Cryptocurrencies have soared in popularity and, as a result, we've seen an increase in more people buying Bitcoin and other cryptocurrencies. But is this a great investment opportunity or another fad that won't last?
If you do invest in cryptocurrency, you also want to prepare a strategy and have an end goal. You want to understand why you are investing in cryptocurrency.
This detailed guide will show you how to invest in crypto and why it's a great investment opportunity.
Let's start with why cryptocurrency has become popular:
Your Money Is Worthless
The current monetary system that all countries adhere to is based on fiat. This means that a country's currency is only considered legitimate because the country's government and central bank state that it is.
The U.S. Dollar is a legitimate currency because the Federal Reserve states that it is. The British Pound is a legitimate currency because the Bank of England does the same.
But this doesn't mean that fiat currency has value. Before the 1970s, fiat currencies were on the gold standard. This means that a fiat currency's value was based on the country's gold reserves. This prevented central banks from inflating the fiat currency.
In the 1970s, Richard Nixon took the U.S. Dollar off the gold standard. Since the U.S. Dollar was the reserve currency of the world, it led to all fiat currencies not being based on the gold standard.
This horrendous act has led to central banks printing money at unprecedented rates. It has led to fiat currencies losing their purchasing power every single day!
Cryptocurrency Is the Response
Since the 1970s, the only option for hedging against rapid inflation has been to own precious metals such as gold.
However, gold has challenges with storage and transportation. There wasn't a great alternative that could get stored and spent easily. This changed when until Bitcoin came along.
Bitcoin is a digital currency that one can use to buy any good or service. It allows for greater security as it doesn't have to get stored in a bank.
It also offers greater stability as there can only be a maximum of 21 million Bitcoins. This prevents the high levels of inflation that one sees with fiat currencies.
As such, Bitcoin and other cryptocurrencies have become a popular alternative to fiat currency.
So now let's look at why you might wish to invest in cryptocurrency and what your approach should be.
The first approach to investing in crypto is if you want an alternative currency. If you worry about your fiat currency losing its purchasing power then you might want to start buying cryptocurrency.
With this approach, you want to accumulate as much cryptocurrency as possible. You don't have to be concerned about the value of the cryptocurrency based on its value to your fiat currency.
You want to make sure you stick to cryptocurrencies that have wide acceptance as forms as payment. For example, you might wish to learn about how to use a Bitcoin to see how this cryptocurrency gets used for purchases.
You don't have to rush into accumulating cryptocurrency with this approach. You can also find ways to earn cryptocurrency if you want to expedite accumulating your crypto. You want to accumulate crypto to use as a form of payment as your fiat currency losing its purchasing power.
Invest in Crypto to Earn Money
In recent years, Bitcoin has been seen as a great investment opportunity. As of this publication, the cost of 1 Bitcoin is around $60K. When Bitcoin got released in 2010, each Bitcoin cost $10.
Imagine if you bought 100 Bitcoins in 2010 and sold all of them today. You'd become a millionaire through the sale! This is the main reason why most people are buying Bitcoin and other cryptocurrencies.
If you wish to invest in crypto to earn money, you want to accumulate as much as possible. With this approach, you'll have to be a lot faster when accumulating your crypto. You want to buy your crypto when the price is low and sell at a higher price.
However, this isn't as simple as it sounds. The cryptocurrency market is volatile so you never know when the price will go up or down. For example, you might think that the current price of a cryptocurrency is too high.
You might plan on waiting for the price to drop before you buy the cryptocurrency. But what happens if the price skyrockets? You want to set a threshold of when you'll start buying cryptocurrency.
You also need to set a threshold of when you'll sell. You might want to wait for your cryptocurrency to reach $100K per coin before you sell. But what happens if the price reaches $90K one day and then plummets the next day? You've lost a huge opportunity to sell for lots of cash.
As such, set a threshold for when you'll sell. You may miss out on a greater opportunity in the future. But it's also possible that you'll miss out on selling for a great profit altogether!
But, Crypto Seems Too Volatile
This is one of the biggest fears of anyone who wishes to invest in crypto. The volatility of the crypto markets puts many people off from accumulating cryptocurrency in the first place!
This is a legitimate concern. While cryptocurrency is growing in popularity, there's still an uncertain future ahead.
Many investors feel that cryptocurrency is the future. While others feel that it's a fad without any future!
You've got to make up your mind of how much to invest in cryptocurrencies based on your research. So how do you determine if crypto has a future?
Much of this depends on where you live. El Salvador made headlines when it became the first country to adopt Bitcoin as legal tender. Other countries, such as China, are making efforts to ban cryptocurrency altogether.
Some countries have high taxation on cryptocurrency. Others don't tax crypto ownership or transactions at all! Make sure you keep abreast of the crypto laws in your area. These will determine your goals when you wish to invest in crypto.
