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How To

How to Invest in Cryptocurrency?

How to Invest in Cryptocurrency?

Cryptocurrency is a digital asset, digital currency or virtual currency that is used to purchase goods and services online. This medium of exchangeused cryptography to secure online transactions. However, just like in case of casino chips, you need real currency to purchase cryptocurrency.

The most popular cryptocurrency is the Bitcoin, which also happens to be the world’s first. Before going any further, you should know that bitcoins are highly speculative in nature and, are more volatile than any other investment known to mankind.

Strictly speaking in investment terms, you should never invest more than 10% of your portfolio in a highly volatile asset like the bitcoin. It calls for a complete understanding of the in and out of considering it an investment option.

Investing comes only later. Firstly, you should know the legitimate sources from where you can buy bitcoins and other cryptocurrencies.

Decide Where to Buy Bitcoins and Cryptocurrencies

There are several sources from where you can purchase bitcoins and other cryptocurrencies.

Cryptocurrency Exchanges

They charge a percentage of the total purchase price of the bitcoins. The most popular ones are:

Coinbase: It’s very popular in the United States and linking your bank account is convenient. They charge a percentage of the purchase or the sale price of investment on each transaction.

Binance:This is the largest cryptocurrency exchange in the world by volume. They charge a negligible fee and a withdrawal fee and offer some discount. Credit card payments are accepted for an additional fee.

Gemini: They trade in bitcoin and bitcoin cash, Litecoin and zcash. The transaction fee varies depending on the purchase or sale price with an additional fee.

Coinmama: This exchange charges a whopping 5.9% transaction fee plus an additional fee of 5% for credit card purchases. The minimum purchase amount is $60.

Traditional Stockbrokers

Currently, Robinhood is the only traditional mainstream investment broker available. The good thing is, it doesn’t charge fees for bitcoin trades.

Other Sources to Buy Bitcoins

Bitcoin ATMs: Used only to buy and sell bitcoins.

Peer-to-peer bitcoin owners: Buy bitcoins directly from others through tools like Bitquick, Bisq and

Bitcoin futures: It’s available only for professionals who can trade on this option.

Grayscale funds: The digital currency asset manager features Greyscale Bitcoin Trust and Grayscale Ethereum Trust. They are available over the counter and, you can buy bitcoins through discount brokers.

Precautions to take before Buying and Investing Cryptocurrencies

Refrain from using a credit card

Though credit card transactions are permitted by some providers, always avoid it to prevent being charged high interest rates.

No protection from Securities Investor Protection Corporation

Cryptocurrency investments don’t enjoy the security of SIPC like traditional investments do. Exchange failures, fraud, and theft are not insured.

Use a secure and private internet connection, always

Stay away from any public internet connection while buying and selling cryptocurrencies.

Storing Your Cryptocurrency

There are two digital wallets available to store your bitcoins.

Hot Wallet

Under this, bitcoins are stored by a trustworthy exchange on the cloud. You can access your bitcoins through an app or a computer browser. However, investors prefer to store their bitcoins on a third-party hot wallet provider. This is because bitcoin hot wallets are easy targets for hackers. Hot wallet transactions are fast. The popular hot wallet providers are:

  • Coinbase
  • Electrum
  • Mycelium
  • Blockchain

Cold Wallet

The cold wallet has added security and costs up to $170 but are much safer compared to hot wallets. Transactions also take much longer than hot wallets. These include:

  • Trezor
  • Ledger Nano

Purchase Your Cryptocurrency

In this step, you buy the amount of bitcoin you wish to own. This is done after linking the bitcoin wallet you chose to the exchange of your choice.

Managing Your Cryptocurrency Investment

The standout features of cryptocurrency are its biggest attractions too. These are:

  • It’s wholly organic in nature
  • It’s not issued by any central authority
  • It’s absolutely immune to Government interference and manipulation

Buy and Hold

Buying and holding the cryptocurrency is one of the most common ways to invest. Bitcoins are generally considered to be beneficial in the long-term. They see volatility in the short-term, just like a spark in the pan.

