How do I enter digital currencies?
Despite their many volatility, cryptocurrencies are very popular, and many investors are looking to profit from their potential upsides. Seasoned traders have been speculating on cryptocurrencies for years, but what if you are new to the market and looking to get a piece of the trend? In this article, you will find the answer to the question: How do I enter digital currencies? In addition to everything you need to know and pay attention to.
How do I enter digital currencies?
If you are looking forward to investing in cryptocurrencies, you need to get all your finances in order. This means an emergency fund, a low debt level, and an ideally diversified investment portfolio. Your digital currency investments should be the last part of your portfolio.
Pay attention to these five other things when you start investing in cryptocurrency:
1- Understand what you are investing in
As with any investment, you need to understand exactly what you are investing in. If you are buying stocks for example, it is important to read the prospectus and analyze the companies thoroughly. You have to do the same with cryptocurrencies, there are thousands of them that work differently and new ones are created every day.
There are many cryptocurrencies that are not backed by anything at all, neither fixed assets nor cash flow. Such is the case for Bitcoin, where investors rely exclusively on someone paying more for the asset than they paid for it. In other words, unlike stocks, where the company can increase its dividend and generate returns for you in this way, the profit from many digital assets depends on the optimism of the market.
Some of the most popular coins include Ethereum, Dogecoin, Cardano, and XRP. But before you invest in any of them, you need to understand their potential positive and negative aspects. If your financial investment is not backed by an asset or cash flow, it may end up being worth nothing.
2- Looking to the future
Secondly, in the article How to Enter Digital Currencies, looking to the future rather than the past. The mistake many new investors make is looking to the past and reflecting that on their future decisions. Bitcoin was worth a few pennies in the past, but now it’s worth much more than that.
Investors look to the future, not to what the asset did in the past. What factors might affect future returns? What traders will pay for a particular cryptocurrency is based on tomorrow’s earnings, not yesterday’s earnings.
3- Be careful about volatility
Cryptocurrency prices are as volatile as assets, they can quickly fall in seconds due to an unsubstantiated rumor. This can be great for savvy investors who can execute trades quickly or who have a solid understanding of the fundamentals of the market, how it is headed and where it might go. For new investors who do not have these skills, or the highly capable algorithms that guide these trades, it can be a minefield.
Volatility is a game for high-powered Wall Street traders, each trying to outsmart other wealthy investors, and where the new investor can easily get crushed.
4- Manage your risks
If you are trading any asset on a short-term basis, you need to manage your risk, especially if you are trading volatile assets such as digital currency. As a new trader, you will need to understand how best to manage risk and develop a strategy to help you mitigate losses, which may differ from one investor to another.
Risk can be managed for the long-term investor by refraining from selling and holding onto the position no matter the circumstances.
A short-term investor must set strict rules about when to sell, and follow the rule closely so that a relatively small decline does not turn into a crushing loss later.
New traders should consider setting aside a certain amount of trading funds, using only part of it at first. This way they will still have spare funds to trade with later even if a position moves against them.
5- Do not invest more than you can afford to lose
Finally, it is important that you avoid investing the money you need in speculative assets. If you can’t afford to lose something, that means you can’t afford to put it in risky assets like cryptocurrencies, stocks, ETFs, and other market based assets.
Whether it’s a down payment on a house or an important purchase, the money you need for the next few years should be kept in safe accounts so that it’s available when you need it. And if you are looking for an absolutely sure return, then your best option is to pay down the debt.
Don’t lose sight of the security of any exchange or broker you use, even though you may legally own the assets, someone still has to secure them, and their security should be tight. Some traders choose to invest in a cryptocurrency wallet to keep their assets offline so that others cannot access them.
Other ways to invest in digital currencies
While investing directly in cryptocurrencies may be the most popular way to do this, some traders have their own ways of getting in on the game. Here are some of them:
Cryptocurrency futures: Futures contracts are another way to bet on the price volatility of Bitcoin, and they also allow you to use the power of leverage to generate huge returns (or losses).
Cryptocurrency Funds: There are some funds that allow you to bet on the price fluctuations of Bitcoin and Ethereum as well as some other altcoins.
Cryptocurrency exchanges or stock brokers: Buying shares in a company that is poised to profit from the cryptocurrency rally regardless of the winner may also be an interesting option. You can do this by investing in an exchange like Coinbase or a broker like Robinhood, which derive a large portion of their revenue from cryptocurrency trading.
Blockchain ETFs: A blockchain ETF allows you to invest in companies that may benefit from the emergence of blockchain technology. The best blockchain ETFs give you exposure to some of the major publicly traded companies.
Frequently asked questions about how to enter cryptocurrency
How much money do I need to start investing in digital currency? In theory, it only takes a few dollars to invest in cryptocurrencies. The minimum for most cryptocurrency exchanges for example, is $5 or $10. Other cryptocurrency trading apps may have a lower minimum.
However, it is important to know that some trading platforms will take a large portion of your investment as fees if you are trading small amounts of cryptocurrency. Therefore, you should look for a broker or exchange that will reduce your fees.
How does Blockchain work? Cryptocurrencies are based on blockchain technology, which acts as a running receipt for transactions. When a blockchain database powers the digital currency, it records and verifies transactions, verifying the movements of the currency and who owns it.
How do you mine digital currency? Some cryptocurrencies reward those who verify transactions on the blockchain database in a process called mining. For example, miners involved in Bitcoin solve very complex mathematical problems as part of the verification process. If they succeed, they will receive a predetermined prize of bitcoins.
How can I invest in Bitcoin? If you’re looking to invest in Bitcoin, you have a variety of ways to do so, including:
Cryptocurrency exchanges: Exchanges like Coinbase, Kraken, and Binance have the largest selection of cryptocurrencies, and tend to be the most competitive in terms of price.
Traditional brokers: Many traditional brokers such as Interactive Brokers, TradeStation, and tastyworks also allow you to trade bitcoin as well as stocks and financial assets.
Financial Apps: Many financial apps such as PayPal, Venmo and Cash App now allow you to trade Bitcoin and some other cryptocurrencies.
What are alternative currencies? Several years ago, traders were using the term pejoratively because Bitcoin was the largest and most popular digital currency, so all the rest were grouped into a derisive category called altcoins. While Bitcoin is still the largest cryptocurrency by market capitalization, it is no longer as dominant as it was in the early days of cryptocurrencies, making the term altcoin somewhat archaic.
Cryptocurrencies are a very volatile market, and many savvy investors have decided to put their money elsewhere because of this. For beginners who want to get started in cryptocurrency trading, the best advice is to start small and only use money you can afford to lose.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.