Cryptocurrencies are growing in popularity not only among those interested in the world of finance. Large increases in their prices, but also high inflation or low interest rates, have also made those with little or no investment experience interested in the cryptocurrency market.
In this article we suggest what you need to know before buying bitcoin or other cryptocurrencies for the first time. In addition, you will find answers to the most common questions of novice cryptocurrency investors. Thanks to reading the text, you will find it easier to find your way around this specific market and figure out whether it is worth investing your money in it at all.
Why has investing in cryptocurrencies become so popular? Learn about the phenomenon of virtual assets
A beginner crypto-investor should know what the growing popularity of cryptocurrencies, also known as virtual (digital) currencies (assets), is due to. This is important, because as a rather complicated and one of the youngest forms of investment available worldwide, they are still fraught with many understatements. Another thing is that by understanding what is behind the success of cryptocurrencies, it is easier to assess their potential to generate profits in the future.
To understand the phenomenon of cryptocurrencies, it is enough to analyze the fate of the oldest and most important of them. Bitcoin, as it is referred to, still cost fractions of a cent in 2009, while at the peak of the 2013 bull market its price exceeded $1,000 US dollars. Four years later, nearly $20,000 was being paid for 1 BTC (that’s the symbol bitcoin is labeled with), and by November 2021 it was as high as $69,000. Not surprisingly, many people still look to bitcoin, but also to other cryptocurrencies, as a chance to make a big and fast buck.
Cryptocurrencies also attract with their revolutionary blockchain technology, partially or fully anonymous transactions, easy accessibility for investors from virtually all over the world, and strong short-term price fluctuations, which traders are eager to take advantage of. Whatever your reasons for wanting to start investing in cryptocurrencies, you need to have a good understanding of their market and specifics. You should also understand where the strong increases in their value came from and why they have huge price volatility – you’ll hear about it in the following interview.
How to start investing in cryptocurrencies? First, understand the specifics of the marke
In order to grasp the essence of cryptocurrencies, it is useful to first get acquainted with the specifics of bitcoin. So, let’s explain that it is a decentralized digital currency, created to enable cheap, fast, convenient and maximally secure payments that do not require the participation of banks or other intermediaries. Bitcoin is outside the control of governments and central banks, and has a predetermined limited supply of 21 million units, which cannot be changed in any way. The mining of more bitcoin is ongoing, although it is worth noting that nearly 19 million have already been put into circulation.
This limited quantity, but also the large fluctuations in price and growing popularity, which has, as it were, contributed to a decline in bitcoin’s network efficiency and an increase in transaction fees, have shaped the perception of the cryptocurrency. Today, for most people, it is not a currency or means of payment, but a simple financial instrument that can be an interesting alternative to investing in stocks or commodities. You can read about why this is so and how it actually works in the text Bitcoin – what is it and how to make money on it?
The cryptocurrency market – a huge and highly diversified…
The emergence of bitcoin and its associated blockchain technology sparked the creation of more cryptocurrencies (we call them altcoins or alternative cryptocurrencies). Some were intended to be an enhanced version of it and used for instant payments, but over time the market has been dominated by digital assets with other properties and uses.
Some cryptocurrencies allow you to build decentralized applications and services, some allow you to raise funds for various projects, others are backed by real commodities (such as gold or dollars) and are meant to mimic changes in their prices. There are also those that are created, as it were, for a joke (these are the so-called memcoins). It is worth mentioning that there are now several thousand cryptocurrencies, so it is necessarily a really extensive and highly diversified market.
In the article Cryptocurrencies – what are they, how do they work and how to invest in them? you will find all the information necessary to fully understand the essence and operation of virtual assets.
….ale for it young and immature
Importantly, while the cryptocurrency market is huge, it is still very young, and this brings with it a number of important consequences (some of which you might have heard about in the aforementioned interview). These include the fact that it is still difficult to determine which specific cryptocurrency projects will play an important role in the future – let’s emphasize that probably most of them will play none and will be forgotten over time.
Importantly, while the cryptocurrency market is huge, it is still very young, and this brings with it a number of important consequences (some of which you might have heard about in the aforementioned interview). These include the fact that it is still difficult to determine which specific cryptocurrency projects will play an important role in the future – let’s emphasize that probably most of them will play none and will be forgotten over time.
An important expression of the market’s immaturity is that some cryptocurrencies with great potential receive little interest from investors, while high returns are generated by assets that are practically worthless, but with great marketing. The latter group included dogecoin (dog cryptocurrency), whose price rose thousands of percent in 2021 mainly due to Elon Musk’s tweets.
