Cryptocurrencies can open new doors to your investments.
Businessman stock market trader broker looking at computer screen, investor manager trading financial chart, analyzing online investment data price cryptocurrency market chart, managing risks.
As more businesses embrace cryptocurrency and the blockchain technology that facilitates its operation, you will inevitably need to learn about the dynamics of the crypto world and even consider investing in it.
Bitcoin has outperformed many traditional asset classes over the past year.
While opinions differ on Bitcoin and other cryptocurrencies, this asset has rapidly grown in popularity and is in widespread demand from both individual and institutional investors.
One thing is for sure, cryptocurrency is not disappearing and is quickly becoming mainstream. As more businesses embrace cryptocurrency and the blockchain technology that facilitates its operation, you may inevitably need to learn about the dynamics of the crypto world and even consider investing in it.
Here’s what you need to know about this asset class:
- What is a crypto currency?
- How to invest in cryptocurrency.
- What should be considered before investing in cryptocurrency?
- How to make money with cryptocurrency.
What is a crypto currency?
Cryptocurrency is any digital currency secured by cryptography used as a medium of exchange that allows peer-to-peer transactions.
The first cryptocurrency, Bitcoin, is a form of digital currency invented in 2009 by an anonymous founder using the pseudonym Satoshi Nakamoto. Cryptos are not managed by a bank or government agency. Instead, transactions of cryptocurrency tokens are typically recorded on a public blockchain, which consists of digital information stored in a database.
Blockchain technology is used to maintain an online ledger of all transactions and provides a data structure for the ledger that is considered secure.
Unlike fiat money (government-issued currency), which is controlled by central banks, cryptocurrencies do not require banks to verify transactions and are independent of a central banking authority.
There are many different cryptocurrencies, but the most well-known is Bitcoin. Other popular cryptocurrencies include Ethereum, Litecoin, and Cardano.
While cryptocurrency is a newer phenomenon, it is revolutionizing the financial system and how we think about money.
“Cryptocurrency is a new asset class at the heart of the cryptoeconomics – an entirely new set of financial services, trade and global payments to build on this new technology,” said Max Branzburg, Vice President of Product.
James Putra, senior director of product strategy at Trade Station Crypto, said that cryptocurrencies “open up to a world of global capital, unlike what they can access from the US market.”
How to Invest in Cryptocurrency?
There are many cryptocurrency exchanges for investors to choose from.
Those new to cryptocurrency trading may want to consider things like transaction fees, cryptocurrencies available on the platform, special offers like educational resources, and other features that align with your interests and goals.
TradeStation, Coinbase, eToro, and Gemini, among others, provide an easy, accessible and secure platform for owning and transacting Bitcoin.
When investing in cryptocurrency, consider the role it will play in your portfolio.
Experts say it’s best to take a balanced approach to investing in cryptocurrencies. Putra says that a small fraction of about 2% to 5% can be allocated to crypto in your investment portfolio, as the volatility of this asset can cause its value to change significantly. Cryptocurrency is still growing and evolving. However, speculation persists resulting in increased volatility.
Putra says that for investors looking to use cryptocurrency as a way to diversify their portfolios, cryptocurrencies are one of the least correlated assets with a mix of stocks, bonds and other asset classes.
Investors can choose cryptocurrency as an inflation hedge. Putra says you might turn to some cryptocurrencies as an alternative to bonds, as bonds can’t keep up with inflation and are no longer an inflation-protected asset.
“Because of the low interest rates among bonds, there is a macro-level of re-mixing of capital from bonds and other more inflation-protected assets,” Putra explains.
Some cryptocurrencies like Bitcoin or Ethereum can add some stability to your portfolio, he says. “Although they have some volatility, they should be inflation-proof,” he says.
Cautions before investing in cryptocurrencies
What to do
Investing in cryptocurrencies is very speculative.
Despite the stories of investors making millions, investing at an inopportune time can result in rapid and extreme losses. In early April 2020, a unit of Bitcoin was traded at around $7,000, and the currency has more than doubled its current value since the beginning of January.
While the chance to get rich by investing in crypto is tempting, this market is extremely volatile. Anything that can rise that fast is prone to equally drastic declines.
Another risk: As with any market, the future of cryptocurrency is not guaranteed. Some countries that allow the use of Bitcoin include the USA, Canada, and Australia. South Korea has forced the cryptocurrency to regulate it, while China has essentially banned it.
Calculating the true value of a cryptocurrency may be more difficult than with a public company, but learning about the asset and how it is performing may prevent you from investing at the top.
By combining industry knowledge and developing an understanding of the digital currency market, you will become a more educated cryptocurrency investor.
How to make money with crypto currency?
There are several ways that investors can increase the value of their assets and make a profit when investing in cryptocurrency.
“With cryptocurrencies, you can get more out of your money compared to other traditional assets,” Branzburg says.
The first method he points out is staking. Staking allows you to earn income with your cryptocurrency by joining the network of a particular asset. When you stake your cryptocurrency, you make the underlying blockchain of that asset safer and more efficient. And in return, you are rewarded with more assets from the network, such as a return you would receive from a savings account but for cryptocurrency.
Some cryptocurrencies that offer stake rewards are Ethereum 2.0 on various exchanges, Tezos, Algorand and others.
Another opportunity Branzburg mentions is lending your crypto assets for yield.
“You can lend assets in your portfolio to decentralized finance protocols to generate returns,” Branzburg said. he explains.
Branzburg says lending through DeFi allows users to “take advantage of a global pool of liquidity.” By lending your crypto assets to a decentralized money market, other users have access to borrow your assets, allowing you to profit from this lending process.
in a nutshell
Cryptocurrency is a new and exciting way to think about money. But experts say the first and most important step to understanding the risks and rewards is to educate yourself about these emerging digital currencies and the technology they use.