How to Invest in Global cryptocurrencies
If you are new to investing in cryptocurrency, this guide is for you! Sifting through dozens of articles can be a nightmare, when all you are looking for is a simple blueprint on how to get started. I was once in your shoes and wished I had a manual to help me navigate this new world of cryptocurrency.
So, I came up with this 5-step personal guide to help you make sense of it all.
1. There are over 2000 cryptocurrencies
Bitcoin was the first cryptocurrency, and its success quickly spun off hundreds of others. Much of the code of all of them is vastly similar, as it is all derived from the Bitcoin open source code.
However, each and every cryptocurrency in existence, is tailored to solve a unique problem. Thus, the modifications in their code are intended to take alternatives approaches to solutions.
These differences include:
• The supply of cryptocurrency in circulation
• The rate of supply
• The technical specifications
• How they are mined
• The team of developers working on the code
For example, Bitcoin has a fixed supply of 21 million, Ethereum an inflating supply of 100 million, and Litecoin a fixed supply of 84 million coins.
If you are planning on investing in any of them, have an idea of what they do, how they differ and what value they bring to the world. Check out Coinmarketcap.com for a comprehensive list of all the presently available cryptocurrencies in the market.
2. Cryptocurrencies are stored in wallets
Wallets are like smart digital piggy banks that let you hold all types of cryptocurrencies. Unlike custodial savings account, wallets put you in control and possession of your funds at all times. At the click of a button or swipe, your wallet lets you store, send, receive, and view your cryptocurrency balance.
You can choose one or all from 3 main categories:
• Mobile wallets downloadable on both android and iOS
• Web wallets accessible via PC web browsers
• Portable hardware wallets that resemble USB flash drives
Examples include Coinomi, Blockchain and Ledger wallets.
All wallet types are designed to hold anywhere from one or multiple cryptocurrencies. Coinomi for instance, can hold up to 60 different types of cryptocurrencies. So if your plan is to diversify, simply get yourself a wallet that can accommodate your portfolio.
3. Cryptocurrencies are traded on exchanges
Exchanges are platforms that connect networks of buyers and sellers. Here, trades are instantly matched on a central order book. At any one time, millions of such trades are going on. For example, to buy Ethereum, simply make a deposit and place your order. The exchange’s trading engine automatically matches your buy order with a corresponding sell order and debits your balance correctly.
Cryptocurrency exchanges serve customers like you from all over the world and are open for trading 24 hours a day, 7 days a year. Broadly, there are two basic types of exchanges:
• Pure crypto exchanges that let you deposit, trade and withdraw in cryptocurrency only
• Hybrid exchanges that let you deposit, trade and withdraw in both crypto and national currencies
Examples include Bittrex, Poloniex, Bitstamp and Kraken.
Getting started is no different from signing up for a social media account. Just sign up with an email address, get verified and start trading. That’s it! When to buy, hold and sell boils down to your short, medium or long term investment strategy.
4. Peer to peer (P2P) marketplaces protect your privacy
P2p trading platforms are popular amongst a great number of traders, who share your concerns about disclosing personal information. They put you in control of setting an appropriate level of privacy.
You only require a username and email address to conduct trades, versus exchanges which insist on real names and proofs of identity. Localbitcoins.com and paxful.com are 2 great examples.
These marketplaces work by connecting private buyers and sellers anywhere in the world. Because no real names and identities are used, a reputation scoring system keeps traders honest at all times.
In addition, an inbuilt escrow feature enforces integrity between trading partners. Fraudulent traders are reported, blacklisted and banned from the platforms.
If you decide to use this method, limit your trades to low amounts in the beginning and gradually increase them as you build up trust and reputation with other traders. You should also look into any related laws in your country or state on p2p cryptocurrency trades.
5. Invest directly into Cryptocurrency Financial Instruments
When all is said and done, you can bypass the encumbrance of wallets, exchanges and marketplaces by investing in cryptocurrency financial instruments.
These instruments closely resemble stocks, bonds, and mortgages which we are accustomed to from traditional banking. The one key difference is that these securities are backed by any one of all the available cryptocurrencies.
So, for example, instead of a stock or mortgaged-backed securities ETF, you can invest in a Bitcoin backed ETF or mutual trust. Some of the most notable ones include the Ethereum Classic Trust and the Bitcoin Investment Trust listed on the OTCQX market.
This is the best option for you to get exposure to cryptocurrency investments if you find the technical process overwhelming.
With these instruments, you can add cryptocurrency into your retirement portfolio and benefit from tax exemptions.
Investing in cryptocurrency then becomes a simple matter of calling up your broker and placing an order.
If you have read through all the steps, then congratulations! You are no longer a beginner. These 5 steps are the basic foundation of the whole booming cryptocurrency industry. Whatever happens in future, even as the technology evolves, or new types of cryptocurrencies emerge, this guide will serve you best.