DISCLAIMER: I AM NOT PART OF A FINANCIAL INSTITUTION, AND THE FOLLOWING SHOULD NOT BE TAKEN AS PROFESSIONAL INVESTMENT ADVICE.
Cryptocurrencies receive news coverage on a daily basis recently, and investing in them can be fun, profitable, and rewarding. Bitcoin and Ethereum have grown 940% and 3404% respectively over the last year as interest investors flock to the digital currency market and the digital wallet Coinbase has reported that 100,000 new users sign up for the app every day. And this is just the beginning.
The starting point is familiarizing yourself with the market caps and prices of popular currencies. The cryptocurrency market is highly speculative, so staying up to date with circulating news is critical. Much of the market seems like a gamble at first glance, but you can become an intelligent cryptocurrency investor by learning about each of the tokens and the underlying projects and technologies.
Only invest what you can afford to lose
An essential piece of advice I received when I first became interested in the cryptocurrency market was to invest only as much as you could afford to lose entirely. Limiting your investments to your disposable income can save you the stress of risking your lifestyle in the worst case scenario. Remember that there is no central authority, financial institution, or government that regulates digital currencies.
Don’t let this scare you, though, as the incentives are just as steep as the risks. Wence Casares, the CEO of Xapo, once said when asked about investing in bitcoin:
“I always tell them [my family] that the second most stupid thing they could do right now is to own an amount of bitcoins they cannot afford to lose and the most stupid thing they could do would be to not own any. “
There are a variety of reasons why you should invest in cryptocurrencies: if you are interested in the technology or projects, buying into their currency is a great way to show your support. Furthermore, it’s a contribution to the vision of a financial system free from the oversight of any central governing body.
When you think you’re ready to dive in, I suggest investing a small amount of money in a popular currency like bitcoin. Coinbase is often the go-to digital currency wallet for new users, and starting out with $10 or $100 will let you more easily see you percent gains or losses. Be prepared to provide personal information so that the platform may verify your identity.
The overarching principle is simple: buy low, sell high. Your profits are the difference between the prices when you’ve bought and sold each currency. Moving your investments over to GDAX, a professional trading platform from the makers of Coinbase, will allow you to trade with a far lower trading fee, 0.15% compared to 4%.
Don’t get too intimidated by the GDAX trading platform. The company provides a number of useful articles and training videos to help newcomers become accustomed to the platform. It’s crucial to understand the difference between market trades, limit trades, and limit-stop trades when you begin to trade at a larger frequency.
It may be advisable to begin with the three currencies supported by Coinbase and GDAX — Bitcoin, Ethereum, and Litecoin — until you’ve built a confidence surrounding how the market works. Furthermore, there are useful videos on Youtube explaining more in-depth investment strategies.
Altcoins and alternate exchanges
When you think you’re ready to move into different currencies and altcoins, you can consider looking into other exchanges, such as Poloniex, Bittrex, or Kraken. Be prepared for an extensive verification process for each in an attempt to minimize money laundering.
Altcoins are far more volatile than Bitcoin and Ethereum and can be extremely rewarding to invest in, but should be researched thoroughly beforehand. The speculative factors controlling the vast majority of fluctuations in the cryptocurrency market cause prices to change at incredible rates — creating a whole new dimension to high-risk high-reward.
Finally, a few handy tools.
There are a variety of tools and strategies you can implement to make sure your investments don’t get out of hand. Tools like Cryptowatch can be used access and trade on various different exchanges from the same platform by importing API keys. Cryptowatch also provides a useful text message alert feature so you can always stay on top of the market.
Finally, you can set limit trades to automatically sell a particular investment if the price falls below the extent of your appetite for risk. For example, if you aren’t willing to lose more than 30% of a $100 token, you can place a limit trade to sell the token at $70. You can even set such trades for when the prices rise to a designated price — like $200. These strategies will help keep you sane when you are away from the trading platform and assuage the perpetual need to open an exchange and check prices constantly.
Thanks for reading!
With a bit of patience and diligence, investing in cryptocurrencies can be an extremely lucrative experience. Good look!