The financial world has diversified in recent years with the introduction of new alternatives for investing, among them, cryptocurrencies have become very important, especially Bitcoins which were the precursors of this new form of investment. Although it is a new market that has highs and lows that have fluctuated a lot, investors have turned their interest and that is the easy side hustles from home.
If you want to learn more about cryptocurrencies and are interested in starting to invest in them, here we bring you the information you need to decide to do so, depending on your management of the level of risk and the amount of money you are willing to invest. Continue reading and learn more about cryptocurrencies.
What are cryptocurrencies?
Cryptocurrencies are digital currencies whose value depends on the amount of coins available during each day. Cryptocurrencies are obtained through a process of “mining” or digital mining, which involves a high demand that contends with the low availability of coins, this is managed and limited by their creators in each platform.
Thus, cryptocurrencies are subject to a value process similar to that of precious metals in the past, whose limited supply creates more demand and therefore more value, leading investors to hoard and store these resources extracted through mining.
Cryptocurrencies do not differ too much from traditional money or stocks, but the key is in its operation that is based on Blockchain technology, this is the feature that gives it a decentralized operation. And this is the primary reason why other markets have not considered cryptocurrencies as a valid investment method and enabled for trading.
Bitcoin and Ethereum
Bitcoin is the most widely used of all cryptocurrencies and the most popular. Mainly this is because it was the first cryptocurrency to appear on the market and is currently the scarcest of all, so its value has gradually increased since its creation. Bitcoin has often been compared to gold and it is believed that it could become a substitute for this precious metal, but the truth is that it does not offer as much stability as gold, since it presents multiple fluctuations in its daily value.
Ethereum is referred to as an altcoin, that is, an “alternative currency”. Alternative currencies emerged with the rise of Bitcoin and seek to attract the attention of investors who have become interested in this market. Currently Ethereum is a currency that has gained a popularity similar to that of Bitcoin, and for that reason it is related to silver, its value is lower than that of Bitcoin, but it is still one of the most demanded.
Initially Ethereum started as a decentralized payment method associated with Ethereum users, a Blockchain platform. Ethereum operated with the goal of exchanging services for cryptocurrencies, and this is how it slowly began to gain value and popularity.
Investment process
To start investing in cryptocurrencies, the first thing you should do is to have a small fund earmarked for this purpose, that is, set aside an amount of money from your regular income to bet on digital currencies. We recommend that before you start you weigh the decision very well and try with a small sum instead of rushing with a very high one. Below we describe the process for investing in cryptocurrencies.
Choose a broker or an exchange platform
The first thing will be to find a reliable online cryptocurrency broker, or an exchange platform, there are differences between the two concepts and everything will depend on what you prefer or your level of preparation to invest in cryptocurrencies, if you are a beginner, it is advisable to go to a broker, as it will be responsible for making the changes for you in an automated way, instead of you entering the exchange sites and finding people to make them.
In both situations you must take into account the credibility of the platforms, and you must be prepared for any risk of hacking or loss of information, as they are not so safe places to store the cryptocurrencies you acquire, and everything will depend on their value, which can fluctuate quite soon.
Register and verify your account
When you find your favorite place to start investing, you must create an account on the platform and verify it, for that most of the time you will have to provide means of identification, such as your passport or identity card, plus a photograph to prove that they are your documents, only then the system will approve your entry.
Deposit your money into the system
Once your account is set up, you can start depositing money into your wallet on the platform, you can do it through credit or debit cards, however, it is not highly recommended to use credit cards, as online transactions for cryptocurrencies usually charge higher interest depending on the amounts, so keep this in mind and try to prevent this situation so you don’t have to pay too much in interest on your card.
Apply for a cryptocurrency order
Now that you have enough money in your wallet on the platform, the next step will be to create a request order to buy the cryptocurrencies you want, for this you will have to select what type of cryptocurrency you want to invest in, the most popular and valuable ones are Bitcoin and Ethereum, but these websites offer you all types of cryptocurrencies, so you can choose the one you consider the best. After entering the type, just add the amount you want to buy.
By purchasing these cryptocurrencies on a brokerage platform you will have the option to buy fractional parts of major cryptocurrencies such as Bitcoin and Ethereum, this is something that is not so easy to achieve on other types of platforms, and also the purchase fees are much higher.
Keep in mind that the purchase fees depend a lot on the type of cryptocurrency you purchase, the platform you choose and the overall value of each. So you’ll need to weigh your options and find the ideal place for you, so you won’t lose as much money in purchase fees.
Select a storage method
When you receive the cryptocurrencies you’ve invested in, you should think about a storage method that will allow you to keep them safe until you decide to exchange them or sell them for traditional money. Generally, if you decide to invest using a brokerage platform, you will most likely have no choice but to use that website’s digital wallet to store the cryptocurrencies.
However, if you decide to use exchange platforms, you will have the possibility to transfer your cryptocurrencies to other platforms or storage methods, although you will have to pay a small fee to transfer them. Once you have transferred your cryptocurrencies you will need to decide whether you want to store them in a cold or hot wallet:
- Hot wallets: Hot wallets are online spaces where you can store your cryptocurrencies, typically they are apps that you can manage on your mobile devices. This method is convenient, but you should be alert because they are still available through the internet, so they are still susceptible to hackers.
- Cold wallets: this method involves mining your cryptocurrencies and storing them on an external memory device, such as a USB or removable disk. While it represents a safer option and keeps them away from hackers, you run the risk of losing access to the device or having the memory damaged.
Regardless of the method you choose, you should keep in mind that if you lose the authentication codes of the website, or the login data to the platforms and you do not find a way to recover them, your investment will be completely lost, since you will not be able to enter and manage your cryptocurrencies. Unfortunately, this is a market that has quite a lot of risks, we must make it clear.
How much to invest?
Ultimately, the size of your cryptocurrency investment will be subject to how much risk tolerance you have and how much money you are willing to invest. If you are a beginner and want to try your luck betting on digital currencies, we recommend that you invest 2% or 5% of your portfolio in them, so you can speculate a little and allocate your investment budget to other assets that you consider more stable or more comfortable for you.
If on the other hand you want to take a risk and invest enough in cryptocurrencies, the best you can do is to invest between 20% or 40% of your portfolio, keep in mind that you should not invest all your capital in digital currencies, to have a margin of safety in case something goes wrong, they lose value or you cannot access them due to technical problems of the platforms. It is better to be safe than sorry.
Are you ready to venture into the world of cryptocurrencies? If so, we invite you to inform yourself in depth on the subject and go to the experts who can help you weigh whether your investment has a positive projection or not.
If you are interested in other investment methods in different markets, you can access this link and learn about them.
Are you looking for extra income to invest? Take a look at these posts we have for you and find your ideal extra job.
Dare to know the investment trends and use your money wisely!