- Alina Sattarova
- 7 min.
How to invest in bitcoin and cryptocurrencies?
Despite the volatility, cryptocurrency is considered one of the most popular types of investments, and thanks to its rapid growth, many investors have a chance to make good money. The value of cryptocurrencies like Bitcoin and Ethereum can fall and then rise again. Thus, experienced investors and traders speculate on the value of cryptocurrencies and make high profits, but what if you are a beginner and you do not have enough experience in the crypto market?
In this article, we will tell you in detail how to invest in cryptocurrency and what you need to pay attention to.
What is a cryptocurrency?
Cryptocurrency is digital coins that are created and transferred using cryptographic methods. This type of currency is developed mainly on blockchain technology.
Blockchain is a decentralized database that is simultaneously stored on various computers connected to each other on the Internet.
Digital coins are issued by performing mathematical calculations. In other words, a cryptocurrency is an analog of real money, which has an official rate.
Types of cryptocurrencies
All digital coins can be divided into different categories. Bitcoin is the first digital coin, so it is separated from other digital coins. The remaining blockchain projects are divided into several types. Let’s take a closer look at each.
Altcoins are a type of cryptocurrency that operates on its own blockchain and was developed as an alternative to Bitcoin. The first altcoins were issued in 2011. The purpose of creating such digital coins was to eliminate such disadvantages of bitcoin as long transactions, lack of anonymity, expensive mining, and much more. Among the most popular altcoins can be highlighted the following: Ethereum, Litecoin, Dash, Ripple, etc.
Tokens are digital assets that, unlike bitcoins and altcoins, do not have their own blockchain. Thus, the tokens function on the blockchains of other digital coins, such as Ethereum or Tron.
Companies issue such coins to raise funds for the development of their projects or to ensure the performance of their products. For investors, this is a guarantee that the company will fulfill its obligations to them.
Stablecoins are digital coins whose value is pegged to real money, gold, oil, etc.
The rate of BTC and other cryptocurrencies can change within an hour, day, week, or month. The cost of stablecoins, on the contrary, is extremely stable. There may be fluctuations in the value of this coin, but they are insignificant compared to other cryptocurrencies. Stablecoins are suitable for those who intend to invest in digital assets with minimal risk.
NFT – this abbreviation stands for a non-fungible token or it is also called a unique token. This token cannot be replaced, counterfeited, or exchanged. Owing to blockchain technology, the owner of such a token has the right to own this unique asset. Any object can become a non-fungible token, for example, works of art, music, a computer game, etc. NFTs are especially popular in the collector community.
The most promising cryptocurrencies to invest in 2022
- Bitcoin (BTC)
- Ethereum (ETH)
- Cosmos (ATOM)
- Solana (SOL)
- Polkadot (DOT)
- Binance (BNB)
- Cardano (ADA)
Fundamental and technical analysis
Before investing in cryptocurrency, every investor needs to study the market well. This will help you avoid certain risks and invest in the right asset. In this case, investors need to conduct technical or fundamental analysis.
Any investment decision requires deep analysis as you need to understand the state of the market and which digital asset to invest in. The type of analysis depends on the type of investment in cryptocurrency. For example, if you are going to buy and hold a coin for some time, you do not need information about short-term and medium-term changes in the value of the asset. Therefore, in this case, you need to use fundamental analysis.
With the help of fundamental analysis (FA), investors can assess the potential of an asset based on the project as a whole, including its utility, team, white paper, development, marketing, management, reputation, long-term goals, and other factors.
Technical analysis (TA) allows studying of the previous data on prices and trading volumes, thus the investor receives information about the future price movement.
All of this data can be obtained using candlestick charts and TA indicators such as moving averages and trend lines.
What should you know before investing in cryptocurrency?
If an investor invests his funds, he must study in detail the digital asset in which he is going to invest. When choosing a digital asset, it is important to understand its perspective and how reliable this digital asset is.
Today there are a huge number of digital coins, however, if you are still new to the cryptocurrency market, you are better to invest in a cryptocurrency that has established itself as a reliable asset and has been on the market for a long time. To obtain a stable income, crypto investors need to pay attention to the following factors before investing their funds in a particular asset:
White Paper. Before investing in a digital asset, it is necessary to check if there is a white paper on the development of the cryptocurrency, platform, or another asset that is being offered for investment.
