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In the last decade, crypto has gone from being an unknown asset to being one of the most talked-about subjects in finance. Just like any other kind of financial instrument it has seen its fair share of ups and downs. Thousands of people across the globe have made a fortune out of this instrument just as thousands of others have ruined their fortunes. However, what makes crypto very different from traditional financial instruments, such as real estate or shares, is the deep connection and relation that crypto has with technology.
While other financial instruments are only peripherally affected by technology, crypto is something that is born in technology and is designed to evolve with technology. In fact, in many cases, crypto itself is the driver behind technological change.
For instance, crypto and blockchain technology have completely revamped the way supply chain management is done. The developments in supply chain management were not only powered by crypto, but they also had an impact on crypto as well. Crypto has this synergistic relationship with many different industries and it is one of the reasons why it is such a volatile asset.
Many people who become interested in crypto are drawn into this industry through Bitcoin and Ethereum. These are two of the largest, most expensive, and most well-known cryptocurrencies currently in existence. Even though the growth rates and current market statistics are very promising, they are often out of reach for most individual investors. Fortunately, all is not lost. There is still a lot of money to be made from cryptocurrencies and now there are more ways than ever before to get in on the digital currency action. Let’s look at what you can do if you want to invest in cryptocurrency and how you can do it correctly.
Buying Crypto
The easiest and most straightforward way to profit from cryptocurrencies is to simply buy them and hold onto them until they appreciate in value. This is a simple technique that is used by investors and applied to all kinds of assets. You can purchase property, shares, stocks, or anything else and simply hold onto it until it appreciates. This proved to be an excellent approach for people that were quick movers and invested in Bitcoin at the right time. Bitcoin initially started off being worth just a few pennies but over the course of a decade the value has skyrocketed and a single coin peaked at over $60,000.
The problem is, that it’s not that easy to forecast the future price of a cryptocurrency. In some cases, there are coins that have started off valued at a few pennies, seen a marginal increase, and then completely collapsed. In other cases, the price of a coin has simply stayed constant and people have made nothing out of that investment. In this case, you either need to have a good amount of market knowledge and also understand how that particular asset works or you need to have the capacity to take on long-term risk. Ideally, for this approach, you should be investing a sum of money that you can afford to lose.
Investing in Crypto Companies
Another great thing about digital currencies is the process of investing. Since they rely on technology and have an impact on so many different industries, there are a lot of ways to invest in cryptocurrency without actually buying any yourself. This might seem odd at first, but it makes sense when you look at the various stakeholders that play a part in the cryptocurrency ecosystem.
PayPal, which is one of the largest payment portals available in the world, facilitates cryptocurrency payments. There is also Nvidia, which is one of the largest hardware manufacturers that is used for mining cryptocurrencies. There is a range of other service providers that are either directly or indirectly connected to the cryptocurrency trade. Many of these stakeholders provide services that support all kinds of cryptocurrencies but most of them are personally invested in Bitcoin. As an investor, it would also help to have a Monochrome Bitcoin Fund which would give you better insight into Bitcoin price movements. Recently, a lot of major companies and investment funds have started investing large amounts into digital currencies, specifically Bitcoin.
With so much of their capital invested in this single coin, even a small price change in Bitcoin could have a significant impact on your investment in that company. Therefore you need to keep an eye out for not only that company’s share price but also the price of Bitcoin, or the cryptocurrency that they are mainly dealing with.
Mining Crypto
One of the main reasons why the value of Bitcoin reached levels no one had predicted was that Bitcoin, and many other cryptocurrencies, are only available in a limited supply. Even though these are digital assets, the blockchain itself is designed in such a way that there are only so many Bitcoin coins that can be ‘mined.’
The other problem is that mining cryptocurrencies becomes harder over time as the equation gets more complicated, requires a higher hash rate, and the number of people mining the asset in the network increases. These three reasons combined give early movers advantage, but it also comes with a risk. Moreover, when the difficulty increases, it increases quite significantly. This means people need to use more, and better, hardware to get the same results they were previously getting. If you are looking to start mining a relatively new coin, you might be able to do so just with your standard PC.
If you want to get started with well-known assets like Bitcoin, you are going to be competing with miners who have tens of thousands of dedicated systems already focused on mining this one asset. For more difficult assets the cost of the hardware required and the cost of electricity needed make it an unfeasible proposition.
