The volatility of the crypto market fluctuates too often, which is a point of concern for new aspirants. It confuses new aspirants and financial experts who have been giving opposing opinions on cryptos. Many experts think that BTC might hit the one million USD mark by 2030; however, critics say it will crash to absolute zero. Reality lies between the two points of view; more than 9000 active cryptocurrencies are available in the market, and the market cap surpassed 1.8 trillion dollars in 2023. According to the Crypto Wealth Report by Henley and Partners, more than 88000 people have become millionaires from the crypto market. More people are interested in the crypto market, but few know how to invest. You will get step-by-step guidance here.
What are cryptocurrencies?
Before investing in the crypto world, you need a deep understanding. Cryptocurrencies are/digital virtual currencies based on blockchain chain technology for P2P transactions without involving third parties. They operate on decentralized networks and use cryptography for security. BTC was the first-ever developed cryptocurrency.
Types of Cryptocurrencies
Understanding the typology of cryptos is imperative before investing. Cryptos vary based on the use case (purpose or application to address a real-world problem). There are four types of cryptos based on the use case.
1. First are payment cryptocurrencies, which are used for making or supporting P2P transactions. Bitcoin and Litecoin fall into these categories.
2. Second are stablecoins, which provide stability to the crypto market. These stablecoins are backed by fiat money or any other stable entity like a commodity (Gold/ Silver, etc.).
3. Third are Utility Tokens, which are used to develop decentralized technology (dApps, smart contracts, etc). These are used for the improvement of blockchain technology. These are further categorized according to their specific utility.
4. The fourth category is Central Bank Digital Currencies. CDBCs are neither based on blockchain nor work on decentralized networks. Instead, they are issued by governments’ central banks as an alternative to their fiat currency.
Why Invest in Cryptocurrencies?
The crypto market has proved alluring, with an overwhelming rise in crypto owners from 2016 to 2023. According to Henley & Partners, there are 425 million individuals who own cryptos globally. The massive influx of people into a single market is primarily attributed to their performance in the last two decades.
Furthermore, there are many other factors which help boost the crypto market. The most important is the potential for high returns. Global accessibility has further raised people’s interest in cryptos. Easy diversification of assets is a crucial aspect of the investment market, and the crypto market is among the most diversified ones. Lastly, decentralized networks and rapid innovation in blockchain technology have further increased the adoption rates of cryptos in the market.
What to Check Before Investing?
It is crucial to understand about the cryptocurrency to predict the future gains. Without having sufficient knowledge, it will be a mere fluke even if you gain some profits. There will be no consistency in earning, or you may even lose money.
1. White Paper
A white paper is a document issued by the development team. It is by far the most important piece of paper to deeply understand a cryptocurrency. It provides every detail about a currency. Within the white paper, use case, functionality, and technology basis are of prime importance. Among them, the use case is the most potent factor; it gives information about real-world solutions promised by the currency, and that decides the future of a cryptocurrency. You can see the white paper on Ethereum here.
2. Performance of Crypto in the Past
Investments are made to earn profit or as a hedge against inflation. The history of investment instruments is crucial in predicting the future. The same is the case with crypto assets. Carry out technical and fundamental analyses of crypto assets using historical data in the form of charts/ graphs. Furthermore, identifying the underlying factors of high-volatility regions is also a point of concern for investors that needs attention.
Crypto-related Investment Assets
Most people think purchasing cryptos is the only way to invest in the crypto market. However, crypto market also provides other avenues for investment.
1. Direct Purchase of Crypto
One way to invest in a crypto is directly purchasing crypto from crypto trading exchanges like Binance, Coinbase, Kraken, Kucoin, etc. Buying crypto from these platforms is quite simple and user-friendly. However, one can also purchase cryptos through secure crypto wallets. There are different wallets: hardware-based wallets like Ledger and Trezor, mobile wallets like Trust Wallet and Coinbase, and paper wallets for offline storage. These wallets offer various features, like hardware and paper wallets provide extra security, and software and mobile wallets offer ease and convenience. Choose a crypto wallet according to your needs.
2. Investment in NFTs
Technically, NFTs are not cryptocurrencies because they are not fungible but are alternatives to traditional artwork. NFTS are unique tokens based on the blockchain, offering a unique investment opportunity, just like conventional artwork.
3. Exchange Traded Funds (ETFs)
In a recent development, in Jan 2024, the largest cryptocurrency, Bitcoin, got approval from the Securities and Exchange Commission (SEC). This is termed a major breakthrough for crypto mainstreaming. The approval ensured the buying and selling Bitcoin stocks in traditional stock exchanges. This allows investors to get exposure to the crypto market without directly holding crypto assets.
4. Crypto Mining
Crypto mining is validating transactions and adding blocks to the blockchain. This is done by solving puzzles; miners are awarded newly created coins or transaction fees. This is done through powerful computers because it requires high computing power and complex mathematical calculations. Post-pandemic, crypto mining boomed to its highest. According to Medium.com, crypto miners still earn around $20 million daily. So, there is still a lot of scope for crypto mining available for investment.
How to Buy Cryptos?
Here, how to buy cryptocurrencies on crypto-only exchanges will be discussed. Cryptocurrencies are available on multiple platforms, as mentioned above. First, you need to identify which platform your aimed cryptocurrency is available on, as not all cryptocurrencies are available on a single platform.
1. Creation of an Account on the Exchange
After identifying the platform, your first step will be creating a personal account on the platform through email and mobile number. Cryptocurrency platforms ensure strict security, so you have to provide the correct personal details and pass their identity verification method. This is called Know Your Customer or (KYC). Most platforms take a live selfie, and some use live video to verify identity. It is important to remember the provided credentials during account creation.
2. Deposit Fund in The Account
Before depositing funds in your account, check your profile shows verified in verification status. The second step is to deposit funds in your account after completing the first step. Accounts will only be funded through real money (fiat money). Some exchanges allow deposits and withdrawals directly from bank accounts, and some do not allow direct methods, depending on regulations in your area.
3. Purchase Aimed Cryptocurrency
Once you have selected the cryptocurrency you wish to purchase, the third step involves placing an order on the exchange platform. This is typically done by following the steps provided by the exchange.
4. Ensure Security and Staking
The fourth and final step is to secure and stake your cryptocurrency. Staking is a lighter and more energy-efficient form of mining. It is used to lock up your purchased currency from the circulating supply. Lastly, secure your crypto within the exchange or use a separate digital wallet as per your needs.
Bottom Line
Cryptocurrencies have established themselves as potential investment instruments over the last two decades. Before investing, one needs a deep understanding of the crypto world to avoid losses. Understanding concepts like the typology of cryptos and use cases is particularly important. One way to invest in cryptos is by directly buying them from exchanges. However, they provide other opportunities like NFTs, ETFs, and mining. To buy cryptos, follow the four steps mentioned above.