Team. Here you should pay attention to the developers, whether they are real people, the experience of the team, and the resources that the project has. There are cases when the whole project turns out to be fraudulent, and the whole team is non-existent.
Roadmap. It is also very important that the project has its own development plan, which would describe what exactly and when the developers are planning to implement, what actions they will perform to increase the value of their cryptocurrency.
Asset volatility. If a digital coin has too high volatility, then, investors shouldn’t invest in such a coin. It is better to choose a less volatile digital asset that has stable growth to avoid possible risks.
Technical specification of the project. When choosing a cryptocurrency for investment, it is necessary to pay attention to the technical specification of the project, including the consensus algorithm.
Types of investment in the cryptocurrency market
Lending or Lending Protocol is one type of investment in the DeFi sector, through which investors can earn passive income in the form of a percentage of P2P lending. Many P2P lending platforms provide their users with the ability to lock digital coins in a liquidity pool for a certain period in order to make a profit.
The interest rate can be fixed and determined by the platform, or the investor can set it according to the current market price.
Buy & Hold is a long-term type of investment in digital coins and is one of the easiest ways to make money on cryptocurrencies. This investment strategy is considered the safest and is suitable for both experienced investors and beginners in this field of activity.
The essence of this type of investment in cryptocurrency is to receive income from the growth in the value of a digital coin. Therefore, in order to use this strategy, an investor needs to buy a digital coin, wait for its value to grow, and sell it.
Mining is the process of mining cryptocurrency using powerful computers. In other words, mining is the confirmation of transactions in the Blockchain network.
Transactions are operations intended to transfer funds. Such operations in the field of cryptocurrencies cannot be performed just like that. To make a transfer, the transaction must be confirmed. This is exactly what miners do. And the process of confirming transactions is called mining.
Staking is an alternative to traditional mining. The essence of this process is to block or store your funds in a cryptocurrency wallet to support the operation of the blockchain system with the proof-of-stake (PoS) algorithm. The percentage of income depends on the chosen digital coin and its retention period.
Manual trading and algotrading
Manual trading is cryptocurrency trading on specialized platforms, based on the analysis of the market and cryptocurrency pairs, which the trader conducts independently.
Once analyzed, traders can place an order to buy or sell the coin themselves, or set up alerts to be notified when the value of a coin reaches a price level at which they are considering buying or selling.
Manual trading is suitable for experienced traders who understand the trends of the cryptocurrency market.
Algorithmic trading (algotrading) is a process that is carried out using pre-established algorithms or sets of computer programs. During algorithmic trading, traders can use various tools such as trading bots, crypto signals, and many others. This type of trading is suitable for both beginners and experienced traders.
IDO and other token sales are considered one of the most profitable types of investments. It is exactly this type of investment that brought hundreds, if not thousands of percent of profits to many investors in 2021.
IDO (Initial DEX Offering, Initial Decentralized Offering) is a method of fund raising in which the crowdsale is carried out through a decentralized exchange using liquidity pools, thanks to which traders can easily and quickly purchase new tokens on the DEX.
Despite the fact that there are a lot of scams here, IDO continues to gain popularity. However, if you keep an eye on the best launchpads and funds, it will help you determine if a project is worth investing in or not. Also, many people subscribe to various influencers in telegrams or YouTube channels, follow their recommendations, thanks to which they can get a good profit from investing in the IDO project.
Advantages and disadvantages of investing in cryptocurrency
- High level of profitability.
- Low market entry threshold.
- The rapid development of the cryptocurrency market.
- The risk of hacker attacks.
Investing in cryptocurrencies is a smart decision for everyone as there is a relatively low entry threshold and an investor can start with as little as a few dollars. Another advantage is the high profitability of cryptocurrency. The price of certain digital coins is growing every day. Having bought a promising cryptocurrency today, in a few months you will be able to sell it for much more and earn on the difference in price. The current cryptocurrency market is characterized by good liquidity, so users can sell and buy digital coins in a matter of seconds.