Exploring cryptocurrencies can give way to exciting market opportunities and profit-making. Navigating this ever-growing landscape is something novices tend to take lightly, however. While some crypto-assets will perform very well in the long run, not everything is worth investing in.
Table of contents
- A Slow And Steady Evolution
- The Concept of Cryptocurrency Investing
- How To Invest In Cryptocurrencies?
- Which Cryptocurrencies To Buy
- How Big Is The Risk Of Investing?
- Which Time Frames To Look At?
- Investing During Crypto Market Trends
- What About Crypto Arbitrage?
- Gauging The Long-Term Outlook
- Adjusting Expectations Is Crucial
A Slow And Steady Evolution
The cryptocurrency industry is now over ten years old and continues to evolve every day. Despite the current media attention, crypto-assets like Bitcoin and Litecoin have not seen much positive attention since their inception. The media, central banks, and governments have ridiculed the idea of Bitcoin and altcoins for a very long time. Slowly but surely, that narrative is changing for the better, although certain aspects remain a bit wonky.
For those who want to invest in cryptocurrencies, exploring the projects providing investment and monetary use cases is often the smart approach. Contrary to traditional instruments, cryptocurrencies can provide a faster, better, safer, and cheaper alternative to complete specific monetary actions. However, there are some potential trust issues to contend with, primarily due to a lack of regulation.
As major companies begin exploring options in this industry, including the likes of Square, PayPal, and Tesla, there is a bright future ahead for Bitcoin and perhaps Ethereum. Whether that warrants investing in either of these currencies is a different matter. For investors, it is crucial to make this decision on their own accord after carefully evaluating the pros and cons.
The Concept of Cryptocurrency Investing
Before one can begin exploring cryptocurrency investing, it is pertinent to understand the basics. Contrary to any other form of investment, crypto-assets are scarce and exist in virtual form only. To use Bitcoin, Ethereum, or other assets, one needs a compatible wallet and a computer or mobile device to install it on.
It is possible to invest in cryptocurrencies without approval from a government or bank. More specifically, crypto-assets are designed to boost financial inclusion instead of leaving billions of people with little to no access to financial instruments. Before cryptocurrencies can displace the traditional financial industry, however, the industry will require broader investment and adoption.
How To Invest In Cryptocurrencies?
The main hurdle to overcome for novices is determining how they want to invest in crypto-assets. There are different ways of doing so, yet every approach hinges on one’s personal preferences and expectations. Whether one wants to explore different trading strategies, look into dollar-cost averaging, or create a way to diversify one’s existing financial portfolio, the opportunities are limitless.
It is crucial to keep in mind that using the correct exchange or broker will make or break the investment experience. Finding a company providing exposure to crypto-assets in one’s region with support for the local currency is often beneficial. However, there are other options to explore in terms of global companies, such as Binance, Kraken, eToro, and so forth. Carefully reviewing every provider is essential, especially for building long-term relationships.
Which Cryptocurrencies To Buy
Depending on one’s personal preferences and expectations, dozens of cryptocurrencies may prove worthwhile to invest in. Bitcoin and Ethereum are the safest options on the market, as they both have tremendous long-term potential. However, overlooking anything else in the top 30 by market cap may not be ideal either. It is crucial to remember that crypto market cap positions will shift around regularly, requiring a more analytical analysis before investing.
If you are risk-averse, it may be better to buy a crypto-asset with a strong reputation and hold onto it for the long term. Those who prefer taking risks can always dabble with alternative cryptocurrencies, although their value may fluctuate a lot more often. Performing a thorough technical analysis can help determine when to enter markets or look the other way.
How Big Is The Risk Of Investing?
Similar to any other type of investment, cryptocurrency investors can always risk everything they contribute financially. These markets are free and accessible around the clock, which can trigger significant price changes quickly. Unlike stock markets where market breakers kick in during high volatility, crypto-assets are not manipulated or controlled to that extent.
It is this degree of potential volatility that attracts speculators and investors from all over the world. Bitcoin, Ethereum, and other assets can gain 10% in value in a day and lose 20% or more. It is a dangerous and challenging game to play without understanding how these markets work and evolve. Moreover, these markets do not always behave in a “sensical” manner either. Anything can trigger a price shift – either for better or worse – yet no one ever knows how long this volatility will remain in place.
Which Time Frames To Look At?
In the early days of cryptocurrency investing, one could buy Bitcoin or an altcoin and expect it to see a price change within the next few hours. That is still possible today, even though the playing field has undergone some significant changes. The value at which one can trade crypto-assets is very high, exponentially increasing the potential risk of entering a market without sufficient knowledge.
