Although the cryptocurrency has only been around for a very short time, it has turned into a huge and complex world that can be difficult for a beginner to understand. But given that the prices of bitcoin and other cryptocurrencies fluctuate greatly, there is a chance to make a big profit if you can afford the risk. Digital platforms like Coinbase and Robinhood have made it easier for people to invest in popular cryptocurrencies like bitcoin. However, this process is still a bit more complicated than acquiring a regular coin. A financial advisor can help you create a financial plan that will help you achieve your crypto investment goals.
What is cryptocurrency?
There are thousands of different cryptocurrencies available today, and it can be difficult to establish them all with a single definition. In general, however, cryptocurrency is a digital cryptocurrency and is often decentralized. Bitcoin, the first and by far the most recognizable cryptocurrency, is based on blockchain technology, which is a permanent and decentralized accounting system.
While bitcoin is the most popular and valuable cryptocurrency in the world, this has led to the creation of thousands of alternatives, or altcoins. There are different types of altcoins. Some close differences from Bitcoin, such as bitcoin cash or Bitcoin Diamond. Others focus on privacy, such as Monero and Zcash. Some of them are named after Greek gods (Apollo coin), reptiles (Komodo) or even Internet memes (Dogecoin). It's a strange, cruel world.
Most people are only interested in sticking with Bitcoin or another popular currency, Ethereum. However, there are some speculators who are trying to buy cheap and sell expensive on more obscure cryptocurrencies. The hope is to get rich quickly by getting the next bitcoin early.
Regardless of the currency you invest in, the common denominator is volatility. Any cryptocurrency has value only as long as people see that it has value. Although technically applicable to any currency, this is more relevant for cryptocurrencies, as they are not backed by a government or a precious metal (such as gold), as is the case with most currencies. This makes it a riskier investment, as many investors and speculators have learned this the hard way.
What about non-perishable tokens?
Since non-exchangeable tokens, which are non-exchangeable tokens, have a value that is sometimes perceived as a kind of cryptocurrency. Although both interchangeable tokens and cryptocurrencies are digital assets that are traded using blockchain technology, they should not be confused. The term "non-exchangeable" is important because it refers to assets that have no commercial equivalent; each non-exchangeable token is one of a kind and has a unique value. This is what distinguishes them from cryptocurrencies that can be exchanged, which means that someone's bitcoin is equal in value to someone's bitcoin.
Permanent tokens can be digital messages, audio files, virtual real estate, photos, videos, real-world assets that have been encoded. Some of the most notable examples of NFT that have recently sold millions of copies include Jack Dorsey's first tweet and the artist's digital Pebble image collection.
How to Invest in Cryptocurrency
Simply put, you need a place to buy it and a place to put it. The most popular place to buy cryptocurrencies is the cryptocurrency exchange.
There are many different exchanges to choose from, the most popular of which are Coinbase, GDAX and Bitfinex. These exchanges allow you to purchase currencies such as Bitcoin and Ethereum using a debit card. With the most popular currencies, including bitcoin, you can buy parts of one coin, so you don't have to invest thousands of dollars to get the game.
If you are interested in buying altcoins, it is likely that you will need some bitcoin or Ethereum to make this purchase. As a rule, you cannot buy altcoins for fiat currency (this is what crypto enthusiasts call fiat money, such as dollars or euros). But that may change in the future.
Exchanges make money by charging for transactions, but there are other websites that you can visit to interact directly with other users who want to sell cryptocurrencies. LocalBitcoins is one of the popular examples. This process is more likely than an exchange, and there is an additional risk of dealing directly with a stranger whose currency you cannot verify. If you are new to cryptocurrency, you will probably want to use the exchange.
Another option that is becoming more common is a bitcoin ATM — in April 2022, there were more than 50,000 sites in the United States. You can use them to buy bitcoin and send it to your wallet.
How to store your cryptocurrency
When we say "send it to your wallet", we do not mean that you put bitcoin in a physical wallet. To store your currency, you need a cryptocurrency wallet, you need to securely store the code that your cryptocurrency wallet consists of. You can have either a software wallet or a hardware wallet. Software wallets are necessary to ensure active trading, as they greatly simplify access to your currency. If you register a Coinbase account, you will automatically receive a Coinbase software wallet.
Hardware wallets are physical devices, they are a bit like USB drives, and they are more secure than software ones. You can use them for currency exchange, which does not require frequent or easy access. Think of a software wallet as a checking account, while a hardware wallet is more like your savings account.
Should You Invest in Cryptocurrency?
Enthusiasm for cryptocurrencies has increased dramatically after the value of bitcoin rose above $30,000 in January 2021. Within three months, it doubled to $64,642.40. This is almost 19 times higher than its estimate at the beginning of 2019 ($3,500) and almost four times higher than the previous peak of 2017 ($17,000). But after November 7, 2021, when it reached $65,466.84, everything went awry. By April 22, 2022, bitcoin closed at $39508.61. On August 15, 2022, it fell to $24,015.17, the lowest level not seen since December 2020.
Therefore, as with any other investment, you should weigh the potential profit and your risk tolerance. If you tend not to risk your investments anymore and want to accumulate wealth for decades, cryptocurrencies are probably not for you. No one can predict exactly what will happen to the cryptocurrency market. Yes, technically this is true for all investments. But other markets - for example, the stock market - are growing more consistently, with much less volatility. In fact, it may even be misleading to call the purchase of bitcoin an "investment". It would be more accurate to call them speculation.
However, if you are willing to take a risk and think that the current price of bitcoin is preparing for growth, try it at all costs. Bitcoin has been around for 10 years - longer than many expected it to last. The future with bitcoin as a kind of reserve currency around the world seems more and more unlikely every day, especially given the interest of the Federal Reserve System in the digital dollar. But it's not necessarily unreasonable to expect them to retain some value for the foreseeable future. The same cannot be said about some of the most obscure altcoins.
The most important thing, as with any potential investment, is to have a clear understanding of the risks you are exposed to. You should not put yourself in a situation where your financial health depends on the success of cryptocurrencies. However, if you are well aware of the risks and still want to give it a shot, you may be in luck.
Tips for responsible investing
- Investing in cryptocurrencies can be an interesting prospect for part of your portfolio, but you should make sure that you diversify your investments with other assets. A financial advisor can advise you on asset allocation and help you make an investment plan. Finding a qualified financial advisor should not be difficult. The free smartest tool matches you with three financial advisors who serve your region, and you can interview the right consultants for free to decide which one is right for you. If you are ready to find a consultant who will help you achieve your financial goals, start right now.
- The amount you invest depends on what risk you are willing to take, on the length of your time horizon. Our asset allocation calculator will help you align your investment strategy with risk tolerance.
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