Beginner's Guide: How To Invest In Cryptocurrency
Have you been following the rise of crypto and want to know how to get involved? Over the past decade or so, cryptocurrency has steadily gained momentum. It’s now one of the fastest-growing markets in the world.
With a total market cap of around $2 trillion, cryptocurrency can no longer be ignored as an investment asset. Individuals and institutional investors realize the significant impact of crypto and blockchain on our society and the future of technology.
Do you want to learn more about crypto and how to invest in different cryptocurrencies? This article will cover all the fundamentals and break down the investment process into a few simple steps.
Brief intro to cryptocurrency
If this is your first time investing in cryptocurrency, it’s helpful to understand the basics. Otherwise, you could end up making uninformed decisions that lead to bad investments.
Let’s get started with a brief refresher on crypto and answer some commonly asked questions.
· What is cryptocurrency?
Cryptocurrency is essentially digital money. However, it’s different from other digital payment systems, like credit cards, because crypto doesn’t require banks to manage and approve transactions.
Instead, all cryptocurrency transactions are recorded on a distributed digital ledger called the blockchain. This technology makes crypto transactions highly secure, transparent, and immutable. That means no one can change the data on the blockchain – not even a bank or government.
Cryptocurrencies like Bitcoin are used to store value and pay for goods and services online. But crypto has expanded beyond digital payments as well. Platforms such as Ethereum and Cardano are launching pads for thousands of decentralized applications (dapps) that support everything from decentralized banking to gaming platforms and NFT marketplaces.
· Why invest in cryptocurrency? What makes it a good investment?
Do you believe in a decentralized financial system that gives users control over their own funds? If so, investing in cryptocurrency is an excellent way to contribute to that goal.
In addition, cryptocurrency can be a profitable investment. Many cryptocurrencies that exhibit extreme volatility have witnessed periods of incredible growth and heavy losses. However, investors with wise investment strategies have found ways to profit from this volatility.
Some cryptocurrencies, like Bitcoin, are deflationary assets that people use as a store of value and inflation hedge. Other cryptocurrencies like Ethereum and Solana are valuable because of their innovative technology use cases.
Investing in crypto can help diversify your portfolio and mitigate risks while presenting a profitable opportunity. Of course, there are no guarantees when it comes to investing. Make sure to do your own research and only invest in legitimate projects with solid fundamentals.
· How much money do I need to start investing?
There is no minimum amount needed to start investing in cryptocurrency. Some crypto trading platforms require a minimum deposit to fund your account, but this can be as low as a few dollars.
· What’s the difference between investing and trading?
The main difference between investing and trading is time. Investing usually involves purchasing assets and holding them over time, hoping that their value will increase. On the other hand, trading focuses on short-term buying and selling. As a result, trading is often a higher-risk, higher-reward strategy, while investing aims for slower, more stable returns.
How to invest in cryptocurrency
Investing in cryptocurrency is relatively simple, but investors need to be aware of some best practices.
Crypto is decentralized, and users are custodians of their own funds. So no one will be able to help you if you lose your coins or transfer them to the wrong address. Be sure to follow the advice below and do additional research before jumping in.
7 steps to invest in crypto
1. Understand the terms
Many common terms get thrown around in the crypto space that new investors should learn. We don’t have space to include them all here, but these should get you started:
· Address – A unique string of letters and numbers where you can send or receive cryptocurrency.
· Altcoin – Any coin that’s not Bitcoin, such as Ethereum, Cardano, Solana, etc.
· Dapp – Decentralized Application (gaming platforms, NFT marketplaces, decentralized exchanges, etc.)
· DeFi – Decentralized Finance (token swaps, lending and borrowing protocols, yield farming, etc.)
· DYOR – Do Your Own Research
· Exchange – A platform where you can exchange crypto for fiat currency
· HODL – Internet crypto slang for “Hold on for dear life.”
· NFT – Non-fungible token. A digital asset that is assigned unique ownership and can be bought, sold, or traded.
· Wallet – A place to store your crypto. This can be a software wallet connected to the internet or a cold wallet that stays offline until you need it.
2. Decide how much to invest
The amount you choose to invest entirely depends on your personal finances and your risk appetite. The crypto market is notoriously volatile, and dramatic price swings occur frequently.