It is often an excellent approach to invest in viable cryptocurrencies for more extended periods. Those who bought Bitcoin five years ago are now looking at substantial profits that wouldn’t be possible otherwise. The same goes for Ethereum, Litecoin, and other assets that have been around for years. The long-term approach will often pay dividends, assuming one has the patience to wait that long and deal with bear market trends along the way.
When it comes to altcoins and DeFi tokens, however, the situation may be a bit different. For many speculators and investors, these assets are ways to pocket quick profits and limit their exposure. It is not uncommon to see people buy such assets and sell them within hours without looking back. When dealing with thousands of potential assets, getting in and out of positions quickly may become essential.
Investing During Crypto Market Trends
The easiest way to make money by investing in cryptocurrencies is to look for bull market trends. Any asset that finds itself in a bull market will often keep noting strong price increases over a certain period. Investing during a bull trend – only after performing technical analysis to see if the uptrend remains viable – is often a straightforward way of making money. It will not always yield spectacular results, but can help create some revenue without too much effort.
Another way to profit from market trends is by seeking out a bearish trend and shorting that asset through futures contracts, for example. Again, one should only try to explore bear markets after performing technical analysis to determine where the momentum may head next. Shorting cryptocurrencies is, given their track record over the years, can be hazardous, as the momentum can always turn around on a dime.
Embracing this industry’s volatility is often a daunting task, yet an approach that can be rewarding. Compared to more traditional markets, crypto-assets tend to fluctuate in value more regularly. Every downtrend or uptrend is a new opportunity to make money if investors, traders, and speculators play their cards right. Doing so will require practice and preparation and may not be advisable for people with no previous crypto trading experience.
What About Crypto Arbitrage?
As cryptocurrencies can be bought, sold, and traded across many different platforms, it is only normal to see minor price differences. All these platforms can’t maintain the same price for crypto-assets, as it heavily depends on their trading volume, liquidity, and so forth. An exchange with lower liquidity is often subject to bigger price changes when orders involving more considerable volume show up.
Taking advantage of these price differences is referred to as arbitrage trading. It is a viable method of making money from cryptocurrencies, although it requires a lot of work to do so successfully. With hundreds of trading platforms in existence today, one nearly has to provide trading liquidity on all of them to exploit the price differences. There is a dedicated article on arbitrage trading to check out for those interested in exploring the option.
Gauging The Long-Term Outlook
One often-heard comment among onlookers is how it is now too late to invest in cryptocurrencies. Ever since Bitcoin surpassed $50,000 per BTC, there seems to be a stigma of there being no further room for future growth in the price department. Although it is understandable why some people may think along these lines, it is impossible to predict what the future may hold for Bitcoin or other crypto-assets.
It is important to acknowledge the performance of Bitcoin before this day and how it may only be the beginning of what is yet to come. Depending on which price predictions one tends to follow or respect, Bitcoin still has the potential to hit a seven-digit value over the coming decades. It redefines the concept of scarcity and store of value unlike any other financial asset on the market today.
The same applies to cryptocurrencies with long-term vision and potential. Those who want to invest in this space are often advised to seek out infrastructure builders of all varieties. There is much innovation waiting to be unlocked in this industry over the coming years. One cannot underestimate the potential of blockchain technology, digital collectibles, immutable ownership records, and non-governed digital assets.
Adjusting Expectations Is Crucial
Like any other financial instrument, however, there are no guarantees where crypto-assets are concerned. These markets are volatile, respond to external geopolitical events, and are still relatively new. They are also accessible 24/7/365, which puts them on an entirely different playing field. These assets’ volatility will attract some people and drive others away, which is only normal.
The golden rule to remember is to always perform an analysis of markets before investing any money. Entering any crypto market blindly without knowledge or expertise will often result in a financial loss. Investing in cryptocurrencies is a matter to be taken seriously, as these markets can make a vicious 180 degree turn when people least expect it.
There is no reason not to invest in cryptocurrencies today. However, one must take the necessary precautions and puts in some work before making financial commitments. Of the many different ways to make money with crypto, a few require less effort to be successful. Even so, it is ill-advised to take this industry lightly and only see it as a “quick money-making method”. That approach will backfire eventually.
For those who see cryptocurrencies as a long-term investment, buying small amounts over time to build up their portfolio may prove a viable option. Dollar-cost averaging is a reliable investment method for any financial market, and cryptocurrencies are no exception.
Make sure to check out the available trading pairs on Vaultoro, as well as the unique market opportunities between crypto-assets and precious metals!