Losing Your Crypto
You must understand that the biggest risk with investing in crypto is the potential losses.
If you hold your crypto on a web exchange, there's a danger of it getting hacked and stolen. This can also happen if you hold your crypto on a hardware wallet, though this is much less common.
The fiat value of your crypto can also fall. You might spend thousands to accumulate crypto.
But then your crypto could fall in price and never rise again. As such, you want to only buy what you're willing to lose if you use crypto as an investment asset.
If you hold crypto on a hardware wallet, you'll have to be responsible for its security. If you forget your private key and recovery phrase, you'll lose your crypto forever. This causes crypto to be more secure but it also adds a greater level of responsibility to the owner.
You also have to consider government overreach with owning cryptocurrency.
There's the danger that your government will ban cryptocurrency and try to confiscate your wallet. Make sure you keep an eye on proposed legislation regarding cryptocurrency.
Now let's look at the steps you'll have to take to invest in crypto.
Holding Your Crypto
The first step to consider is how you'll hold your crypto. The two main options to store them are to use a web exchange or a hardware wallet.
The web exchange is the easiest way to buy, sell, and trade cryptocurrencies. A web exchange holds your crypto for you. This means that you don't have to worry about knowing your private key or having a recovery phrase.
The major issue with web exchanges is that these are the most vulnerable to hacks. These also take away anonymity and privacy. If you're concerned with others knowing about your crypto ownership, you should avoid a web exchange.
A web exchange works like a bank that holds your currency. With a hardware wallet, you operate as a bank. You are the sole person who has access to your cryptocurrency.
You'll have to make a note of the private key that comes with your hardware wallet. You'll also have to keep track of your recovery phrase. If you lose both, you'll forever lose access to your crypto.
The third method is to use a paper wallet. This crypto wallet gets created when you use a cryptocurrency ATM. The details to access the wallet get printed on a small receipt that the cryptocurrency ATM dispenses.
With this option, you'll have to ensure that you never lose this receipt. You might want to keep a copy of the details printed on the receipt in case you do!
Which Crypto Do I Buy?
Now you'll have to figure out which crypto you should buy. This requires you to do your research to determine which cryptocurrencies work best for your goals.
As of this initial publication, Bitcoin remains the most popular cryptocurrency available. This is a great cryptocurrency for making purchases as an alternative form of currency. It's also currently the best cryptocurrency for selling to make a profit in fiat.
While some cryptocurrency investors hold many cryptocurrencies, there are many known as "Bitcoin Maximalists." These investors feel that Bitcoin is the only cryptocurrency worth investing in for the moment. These investors include Tone Vays and Stephan Livera.
There are also a few cryptocurrency investors who have swayed away from Bitcoin altogether. Investors such as Roger Ver have advocated for Bitcoin Cash over native Bitcoin.
Ethereum is currently the second most popular cryptocurrency. It's become the favorite cryptocurrency for investing in NFTs — which is proof of ownership for digital assets. Crypto investor Metakovan used Ethereum to purchase an NFT.
Other less popular cryptocurrencies are often collectively referred to as 'altcoins.' These have mixed reviews among crypto investors. Some investors see their potential, while others find them to be a waste of time. You've got to research these cryptocurrencies on your own to see if they meet your financial goals.
What's the Future?
Let's return once again to what the possible future of cryptocurrency might be.
It doesn't seem that cryptocurrency will lose popularity anytime soon. While it has its share of skeptics, it also has the most passionate advocates.
While there doesn't seem to be a single narrative on the future of cryptocurrency, one should consider how it'll be received in your jurisdiction. For example, do you live in a country that looks like it'll go the route of El Salvador or China?
You also have to look at the attitude toward capitalism in your country. Cryptocurrencies have given ordinary people from anywhere in the world greater access to capital.
If you live in a country with hyperinflation, such as Venezuela or Zimbabwe, cryptocurrency gives you a better option to make payments or earn money.
If you live in a country with few opportunities to earn money, you might get to sell your crypto for a large profit!
These are the great opportunities that cryptocurrency has given the world. However, many societies have developed envy toward wealth and these are the ones that'll have the strictest laws against cryptocurrency.
While the U.S. allows cryptocurrency ownership, it taxes it. Singapore and Portugal currently don't take profits on cryptocurrency. You have to consider the attitudes toward cryptocurrency in your country to determine your investing strategy.
Ready to Invest in Crypto?
Now you're ready to invest in crypto and become part of the crypto community!
You want to start with deciding why you wish to buy cryptocurrency. Do you want to use it as an alternative form of currency? Or are you hoping to use it as an asset for selling for fiat currency?
Next, you want to determine how you'll like to hold your crypto. You can use a web exchange, hardware wallet, or paper wallet. Make sure you research different cryptocurrencies to decide which is best for your needs.
You can find more great cryptocurrency guides here on our website!