Investing in Cryptocurrency
By Scott Smith
This year, cryptocurrencies have outperformed nearly every other asset class, prompting many investors to wonder whether they should include Cryptocurrencies in their portfolios.
While opinions on Bitcoin and other cryptocurrencies differ, this asset has skyrocketed in popularity and is in high demand from individual and institutional investors.
Bitcoin was trading at all-time highs, surpassing $68,000 on November 10, and the bullish sentiment is showing no signs of abating. Ethereum, the second-largest cryptocurrency, is also at all-time highs. As the two largest cryptocurrencies continue to reach new highs, the crypto market’s market capitalization continues to rise, surpassing $3 trillion. We have seen some pullback in the overall crypto market, however looking at just Bitcoin and Ethereum’s history, it seems inevitable that they will continue to grow. (Hughes)
One thing is certain: cryptocurrency will not go away. As more businesses accept cryptocurrency and the blockchain technology that enables its operation, you may need to learn about the crypto world’s dynamics and even consider investing in it.
What is Crypto?
Cryptocurrency is any digital currency that is protected by cryptography or secure communications and is used as a medium of exchange for peer-to-peer transactions.
Bitcoin, the first blockchain cryptocurrency, is a type of digital currency created in 2009 by an anonymous founder who went by the pseudonym, Satoshi Nakamoto. (Hicks) A bank or a government agency does not manage cryptocurrencies. Instead, transactions involving cryptocurrency tokens are typically recorded on a public blockchain, which is made up of digital data stored in a database.
Blockchain technology is used to keep an online ledger of all transactions, and it provides a secure data structure for the ledger.
Unlike fiat money, which central banks control, cryptocurrencies do not require banks to verify transactions and are independent of a central banking authority.
There are thousands of cryptocurrencies, each with its own set of security protocols and value propositions. The value of cryptocurrencies have a history of increasing year over year in established projects like Bitcoin, Ethereum, Cardano, and Litecoin, to just name a few.
While cryptocurrency is a relatively new phenomenon, it can transform the financial system and the way we think about money.
How to Make a Cryptocurrency Investment
There are numerous cryptocurrencies on the market with varying fundamental values. Investors should be aware that a cryptocurrency can appear one day and then vanish the next, rendering your investment worthless. That is why it is critical to have a strategy for investing in cryptocurrencies and understand how to manage your risk.
Beginners in cryptocurrency trading may want to consider transaction fees, the types of cryptocurrencies available on the platform, unique offerings such as educational resources, and other features that align with their interests and goals.
There are numerous cryptocurrency exchanges to choose. Uniswap, Pancakeswap, Coinbase, eToro, and Gemini, among others, provide a simple, easy-to-use, and secure platform for owning and trading Crypto. (Hicks)
Consider the role cryptocurrency will play in your portfolio when investing in it.
We all know it is best to take a cautious approach when investing in cryptocurrencies.
Cryptocurrency may also be used as an inflation hedge by investors.
Some cryptocurrencies, such as Bitcoin or Ethereum, can help to stabilize your portfolio.
What You Should Know Before Investing in Cryptocurrency
Investing in cryptocurrencies is extremely risky. Never invest more than you are willing to lose.
Despite stories of millionaires, investing at the wrong time can result in rapid and extreme losses.
Although the prospect of striking it rich by investing in cryptocurrency is appealing, it is critical to understand the characteristics of cryptocurrency. Unfortunately, this market is highly volatile. An asset that can rise so quickly can also fall precipitously.
Another risk is that the future of cryptocurrency regulation is unknown, unlike in other markets. The United States, Canada, and Australia, to name a few, are among the countries that allow for the more or less free use of Bitcoin. El Salvador has even made Bitcoin legal tender. However, other countries, such as South Korea, are pushing for more stringent cryptocurrency regulations, while China has effectively banned cryptocurrency. Even in the United States, new legislation aims to tax crypto investments. (O’Brien)
Cryptocurrencies are envisioned as a medium of exchange, but only a few businesses currently accept crypto as payment. Crypto advocates support the digital asset’s utility for general economic use, but widespread adoption may take time because regulators worldwide are skeptical of it.
Calculating the intrinsic value of cryptocurrency may be more complex than calculating the inherent value of a publicly-traded company, but learning about the asset and how it performs may help you avoid investing at a peak.
You will become a more knowledgeable cryptocurrency investor by incorporating industry knowledge and developing an understanding of the digital currency market.
How to Earn Money Using Cryptocurrency
When investing in cryptocurrency, there are several ways for investors to increase the value of their assets and secure a profit.
You can multiply your dollar more quickly in good crypto investments than most other financial vessels.
Staking is the first method he mentions. Staking allows you to earn money with your cryptocurrency by participating in the asset’s network. When you stake your cryptocurrency, you make the asset’s underlying blockchain more secure and efficient. In exchange, you are rewarded with more assets from the network, similar to the yield on a savings account. (Hussey)
Cardano, Ethereum 2.0, Tezos, Shib, and Algorand are examples of cryptocurrencies that provide staking rewards.
Another option is lending your crypto assets for a return.
You can also lend the assets in your portfolio into decentralized finance, or DeFi, protocols to generate yield. Lending through DeFi allows users to tap into a global liquidity pool. In addition, other users will be able to borrow your crypto assets if you lend them into a decentralized money market, allowing you to generate yield. (Hussey)
Takeaway
Cryptocurrency is becoming increasingly more prominent. Only a tiny percentage of the world’s economy is investing in crypto, which leaves an enormous potential for long-term growth. More and more options are becoming available in the Defi market that can add diversity to your traditional portfolio and your crypto portfolio. As Staking and Lending both increase your position while you hodl your crypto. We are incredibly early, and the upside to cryptocurrency looks very rewarding. Always Do Your Own Research. Crypto is out there, It is getting more acknowledgment, and it is just a Teenager in the investment space. Imagine the possibilities when this teen grows up!
Works Cited
Hicks, Coryanne. “The History of Bitcoin | Investing | US News.” US News Money, 1 September 2020, https://money.usnews.com/investing/articles/the-history-of-bitcoin. Accessed 5 December 2021.
Hughes, Horus. “Bitcoin price briefly hits $69K ATH before plummeting back to Earth.” Cointelegraph, 10 November 2021, https://cointelegraph.com/news/bitcoin-price-briefly-hits-69k-ath-before-plummeting-back-to-earth. Accessed 5 December 2021.
Hussey, Matt. “How to Invest In Cryptocurrencies: Staking and Lending.” Decrypt, 27 January 2021, https://decrypt.co/resources/how-to-invest-in-cryptocurrencies-staking-and-lending. Accessed 5 December 2021.
O’Brien, Christopher. “Commentary: The U.S. and China grapple with crypto in their own unique ways.” Fortune, 3 December 2021, https://fortune.com/2021/12/03/us-china-crypto-regulation-ban-bitcoin-nfts-pboc-sec/. Accessed 5 December 2021.
O’Brien, Christopher. “Commentary: The U.S. and China grapple with crypto in their own unique ways.” Fortune, 3 December 2021, https://fortune.com/2021/12/03/us-china-crypto-regulation-ban-bitcoin-nfts-pboc-sec/. Accessed 5 December 2021.
“Top Cryptocurrency Exchanges Ranked By Volume.” CoinMarketCap, https://coinmarketcap.com/rankings/exchanges/. Accessed 5 December 2021.
