing more than $36,000 per coin. The good news is that these coins are divisible to eight decimal places. This allows you to purchase small fractions of the token and accumulate them over time to build your portfolio. Most exchanges will let you buy cryptocurrency for as little as $10. This is the best way to enter the market and grow your investment over time as your knowledge of digital assets improves.
Use a Broker to Trade Cryptocurrency
Another popular way to begin investing in cryptocurrency is through an online broker. This is ideal for people who do not want to deal with the actual asset or the complications of purchasing and storing the asset, as brokers will securely store your coins for you.
Brokers also allow users to profit from market price movements by using derivative products such as contracts for difference (CFDs). CFDs, like other derivatives like futures, are extremely popular among traders. They give users access to speculative options and can be combined with leverage to significantly increase profits.
Invest in a Cryptocurrency Exchange Traded Fund (ETF)
An exchange-traded fund is another way to invest in cryptocurrency. Typically, ETFs are used to track indices, sectors, commodities, and other assets. It is possible to invest in cryptocurrency through a stock exchange by purchasing an ETF.
ETFs are subject to stringent regulatory requirements because they are listed on stock exchanges, making them one of the most secure investment vehicles in the cryptocurrency space. ETF managers are required by regulators to demonstrate the security of funds, so you can be confident that you will not be scammed and that your coins will be well-protected.
Some ETFs are made up of multiple assets, and this includes the cryptocurrency sector. You can use a well-managed ETF to gain exposure to a professionally managed portfolio of digital assets without having to worry about picking the right coins yourself.
Strategies for Investing in Cryptocurrency
After learning about various methods of investing in cryptocurrency, it’s time to go over five tried and true strategies for making the most of your investments in various digital assets.
Purchase and ‘Hodl’
As you will see in this section, the first strategy is one of the most basic. This strategy entails purchasing and holding your tokens for an extended period of time. “Hodling,” an incorrect spelling of “holding,” is a popular investment strategy that has generously rewarded its practitioners over the years.
This strategy is best suited for investors who anticipate a project’s widespread adoption in the future. The key here is to choose projects with actual use cases: if a project is well-thought-out and managed by a good team, it is likely to grow over time, increasing the token’s value. You can compare the price charts of different coins to see how this strategy performs over longer timeframes.
All you have to do is sign up for a cryptocurrency exchange and buy a coin or coins of your choice, then transfer them to your private wallet and wait. You can buy small amounts of the coin over time and gradually build your portfolio.
What is the advantage of employing this strategy?
You won’t have to worry about daily price volatility if you use this strategy. The cryptocurrency market is extremely volatile, and it is not uncommon for prices to fluctuate dramatically overnight. Furthermore, you stand to gain significantly by believing in a project and amassing its tokens before their value skyrockets. This strategy is suitable for many new investors because it does not necessitate a high level of technical knowledge.
Trading during the day (Day Trading)
Day trading is the polar opposite of ‘hodling,’ which is a long-term investment. This strategy entails buying and selling crypto tokens in a matter of hours or even minutes. It’s an excellent way to capitalize on the crypto market’s high volatility. A day trader will frequently target coins that appear to have suffered significant losses in a single day or week but are expected to recover.
You will buy or sell a coin at a given price based on your analysis, anticipating price movements in a specific direction. By conducting fundamental and technical analysis, you will be able to learn how to read charts. It is also beneficial to keep an eye on the most recent ongoing developments in the market as a whole, as well as in individual projects. This will assist you in making informed decisions and correctly timing the market.
What is the advantage of employing this strategy?
You can profit more frequently than long-term investors because positions are opened and closed in hours rather than years. You won’t have to worry about storing tokens in private wallets or other risks associated with coin storage because your chosen trading platform will do it for you. You can also use leverage to increase your profits by speculating on minor price movements in the market.
Shorting
Short-selling, also known as shorting, is a strategy that allows you to profit from a cryptocurrency’s expected price drop. Assume you believe the price of coin X, which is currently trading at $600, will fall in the near future. You can borrow the coin from a broker and immediately sell it at market value.
After a few weeks, the price is reduced to $400. You can repurchase the coin and return it to the lender, thereby paying off your debt and pocketing the $200 difference as a profit. To make the most of this strategy, you must learn how to read charts and stay up to date on the latest developments that are likely to affect the price of the tokens, as you will lose money if you predict the direction of price movement incorrectly.
What is the advantage of employing this strategy?