Investing in Crypto-Related Funds
One of the major problems for investors, when they want to invest in a company that is related to the cryptocurrency industry, is that they don’t know much about that company itself. This represents an additional learning curve for the investors. For instance, someone might not know about Bitcoin and they aren’t at all familiar with what Nvidia is doing to make specialized mining hardware, or what that hardware is all about. This is where it can be useful to look into crypto-related funds. These will give you access to a broad range of companies. This not only diversifies your investment and reduces risk but it also reduces how much you need to know about each individual component of that fund. Instead, you are looking at how it is performing as a whole.
Within this category, there are quite a few options that you can consider. One of the most popular choices is exchange-traded funds (ETFs). Within ETFs, you can choose between future funds, index funds, or a wide range of investment trusts. One of the main advantages of using ETFs is that you don’t have to register with a specialized cryptocurrency exchange as you would if you were trading crypto itself. A lot of countries around the world still haven’t completely recognized cryptocurrencies and still haven’t regulated them in their local economies. This is a major hurdle for investors and having ETFs allows them to access this asset through their national stock exchange while also adhering to all local trading regulations.
Crypto IRAs
One of the major challenges with cryptocurrency earnings, even in countries where it is allowed and is regulated, is the tax on those earnings. Generally, cryptocurrencies are not considered a currency but rather property, much like real estate. For this reason, it can end up costing you quite a bit in tax if you are trading crypto or trading crypto-related assets. Even as a cryptocurrency owner, you could end up paying a lot of tax when you finally decide to sell the asset.
A good workaround to this problem is to get a cryptocurrency IRA. This not only helps lower tax on your earnings but even helps you get the tax benefits that you would expect from a traditional IRA account. To do this you will need to get in touch with a service provider who services cryptocurrency IRA accounts and then look into what option would be best to invest in through this account.
Trading Crypto
If you are looking to make the maximum amount of money, in the least amount of time, with the smallest initial investment, then nothing is better than trading cryptocurrencies. Much like trading stocks or shares, trading cryptocurrency requires a decent amount of knowledge about the asset, the market, and the prevailing trends in the market. However, you can make a significant amount of money if you play your cards right. The problem is that trading is not an easy skill to master.
You need to know quite a few different things and you need to have access to the best information possible to make the most accurate trading decisions. Also, you need to have access to the right resources to be able to trade in the first place. Let’s look at some of the main components of trading cryptocurrencies.
Exchange – The first step is to find a cryptocurrency exchange that you will be executing your trades through. This operates just like a regular stock exchange except that it is a specialized market for buyers and sellers of cryptocurrencies to come together and trade. The regulations are different from regular stock exchanges but the processes are quite similar. The problem is that not all exchanges are properly regulated, they aren’t all equally secure, and you may or may not have access to a cryptocurrency exchange in your region.
Also, you need to pick an exchange that supports the particular cryptocurrency that you want to trade. Generally, picking a well-known exchange that supports a wide variety of cryptocurrencies is the best option.
Account – just like stock exchanges, the cryptocurrency exchange will also offer a variety of different account types suited to different needs. If you plan on being a day trader and carrying out frequent trades you will want an account that can suit that purpose. Similarly, you might want to just directly buy a currency, then hold it for some time, and then sell it for a profit. For this, you will need a different account. With your account setup, you also need to load fiat currency into that account so you can purchase cryptocurrency.
Nearly all reliable exchanges support all of the major fiat currencies, such as the Euro and the US Dollar. Simply transfer money from your regular bank account into your exchange account, and now you have money to buy cryptocurrency with.
Asset – This is the time when you need to finalize exactly which cryptocurrency you want to buy and how much of it you would like. Before this step, you need to do your research because this will influence how much money you can make, how easily you can make it, and what exactly you will need to do to make a profit. When you are ready to buy, most exchanges will ask you to fill out a buy order or they will have a specific asset-buying process for the kind of account you are using.
Storage – With cryptocurrency, you don’t receive physical coins, rather they are stored in a digital wallet. Some brokerage services will provide storage options and others will simply transfer the information to you and you need to secure the coins yourself. There are a number of different digital wallets that you can choose from and it all depends on what your specific needs are. One of the best options is to go for a dedicated offline wallet to store this information.
Considering the speed at which the world is transitioning to a digital economy and the kinds of challenges that people are already facing with fiat currencies and traditional banking, there is no doubt that cryptocurrencies have a bright future. However, in terms of how profitable they can be for you as an investor all depends on the strategy you choose and the proficiency with which you are able to execute that strategy.
As more and more people get into cryptocurrency, things will change, grow and develop, but the bare basics of making money through cryptocurrencies will remain the same. The sooner you can get in, the easier it will be to stay in this industry in the long run.
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