The Price Rally Effect

Some investors look for immediate returns on their cryptocurrency investment. This is often seen during a price rally where there are favourable chances of the market soaring to an all-time high. You often see a price rally after a prolonged decrease in price.

Short Selling

During a possible bitcoin bubble, some investors take the opportunity to invest and make some extra money. They purchase the asset for a particular price and sell it to others for the same price.

In case the anticipated bubble results in a decrease in the value of the asset, they will buy it at the reduced price and sell it back to the previous lender. In this way, they make a profit on the difference amount. However, there are chances the market may go against the investor. Take calculated risks and proceed with caution in short strategy.

What Do You Need to Buy Cryptocurrencies?

To buy and invest in Bitcoins, you need to have certain requirements in place before going ahead. You will need:

A digital wallet

You need to have a program called wallet to transact with Bitcoins. There’s a public key that records and stores all transactions related to deposits and withdrawals. A private key is your password allowing you to transact and trade cryptocurrencies in the wallet.

Personal documents

You have to verify your identity to register for a digital wallet. You have to submit your personal documents including driver’s license and social security number to transact with cryptocurrency.

Bank account with a debit or credit card

You should have enough funds to exchange while making Bitcoin transactions. For this, you have to connect your bank account to your Bitcoin wallet.

Bitcoin exchange

This is the place from where you will buy your cryptocurrency. These are online marketplaces that are similar to platforms like stock exchanges. You get a direct connection to the Bitcoin marketplace through an exchange. You can exchange actual currencies for Bitcoins in these exchanges. The following are popular Bitcoin exchanges:

  • Coinbase
  • Square Cash
  • Robinhood
  • Coinbase Pro
  • Binance
  • Peer-to-Peer

Bitcoin Exchange and Bitcoin Wallet

Almost all Bitcoin exchanges provide digital wallets for investors. But, most of them don’t provide that added security. Coinbase is one exchange that provides complete security for investors. If you are looking for any other wallet provider, make sure to check if they are secured and proceed.

Advantage of Cryptocurrencies

  • Transactions are private and secure
  • Much less fee is charged
  • There’s potential for big growth
  • There is the absence of interference from traditional banks and the Government

Disadvantages of Cryptocurrency

  • Highly volatile
  • Prone to hacking
  • Limited use (Growing now)
  • No protection from SIPC

How Bitcoins Work?

Blockchain is an open-end, record-keeping technology where every transaction, considered a block, is chained to a code. Every digital information is a block and, the decentralized public database or the code is the chain.

Every block features a unique hash with the hash of the previous block. Which means, a hacker should change the code on every block, including the previous one, and it requires enormous computing knowledge. This makes it impossible for the hacker to hack or edit your information. A math function creates the hash codes. It converts all digital information into a complex string featuring letters and numbers.

Every block has the following three aspects:

  • They include transactions including date, time and the amount for the most recent transaction made
  • They store information about you with the purchase information. You will be identified with a unique digital signature and not your actual name
  • They have names that distinguish them from other blocks

A Mode for Investment

Though cryptocurrencies go up in value, they are considered mere speculations and not actual investments. This is because a cryptocurrency doesn’t generate cash flow. You derive profit only when someone pays more for the asset than you did.

It’s advisable to note that an asset or investment security needs stability to determine the economic status of an individual and a nation. Whereas, cryptocurrency is considered anything but stable and, its volatile nature creates a serious dilemma.

The Takeaway

Bitcoins are incredibly risky investments without the backing of any Government or asset. An investor needs to realize that cryptocurrency is volatile for a profound reason. It’s a very new and a young asset with not much liquidity.Its trading activity is still very low and,is an irrational market.It can turn against your plans for reasons hard to comprehend.

You have to move ahead with utmost caution and invest only that much which you can afford to lose.

Global Banking & Finance Review


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