Cryptocurrencies have the same purpose as a check or paper money – they enable consumers to buy goods and services or trade them to gain profit. While some consider cryptocurrencies the money of the future, others see them as a risky asset. Strategies and opinions about cryptocurrencies spread quickly, mainly because cryptocurrencies are complex and rare technology.
Therefore, many people wonder whether they should invest in cryptocurrencies and how they work. If you’re new to cryptocurrency and want to learn more about it, you’re in the right place. This beginner’s guide will teach you the basics of investing in cryptocurrency. We’ll discuss what you should consider before investing so that by the end of the article, you’ll be able to determine if you’re ready to explore it. Apart from this, If you are interested to buy Ethereum at coinpass, you can take help from Coinpass.
What is Cryptocurrency?
Cryptocurrency is a digital currency that allows you to purchase services and goods. Unlike money, it can develop new currency units and verify transactions without relying on the government’s central banks. Instead, it confirms transactions via cryptography on a blockchain – a publicly distributed ledger.
Is Crypto a Suitable Investment?
There’s no right or wrong answer to this question, as many factors come into play. Like any other form of investing, it depends on your risk tolerance, both in psychological and financial terms, how varied your portfolio is, and your time horizon.
Crypto is very volatile, meaning that the value of your coin can go up and down rapidly. Therefore, whether crypto is a suitable investment depends on the investor’s profile. For instance, volatile cryptocurrency may not be suitable for a retiree’s portfolio looking for a stable source of income. But for a young investor who can tolerate a significant level of volatility, crypto may represent a valuable and diversifying element of their portfolio.
What are the Best Crypto Beginners Should Invest in?
While cryptocurrency is a generic term employed for digital currencies that utilize blockchain technology, there are several types – over 5,000, Bitcoin being the best known and the first one created. But there are other altcoins – alternatives to bitcoin – which have also gained ground.
Here are the three top currencies that have lasting growth potential:
Bitcoin (BTC) is the first cryptocurrency created by Satoshi Nakamoto in 2009. Like most cryptocurrencies, Bitcoin runs on a ledger – or a blockchain – which tracks transactions distributed across a system of thousands of computers.
Bitcoin is secured from fraudsters, as it requires you to solve a cryptographic puzzle to verify additions to the distributed ledgers.
Ethereum is another top cryptocurrency that has grown substantially since 2015, its launching year. This type of cryptocurrency is best known for boasting transaction speeds more rapidly than Bitcoin and creating a smart contract. Plus, Ethereum is a decentralized computing platform that can run various applications. Financial tools, games, and complex databases are just some things that are running on the Ethereum ledger.
Ethereum stands out from Bitcoin due to its ability to create and perform smart contracts that enable a diverse ecosystem of apps, such as decentralized finance apps and stable coins. ETH price depends on the marketplace’s supply and demand sides and can change rapidly in the short term. This happens because the demand side overpowers the supply side and vice versa. However, ETH price has still surpassed several traditional investments like major stocks. You can search online for Ethereum price USD to find out its current rate.
Binance Coin is a cryptocurrency that you can utilize to trade and pay fees on the Binance exchange platform. Launched in 2017, Binance Coin isn’t only limited to facilitating trades on the platform– besides payment processing, it can also be used to book travel arrangements.
What’s more, you can trade or exchange it for other types of cryptocurrencies, like Bitcoin or Ethereum.
What should you Consider Before Investing in Cryptocurrency?
Firstly, if you want to invest in cryptocurrency, it’s essential to have your finances in order. That includes an emergency fund, a controllable level of debt, and a varied portfolio of investments.
Here are three critical factors you should consider before investing in cryptocurrencies:
Understand your Investment
It goes without saying that you should understand your investment before taking any action. It’s just like any other investment – when you buy stocks, you have to read the prospectus and evaluate the companies carefully.
The same rule applies to cryptocurrencies; since there are so many of them, and they all work differently, it’s vital to learn about every investment. You want your investment to be worth something, so it is essential to determine if it’s backed by cash flow or an asset.
If you trade an asset in the short term, it’s critical to manage risks, and that’s particularly important for volatile assets like cryptocurrency. As a new trader, you have to learn how to manage risks efficiently and mitigate losses. The process can look different for every individual. Long-term investors may never sell, no matter what the price is. On the other hand, short-term traders may establish strict rules regarding the right time to sell.
Newer traders should also set aside some trading money and use just a portion of it initially. That way, they ensure they have money they can trade with in the future in case a position is against them. You can’t trade unless you have money, so it’s critical to keep cash in reserve to ensure there’s a way to finance your trading.
Choose Carefully How Much you Can Invest?
It’s essential to avoid putting the cash you need into risky hypothetical assets. Supposing you can’t afford to lose the money, it’s not wise to invest it in cryptocurrency. Only invest if you are sure that money isn’t imperative for more critical matters, such as paying for a house.
And if you want an utterly sure return, it’s best to pay off debt. That way, you have the guarantee that you can earn the interest rate you pay on the debt, so there’s no way you can lose if you do this. The conclusion? Using the money you can afford to lose is the best way to invest in cryptocurrency.
The Bottom Line
Cryptocurrency poses some risks since it is a volatile asset. Therefore, investors must buy cautiously. Doing your research and understanding your trade is critical before making any investment. As a new trader, it’s essential to start small and manage risks efficiently without investing more than you can afford to lose.