Invest in cryptocurrency: detailed overview
Since the creation of the first cryptocurrency, Bitcoin, in 2009, thousands of new coins have appeared on the crypto market. In 2021, the market for digital assets grew rapidly, which had a positive impact on investment interest in them.
Beginners and experienced investors with the help of cryptocurrencies can expand their investment portfolio and multiply capital. This article tells how to choose a cryptocurrency for investment and what investment areas are available in the crypto market.
Prospects for cryptocurrency investments
The crypto market continues to grow rapidly – at the beginning of 2023, the number of cryptocurrency users exceeded 420 million. Experts estimate the compound annual growth rate (CAGR) of the crypto market at 12.5% from 2023 to 2030.
These metrics make cryptocurrency a promising investment asset that can bring an investor passive income in the long term. The most popular cryptocurrencies are Bitcoin (BTC), Ethereum (ETH), Tether (USDT) and Binance Coin (BNB), but there are thousands more digital currencies that an investor can choose to further invest in cryptocurrency.
Let’s look at some of the main benefits of investing in cryptocurrency.
1. High potential yields. Cryptocurrency market is very volatile, so an investor can get high profits during price spikes. But it should not be forgotten that cryptocurrency is a high-risk instrument, so an investor should make balanced decisions before any operations with it.
2. Availability. Cryptocurrencies are available for purchase on centralized and decentralized exchanges, as well as other platforms, such as online exchanges. In addition, because of the low investment requirements, they are available to investors of all levels.
3. Portfolio diversification. Cryptocurrencies often have low or negative correlations with other asset classes such as stocks and bonds. This means they can behave differently in certain market conditions.
4. Potential for innovation. Cryptocurrencies are still a relatively new field, so many investors see them as a way to invest in the future of finance and technology.
It is important to remember that cryptocurrencies are high-risk instruments whose price can change significantly in a short period of time. Therefore, investing in cryptocurrency requires careful analysis and proper risk assessment.
How to invest in cryptocurrency
Before investing in digital assets, an investor needs to learn the basics of the crypto market, determine risk tolerance and emotional readiness to invest in volatile assets. At the preparation stage, he should also:
– study and analyze the market situation;
– determine the amount of money available for investment in this direction;
– correctly create an investment strategy;
– choose an asset for investment based on the data from the previous points.
Let’s consider the types of digital assets that are available for investment.
1. Crypto coins. Digital assets based on a native, independent blockchain network. They are used to perform transactions, as well as to provide security for the blockchain on which they are based. The most popular crypto coins are Bitcoin and Ethereum.
2. Utility tokens. Issued by companies and organizations and used to access additional products and services within their ecosystem. The most popular utility token is Binance Coin, which can be used to pay transaction fees and access certain features on the Binance exchange and ecosystem.
3. Security tokens. These are securities which perform a function similar to classic stocks or bonds. The owners of security tokens can receive the income from the company’s activity, have a share in the company or have other rights specified in the contract.
4. NFTs. Non-fungible tokens developed on the basis of blockchain. They have a unique code and metadata and cannot be copied. They can be sold for fiat and cryptocurrency or exchanged for other NFTs.
Each type of digital asset has unique characteristics and investment potential. An investor should do his or her own research and choose those assets that fit his or her investment plan and understanding of how the crypto market works.
Investment options in the cryptosphere
In addition to various digital assets, an investor can also choose one or more cryptocurrency investment areas. Below, let’s take a look at the main and alternative ways to invest in digital assets.
Cryptocurrency exchanges
One of the most popular ways to invest in cryptocurrency is to buy it on a cryptocurrency exchange for fiat funds or another cryptocurrency and later earn on the price difference.
The benefits of this option:
1. Availability. On cryptocurrency exchanges there is an opportunity not to buy a whole crypto coin, but to buy only a part of it. This allows you to invest in expensive assets such as Bitcoin and Ethereum, even with a small starting capital.
2. Liquidity. Cryptocurrency exchanges are often high liquidity. This means that an investor will have the ability to quickly buy and sell the asset at the market price.
3. Safety. KYC and AML protocols, two-factor authentication and other ways to protect user accounts and assets are implemented in many crypto exchanges.
While waiting for the price to rise, an investor can keep the purchased crypto assets on the exchange or withdraw them to a “hot” or “cold” digital wallet.
“Hot” crypto wallet is hosted on the Internet and can be accessed at any time through a browser or mobile app.
“Cold” wallet is an external physical storage medium that holds the investor’s cryptocurrency keys and operates offline.
Tokensales
Tokensales are an opportunity for early investors to buy a digital currency at a low price before it is officially listed on an exchange, to sell it later at a higher price and earn income.
The benefits of this direction:
1. Early access. An investor can participate in the development of a new crypto or blockchain project, which gives him the opportunity to get the maximum benefit from the success of the project in the future.
2. High yield. Tokensales often promise high potential returns because new tokens are usually sold at a discounted price, which can increase significantly after the official listing.
3. Bonuses. Some projects offer rewards for early investors, such as bonus tokens or discounts on future purchases.
Cryptocurrency stocks
Conservative investors may choose to invest in the stocks of companies that develop blockchain technology and cryptocurrency, such as Robinhood Markets Inc.
The benefits of this direction:
1. Stability. Stocks of companies are typically less volatile than cryptocurrencies themselves, offering investors a more stable investment option.
2. Growth potential. Companies that operate in the growing crypto market have high growth potential and can bring investors high returns over the long term.
3. Diversification. Cryptocurrency stocks can help diversify portfolios for those who are not ready to buy crypto assets directly.
Liquidity Pools
A crypto investor can become a liquidity provider for cryptocurrency pairs and earn passive income through liquidity pools.
The benefits of this option:
1. Passive income. This type of investment is similar to a deposit in a bank. The investor provides his assets to the liquidity pool and receives a percentage of commissions for transactions within this pool.
2. Rewards. Liquidity providers can receive platform tokens as a reward for the funds provided to the pool and later use them to access additional services and functions.
3. Low entry level. Most platforms allow a small amount of assets to be added to the liquidity pool, making the destination accessible to small investors.
Exchange-traded funds (ETFs)
An investor can choose to invest in a cryptocurrency-focused exchange-traded fund to avoid investing separately in stocks of different cryptocurrency companies.
The benefits of this direction:
1. Reduced risk. Investing in ETFs is less risky than investing in a single cryptocurrency or token because the funds’ assets are diversified.
2. Professional management. ETFs are managed by investment experts who have experience managing portfolios. This allows new investors to avoid common mistakes.
3. Lower transaction fees. By investing in ETFs, you can avoid the fees associated with cryptocurrency wallets and exchanges.
Conclusion Invest in cryptocurrency
Cryptocurrency investments can be short-term and long-term. Choosing the right option for themselves, the investor should detail the investment strategy and follow it during each stage. The strategy will determine the choice of cryptocurrency, its amount in the investment portfolio, the method of investment, as well as further risk management.
The cryptocurrency market is characterized by high volatility, so a well-built strategy can protect the investor from rash decisions and reduce the risk of losing money.