Investing in Cryptocurrency | Everything You Need to Know

Although cryptocurrencies have been around for a very short amount of time, they have become one of the many options that investors can turn to for investment purposes. They are a high-risk, high-reward investment option thanks to their extreme volatility.

For instance, Bitcoin, the leading cryptocurrency, can experience price swings of even above $1,000 in a single day. For comparison purposes, even the most volatile stocks rarely experience a $100 price swing. However, if you can withstand the volatile swings, then cryptocurrencies can have a place in your portfolio.

If you are looking for ways on how to start investing in cryptocurrency, keep it here and we will let you know exactly how to go about it.

What is Cryptocurrency?

Cryptocurrency basically refers to digital currency that is based on the blockchain technology. It a form of payment that can be exchanged online for goods and services. Cryptocurrencies are basically issued by companies as tokens, which can then be traded in for the good, or service that the company offers. The most popular cryptocurrency is Bitcoin. However, there are actually thousands of cryptocurrencies in existence today.

How to Start Investing in Cryptocurrency

Unfortunately, you cannot just walk in to your local bank or brokerage firm and purchase cryptocurrencies. Cryptocurrencies are decentralized. They are not controlled by any single institution. Fortunately, you can invest in Cryptocurrencies in several ways. They include:

1. Investing in Cryptocurrency Directly

With this option, there is no intermediary. Once you acquire your crypto, you become the sole owner of the crypto. To do this, you will need to buy cryptocurrencies directly. The best way to do this is to purchase them through an exchange. A few of the most popular exchanges include Coinbase, Binance, Robinhood, and Gemini.

Within most of these exchanges, you can purchase base coins easily with fiat currency. Base coins include Bitcoin and Ethereum. However, for other currencies outside of Ethereum or Bitcoin, you will have to purchase them using base coins. All other coins apart from Ethereum and Bitcoin are referred to as Altcoins.

Examples of Altcoins include XRP, Monero, Litecoin, ZCash, among many others. To trade them, you will first need to exchange fiat currency for a base coin, and then purchase an altcoin using the base coin.

2. Investing in Cryptocurrency Funds and Futures

Another way that you can invest in cryptocurrencies is through cryptocurrency funds and futures. Since cryptocurrencies tend to be extremely volatile, you do not have to expose yourself to the risks of high volatility. Luckily, with crypto funds, you can easily trade them in the same manner as you would regular stocks or mutual funds. Unfortunately, there are only two to choose from:

  • Grayscale Bitcoin Trust Fund (GBTC)
  • The Grayscale Bitcoin Trust fund is a fund that holds Bitcoin. It does not track Bitcoin’s price. Although Bitcoin currently costs thousands of dollars, GBTC is actually affordable to the regular investor and it is not as volatile as Bitcoin.

  • Bitcoin Futures
  • The CME (Chicago Mercantile Exchange) has a futures product called the Bitcoin Futures Contract (BTS) which tracks Bitcoin’s value one on one. The only downside to this investment option is that it expires periodically which means renewal with a new contract. However, it does make a pretty good option in the short-term.

Investing in Cryptocurrency Companies

Some companies are specifically in utilizing the same technology that is utilized by most cryptocurrencies; blockchain technology. These companies have publicly traded stocks on the stock exchange. To invest in these companies, you just need to open an account with an online broker and purchase the shares you want to own.

Some of these companies include AMD, NVIDIA, Riot Blockchain, Visa, and MasterCard. They do not wholly rely on blockchain technology as their sole revenue driver. Instead, they have integrated cryptocurrency into their existing revenue streams. For instance, NVIDIA produces GPUs that are popular in Bitcoin mining.

Tips on Investing in Cryptocurrency

Before you can start investing your hard-earned money into cryptocurrencies, you will need to keep a few tips in mind. These tips will keep you from losing your money and hopeful help you navigate the murky waters of cryptocurrency investing. They include:

  • Cryptocurrency investments should occupy a small part of your portfolio. Be wary of putting too much into cryptocurrencies. You want to make sure that just a small part is actually placed into crypto.
  • Understand that crypto is highly volatile. Cryptocurrencies cannot be compared to regular investments such as stock or gold. They do not pay dividends or interest. They are purely for speculative purposes. You only make profit if the prices rise significantly.
  • Cryptocurrencies have not been fully accepted. Due to their extremely volatile nature, cryptocurrencies have not fully been accepted as a proper medium of exchange. Only a few selected merchants accept them.

Final Thoughts

There are plenty of ways that you can start investing in crypto. From direct methods such as buying crypto to indirect methods such as stocks and ETFs, whatever you decide relies solely on what you want. If you do decide to invest in cryptocurrencies, remember that they are very unstable. They are also less predictable than traditional investments. Although the rewards are high with cryptocurrencies, just remember to always invest what you cannot afford to lose.

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