How To Start Investing in Cryptocurrencies? After more than a decade since the launch of the first cryptocurrency, the crypto market is rapidly growing and enticing new investors thanks to the advanced technologies and increasing possibilities for higher returns. Over the past decade, cryptocurrencies have skyrocketed and impressed the world with a fast-track performance exceeding everyone’s expectations. Today, the crypto market is no longer limited to cryptocurrencies, but there are also blockchain-based digital assets.
However, many traders still have difficulty understanding the technology of cryptocurrencies and how they actually work. Let alone how to invest in them. There are multiple methods for starting investing in cryptocurrencies depending on your individual goals. Before investing in cryptocurrencies, keep in mind that it is still a risky investment. Any trader is subjected to losing total investments in case of lacking investment knowledge and risking too much. This guide will show you how to start investing in cryptocurrencies and how the crypto market works so you can decide what is right for you.
What are Cryptocurrencies?
Cryptocurrencies are digital assets that use cryptography, an encryption technique for security. They are primarily virtual currencies designed to buy and sell goods or services.
Unlike traditional currencies, they are not issued by a central authority, which raises doubts about their legality and credibility among some investors. On the other hand, this defining feature of cryptocurrencies makes them theoretically immune to government interference or manipulation.
Cryptocurrencies are perceived as secure online payment gateway which are denominated in terms of virtual tokens. The term Crypto refers to the multiple encryption algorithms and cryptographic techniques that safeguard these virtual currencies. We can say that increasing popularity of cryptocurrencies is derived from its groundbreaking technological innovation.
Blockchain, the technology that supports cryptocurrencies, is simply defined as a decentralized database, managed by multiple participants known as Distributed Ledger Technology or DLT. A Distributed Ledger records the origin of a digital asset and transactions, like the exchange of assets or data, among the participants in the network.
Cryptocurrency trading began back in 2009 with the top cryptocurrency; Bitcoin (BTC). Though it would be a couple of years before the first exchanges would open, launching a digital exchange for bitcoin has resulted in the emerging of numerous cryptocurrencies.
Today, the market has a daily volume of more than $100 billion, with most of that going through exchanges. Trading regulations on many of these platforms can vary wildly due to different parts of the world having different rules and regulations concerning cryptocurrency trading.
The cryptocurrency market cap topped $3 trillion for the first time in November 2021.
What Determines the Price of Cryptocurrencies?
Cryptocurrencies are highly dominated by supply and demand forces. However, as they are decentralized, they remain free from many of the economic and political concerns that usually affect movements of traditional currencies. Prices of cryptocurrencies often show high volatility due to the uncertainty surrounding the crypto market. However, there are many other factors that drive prices such as:
- Supply and demand: The total number of coins and the rate at which they are released, destroyed or lost. The higher the demand and lower the supply, the higher the price of a crypto.
- Market Capitalization: Which is the value of all the existing currencies.
- Reputation: The way the cryptocurrency is portrayed in the media and how much attention it is getting, especially by major investors.
- Integration Level: The extent to which the cryptocurrency easily integrates into existing financial transactions such as e-commerce and online payment systems.
- Regulatory Changes: As the regulation of cryptocurrencies has yet to be determined, value is strongly influenced by expectations of future regulations. In an extreme case, prohibiting local holding of cryptocurrencies will be a possible option. While this may cause the ownership of cryptocurrency to be moved offshore in such a case, it would still severely undermine their value.
How to Invest in Cryptocurrency
You don’t have to be tech savvy to trade or invest in cryptocurrencies. First, you have to decide whether you want to buy crypto tokens and keep them or you just need to speculate on the prices. Advanced crypto trading includes decentralized exchanges, crypto wallets and buying the tokens. However, a beginner trader can use a simpler approach by trading crypto CFDs. Know more about the Difference Between Crypto CFDs and Crypto Assets.
When it comes to investing in cryptocurrencies, you will have multiple options. You can simply purchase crypto coins directly; choices will vary between numerous cryptocurrencies. The other option is to invest in cryptocurrency companies that are focused on crypto mining and hardware developers. In case you don’t like the first two options, you can choose to invest in cryptocurrency-focused funds. NFTs are also a promising crypto investment.
Follow these steps to buy cryptocurrencies:
- Choose a reliable broker or crypto exchange.
- Open an account by providing your personal information and complete the verification process.
- Use fiat money, like the U.S. dollar, to fund your account.
- Choose a cryptocurrency to buy. Usually, reputable cryptocurrencies such as the Bitcoin and Ethereum are considered to be less risky than unknown currencies.
- After purchasing cryptocurrencies, store them in a crypto digital wallet.
If you’re a crypto newbie, trading crypto CFDs can be a perfect start for you. CFD Trading is a financial derivative through which traders can speculate on short-term price movements in the financial markets including forex, shares, commodities, and indices without having to buy any underlying assets. Contracts for the difference is a form of derivative trading, which means they derive their value from the market performance of the asset. Check How to Choose the Best Broker for Cryptocurrency Trading?
What You Should Know Before Investing in Cryptocurrencies
Despite all the hype surrounding the crypto investment, cryptocurrencies remain controversial even after a long way with regards to both technological advancement and increasing popularity. Some praise the cryptocurrencies stating that they are the future money or the next internet. While others still perceive cryptocurrencies as fraud. We can see that for every person claiming that cryptocurrencies are investment bubbles, there’s another person insisting that they represent the next generation of finance.
The fact is crypto investments are classified as risky due to high price volatility and the vulnerability to sentiment levels. Remember that you have to gain a deep knowledge about cryptocurrencies before investing your money. This will help you make informed and better trading decisions.
Pros and Cons of Investing in Cryptocurrencies
Cryptocurrencies enjoy significant advantages such as transparency, 24/7 accessibility, decentralization, security, and its great potential for appreciation. On the other hand, disadvantages of the market may include extreme market fluctuations and high uncertainty which makes it hard to predict future prices.
Some investors are attracted to the cryptocurrency market due to its high volatility. A cryptocurrency’s price may fluctuate over 10% in a single trading day. This would be great only if you’re looking for risky high returns, but if you’re a risk-averse investor then investing in cryptocurrency may not be for you.
Trade Cryptocurrencies with AximTrade
Now you can start cryptocurrency trading easily through AximTrade’s accounts. Open forex account in easy steps and get into the world of cryptocurrencies.
AximTrade is a fast-growing brokerage service provider in the global markets dedicated to enable forex traders with easy-to-use technology, educational resources, technical analysis, varieties of forex bonus promotions, and a highly competitive trading environment with the best trading conditions. Still not sure? Try our Copy Trade platform where you can copy trades of professional traders.