Remember the most important rule of investing: never invest more than you can afford to lose.
3. Choose which cryptocurrencies to buy
Take time to research a cryptocurrency before you invest. Unfortunately, there are many scammers in the crypto space, so beware of projects that seem to have a lot of hype but no real utility.
There is a strong focus on DYOR (Do Your Own Research) in the crypto community. Search up the history of any cryptocurrencies you plan to invest in and get a grasp of the project’s fundamentals. If you believe in their vision and see that they have a realistic roadmap with high potential, consider investing in the project.
4. Select a platform
When selecting a crypto trading platform, consider the following criteria:
· Country support – You’re eligible to use the exchange in your country of residence
· Security – Look for cutting-edge security, proper licensing, and a proven track record
· Purchase method – Check to see if your preferred purchase method is supported
· Supported cryptocurrency – The platform should support your cryptocurrency of choice and have high liquidity for that asset
· Fee structure – Be fully aware of trading fees, deposit and withdrawal fees, and any hidden fees
· User experience – Pick a platform that is simple and enjoyable to use
5. Create an investment strategy
Research some tried and true investment strategies and determine what suits your personal budget and risk threshold. Here is a quick overview of a couple of popular strategies:
· One-time purchase – Set an amount you’re willing to invest and put it all in a crypto asset when the price seems appropriate.
· Dollar cost averaging (DCA) – Invest smaller, equal amounts spread out regularly.
6. Fund your account and purchase crypto
If you have a preferred funding method, such as credit card payments or wire transfers for large amounts, you need to find an exchange that supports this option. For example, NDAX makes connecting your Canadian bank account easy and supports Interac e-transfers, wire transfers, or bank drafts.
7. Store your crypto
Once you’ve bought your crypto, you can choose to leave it on the exchange for trading purposes or transfer it to a hardware or software crypto wallet for safekeeping.
Exchanges are the most convenient option. You can quickly enter and exit trades, but you’re ultimately trusting a third party to be the custodian of your coins.
Hardware and software wallets are more secure, as your coins are in your own custody. In addition, they can only be accessed through your private keys. To use them, you send your crypto to your wallet’s address after purchasing from a trading platform like NDAX.
While safer, hardware and software wallets still come with risks. For example, if you lose your private keys or they get stolen by hackers, you lose permanent access to your wallet, and your funds cannot be recovered.
Alternative ways to invest
There are other ways to invest in crypto without buying it directly, including:
· Investing in a cryptocurrency exchange-traded fund (ETF). An increasing number of brokers are offering crypto ETFs to help their clients diversify, mitigate risk, and maximize profit.
· Investing in crypto-related companies, such as mining groups or complementary services.
How to track your investment
Most wallets and cryptocurrency platforms have tools to help you track your investments. In addition, you can download third-party applications to assist you in managing your crypto assets. Just be sure to thoroughly check to see if the app is legitimate and not a tool for scammers.
Things to be aware of
Investing in cryptocurrency is your own decision. As with any investment, there are associated risks that could cause you to lose money. Do your own research and never take on unnecessary financial risks.
Here are some things to keep in mind when investing in crypto:
· The crypto market can be very volatile, so there’s a chance you could lose money.
· It requires some technical knowledge. If you don’t do your research and follow the correct protocols, you could lose your tokens or fall prey to scammers.
· Your country may have specific laws against cryptocurrency.
· Regulations are constantly changing and can negatively impact the crypto market.
· Crypto is decentralized. No governing body can help you if you lose your investment through a mistake or a scam.
Additional ways to invest in cryptocurrency
Beyond buying and holding crypto, many investors take advantage of the rise of decentralized finance (DeFi) to gain additional returns on their coins and tokens.
· DeFi – There are thousands of different DeFi apps on popular blockchains like Ethereum, Polygon, Fantom, and Solana. Investors can explore options for yield farming, token swaps, liquidity pools, lending and borrowing protocols, and more.
· Staking – Proof of Stake blockchains like Cardano rely on staking to secure the network and validate transactions. If you contribute your stake to validator nodes on the network, you’re rewarded in crypto. The more you stake, the more you can earn.
To start your crypto investment journey on Canada’s top crypto trading platform, create your NDAX account here. It only takes minutes.