Shorting allows you to profit even if the price of your chosen coin is falling. As a result, it is an excellent tool for lowering your financial risk. Furthermore, as with day trading, you don’t have to worry about storing your tokens or other associated risks, as these will be handled by the broker you choose. Some brokers will provide leverage for short-term trading, which can increase your profits if you execute a successful trade.
Trading with a Trading Bot
Trading robots are pieces of computer software that are programmed to trade on behalf of their users. They supplement their trading algorithms with artificial intelligence (AI) and machine learning (ML), which allows them to collect and interpret massive amounts of cryptocurrency market data. The robot can then forecast a coin’s price movements and, if the user permits, execute trades on their behalf.
AI assists the bot in predicting price movements, while ML assists the robot in learning and improving its performance over time. Trading bots are the most convenient option for investors interested in cryptocurrencies but lacking the trading knowledge to profitably enter the market. All you have to do is sign up for a reputable bot’s services on the platform, secure the account, and fund it.
Many platforms provide a demo account to teach you how to use the bot before you deposit real money.
What is the advantage of employing this strategy?
Trading bots make it possible for people with little knowledge of the cryptocurrency market to invest in digital assets. The bot will do all of the analysis and trading for you. Even seasoned traders can use these bots to delegate some of their work, easing their trading burden. Bots are excellent for establishing a consistent stream of passive income and for gaining exposure to trading without a significant time or effort commitment.
Cryptocurrency Hedging
Hedging entails entering new positions in the market to cover potential losses from existing positions, and it is a popular strategy among prudent investors. This can be accomplished by combining CFDs, shorting, and futures contracts to protect your cryptocurrency investment. If you anticipate that the value of a coin you own will fall, you can hedge by taking a short position. As a result, you stand to benefit regardless of which way the price moves. Furthermore, you can use futures contracts to agree on a future sale price today, ensuring a profit ahead of time. This increases certainty in a frequently volatile market.
What is the advantage of employing this strategy?
Cryptocurrency hedging exists to assist investors in protecting their capital. This helps to keep the first position from losing money. Hedging is a risk management strategy that will assist you in effectively managing your risk. This allows one to minimize losses with little risk.
What You Should Know Before Investing in Cryptocurrency
Now that you’ve learned about the methods and strategies for investing in cryptocurrencies, it’s time to look at three key areas to consider as you enter the market. These can have an impact on your profitability as well as the security of your investment.
Fees
All service providers charge fees, and this is how they make money. Fees will vary depending on the platform. Trading fees for buying and selling your tokens are among the fees you can expect. Some exchanges will give you a discount if you hold their native tokens and trade with them.
In addition, network fees are associated with the coins themselves. These are used to compensate the independent node operators who verify transactions on the blockchain, and their value varies depending on the coin. Network fees for the most popular networks, such as Ethereum and Bitcoin, can skyrocket, especially when the networks are overburdened. Even for simple transactions, Ethereum ‘gas’ fees can be $5 or more.
Brokers will not charge network fees because you are not dealing with the actual asset, but trading commissions must be paid. Finally, you will almost certainly incur fees associated with the payment processor you use to deposit and withdraw funds from your trading account.
Payment Options
Platforms that enable users to invest in cryptocurrencies accept a variety of payment methods. Depending on where you live, you may discover that some platforms do not have an easy way to enter the market. This is usually due to local regulations, and you may have difficulty purchasing your tokens on some platforms.
A good investment platform should accept some of the most common payment methods that most people have access to. Bank transfers, credit/debit cards, the use of other cryptocurrencies, e-wallets, third-party payment processors, and peer-to-peer (P2P) purchases in which you can use your local currency or even cash are examples of these.
Why Should You Invest in Cryptocurrency?
The cryptocurrency market as it exists today has been around for more than ten years. It’s incredible how quickly it’s grown. People are starting to believe that cryptocurrency is the future of money. Blockchain, the technology underlying cryptocurrencies, is also being used to solve a wide range of problems outside of finance. Prices are likely to rise as more people become aware of the technology.
Cryptocurrencies, as an asset class, are providing unrivalled returns on investments that other asset classes can only dream of. Large institutional investors appear to be aware of this and have begun to enter the market. As a result, you don’t want to pass up this opportunity.
Summary of Cryptocurrency Investing
This guide covers four methods and five key strategies for entering the cryptocurrency market. It provides advice on how to proceed with each method and outlines a few things to keep in mind that will affect your profitability and the security of your assets. By following the advice in this article, you should be able to enter the crypto market with ease and take advantage of the opportunities that exist today.