How to view bitcoin and other cryptocurrencies? Today they are primarily financial instruments
The structural and functional differences between the various cryptocurrencies can be really big (more on this in the article Types of cryptocurrencies – what are they and what do you need to know about them?), but it will be difficult for you to understand them at first contact with the topic. To begin with, however, you should remember that all virtual assets have a price and are listed on special exchanges, so from the perspective of the average investor they are ordinary financial instruments.
Investing in cryptocurrencies in many ways resembles trading stocks, traditional currencies or raw materials. Its essence in most cases is to buy a given instrument as cheaply as possible and sell it dearly. However, it is worth noting that some digital assets allow you to earn additionally from the so-called staking (interest for storing them in a certain place) or mining (mining new units of cryptocurrencies).
Cryptocurrencies – how to start trading? Create an account on the exchange and start investing
If you have already taken care of the basics and understand what instruments you are dealing with, it remains for you to make a purchase of bitcoin or other virtual assets. You can conclude the transaction in several ways (we described them in the article Where and how to buy cryptocurrency?), with by far the most popular being to use the services of one of the special exchanges.
Cryptocurrency exchanges allow you to conveniently trade virtual assets and thus are, so to speak, the center of their entire ecosystem. Currently, there are already several hundred cryptocurrency exchanges, but the vast majority operate very similarly and combine the functions of brokers and classic exchanges (such as stock exchanges). They are responsible for executing orders or placing cryptocurrencies into trading, while providing investment platforms that allow you to make trades, track prices and analyze their charts, or use technical analysis tools.
Buying bitcoin and other cryptocurrencies is possible after creating a free account on the chosen exchange. This is very easy, takes literally a few minutes, and is similar to registering with many other online services. In most cases, you won’t get around to providing personal information and verifying your identity, but there are still exchanges where you can trade anonymously (at least in theory, because in practice no one is anonymous online).
The process of buying cryptocurrencies and selling them looks very similar to that of stock exchanges or the forex market. After logging into your account, you place an order with certain parameters (price, number of units to be purchased, etc.) and wait for the transaction to be executed.
Investing in cryptocurrencies in questions and answers
The above information is just a slice of the knowledge you need to explore if you want to successfully invest in cryptocurrencies. In order to help you better understand the topic, we have created a series of articles in which we have discussed each issue in detail. Before you start reading them, read some more answers to popular questions of crypto-investors beginners.
Who is cryptocurrency investing for?
For anyone who sees the potential in this market, associates it with hopes of earning high rates of return, and at the same time accepts the accompanying risks. Importantly, people from virtually all over the world can now freely invest in digital currencies.
What are the risks and profit potential of cryptocurrencies?
They have very high price fluctuations and are capable of generating both severe losses and huge returns unparalleled by any other market. Remember, however, that the risk and profit potential vary from one cryptocurrency to another.
How to reduce the risk of investing in the cryptocurrency market?
The ways include successive purchases of cryptocurrencies to average the entry price of your investment, as well as using and sticking to a specific investment strategy. You should also keep technical and fundamental analysis in mind, and avoid purchasing assets right after strong increases.
From what amounts can you start investing in cryptocurrencies?
Unlike stocks, for example, you can acquire cryptocurrencies in fractional parts. This makes even bitcoin, which costs tens of thousands of dollars, accessible to people with little capital. The minimum transaction value depends on the exchange and the specific cryptocurrency, with the most common not exceeding a few dollars.
What are the most important and popular cryptocurrencies?
In addition to bitcoin, these include litecoin (LTC), ethereum (ETH) or ripple (XRP), among others. The latter was created to meet the needs of banks, litecoin provides faster and cheaper transactions than bitcoin, while ethereum’s network allows for decentralized applications. Cardano, polkadot, solana or dogecoin are also very popular.
What technologies and innovations are cryptocurrencies associated with?
These include blockchain technology, cryptography, smart contracts, NFT tokens, DeFi (decentralized financed) or other decentralized applications and services, and even the Internet of Things.
Are cryptocurrency exchanges safe?
In the past, there have been serious thefts and even disappearances of entire exchanges (along with investors’ funds). Nowadays, many of them are large global companies that want to provide investors with the best and safest services possible. They use numerous safeguards for their systems, or at least two-step authorization of transactions and withdrawals of funds. Nevertheless, due to, for example, a lack of regulation, cryptocurrency exchanges are still not as safe as, for example, brokerages or banks.
Where to store cryptocurrencies?
You can keep crypto on an exchange, but a safer solution is to send it to a special cryptocurrency wallet. Such a wallet can be physical, online, mobile, desktop or even paper. Regardless of which one you choose, you must take care to securely store your private key (access password).
Is it possible to trade with leverage in the cryptocurrency market?
Yes, futures and options on dozens of the most popular cryptocurrencies are available for trading, with only some cryptocurrency exchanges (such as Binance) offering them. With leverage, you can also invest in crypto via CFDs.
