How to invest in cryptocurrencies
This is a topic which has been very much pushed by the crypto "boom" at the end of 2017. Millions of people in the Bitcoin ATH era (all-time-high) out of greed and the resulting FOMO (fear of missing out) have googled on how they can now invest Fiat money * like Dollar or their own national currency in Bitcoin.
* Fiat money is money that has neither a fundamental value nor a promise to pay. The market value of fiat money consists solely of future expectations (liquidity and speculation premium). So a piece of cotton is a 50 € note and is worth 50 €. Value stability is guaranteed by central banks in the case of local currencies (euro, dollar, Swiss franc, ...).
The people who bought at the ATH at the time are now heavily in the red and probably a large part of them has now cashed out frustrated. Others who wanted to invest because of the high Bitcoin price may not have done so, since the process seemed too complicated or opaque. My goal in this article is now to explain how investing in cryptocurrencies works and what important things to keep in mind.
Exchange fiat money in cryptocurrencies
The first step to buying digital currencies is signing up on a stock exchange where it is possible to exchange fiat money (for example euros or dollars) in cryptocurrencies. Such a stock exchange is for example Coinbase. However, you can only buy a limited number of cryptocurrencies on these exchanges (for example, Bitcoin, Ethereum and Litecoin). For which of the crypto currencies offered on the stock exchange should you decide and how can you get the crypto currencies that are not offered on this stock exchange?
How do I get cryptocurrencies that are not offered on a big "fiat money in cryptocoins" stock exchange?
For example, many of the major exchanges only offer three major cryptocurrencies, for example. Bitcoin, Ethereum and Litecoin. But since there are over 1500 different crypto currencies, you should know how to exchange your bitcoins for example in one of the other crypto currencies. This exchange process works through exchanges such as Binance. There you can exchange BTC (Bitcoin) / ETH (Ethereum) in many other cryptocurrencies. Binance has a very large supply, so you can find many different cryptocurrencies there.
Why should I exchange a "big" and known cryptocurrency offered to me directly in exchange for fiat money (Euro / Dollar) for a "small" and new cryptocurrency?
The exchange of "big" cryptocurrencies into "small ones" gives you the chance of a potentially higher profit. This can be explained by the market cap (market cap of a cryptocurrency = amount of the coins of a cryptocurrency * price for a coin). If a cryptocurrency is already very large and has a very high market cap (there is a lot of money in it) it will need an extremely large amount of money to increase the price five fold. If the market cap is still very small, the amount of money needed for a five-fold is much lower. Cryptos that do not have such a high market cap thus have the greater potential for extreme price increases (for example, fifty times). There are also a lot of cryptocurrencies with interesting approaches where, if you are behind their idea, of course, as early as possible in the token (In the cryptocurrency) would like to invest. However, a potentially high return is always associated with a high risk because "small" cryptos are not so well-known and not yet so well-established. The risk of a total loss is thus significantly higher.
Which cryptocurrency is best for the exchange process?
Because you have to send your cryptocurrency if you want to exchange it from, for example, coinbase to binance for example, you should choose the one that has the lowest transaction fees and the highest transaction speed. Ethereum is well suited for this.
As you can see, it is a bit cumbersome to invest in cryptocurrencies, but like everything in life, it's a matter of practice :). I would recommend you if you do the whole thing the first time to start with a small "test amount" and then if everything worked you can start to this with hihger amounts of money but be carefully! If you do the whole thing once you realize that it is awkward but actually very easy.
What do you have to consider?
- When buying cryptocurrencies, please note that:
- That you have registered on a trustworthy stock exchange.
- That you are at least 18 years old.
- That you only invest money, that you are ready to lose.
- That you are able to create a secure wallet (soon an article on wallets will come) to protect your cryptos.
- That you have informed yourself well in advance about all relevant things.
- That you know the tax and legal situation.
- That you well protect your passwords and security access codes.
- That your (Crypto) addresses are always correct.
- That you are aware of the risk of total loss.
Summary
Fiat money on, for example, coinbase in for example Ethereum or Bitcoin, ... (depending on which cryptocurrency you want and which are offered) swap.
Then either optional in a safe wallet if you only wanted Ethereum for example.
Or if you want other cryptocurrencies, send your Ethereum to an exchange with a large supply of coins, such as Binance, and swap it for the cryptos you want, then send them to a suitable wallet.
Tips
- Never buy at an all-time high in most cases, the "buy low-sell high" principle is the best.
No FOMO (fear of missing out). Especially in the very volatile crypto market, the prices fall sharply after an ATH (all-time-high), as investors want to realize their profits. For example, many people bought Bitcoin at $ 2,000, so the price went up (supply and demand: Bitcoin and all other cryptos are only as valuable as people are willing to pay for it, people think Bitcoin one has a certain value and in the long term the price will approach this value more and more). As a result the price went up in our example, many people now think Oh the price of Bitcoin goes well so I get in there and buy myself a bit Bitcoin (FOMO: they are afraid to miss something and with something I mean Money: D so more and more people are getting in and the price is getting higher). Of course, the people who bought Bitcoin at $ 2,000 think it's awesome, the price goes up, and then when the price reaches around $ 20,000 ATH, most of the investors who bought $ 2,000 think they are Satisfied with their profit and sell Bitcoin against Euro / Dollar. As a result, the price falls a bit down what lead to panic at a lot of investors so they sell quickly to realize their profits, whereupon a downward spiral is developing. And some time later, the whole starts from the beginning where the intervals between the lows and highs over time are getting smaller and smaller as the price approaches the value (theoretically in practice, there are factors that change the value, for example, improvements from Bitcoin which would increase the value or a better competing product which would lower the value that investors attach to Bitcoin). Therefore, when you "shopping" cryptos the "buy low-sell high" principle should always be kept in mind.
- It is very important to be well informed about the crypto currencies that you want to invest in, as there are many "shitcoins" that have no real uses and areuseless. And if you believe in the cryptocurrency that you have invested in, and you firmly believe it will prevail, you also have the psychological power to not panic sales just because the price falls. Losses are only then losses if you realize them (when you cash out). Win as well, of course. But even if you believe in 100% of the cryptocurrency you invested in, you should diversify (divide your capital into several promising cryptocurrencies) and invest only as much money as you are prepared to lose.
conclusion
- Cryptocurrencies are a highly speculative market (large profits and losses are possible) in which a total loss of the invested capital is possible at any time. In order to reduce the risk of total loss, you should therefore diversify and divide your capital into various promising cryptocurrencies. However, since the risk of total loss still exists, you should only invest money whose loss would not affect you.
- The implementation of all information on this Blog is at your own risk. The creator of this article can not be held liable for any loss, even if losses are incurred directly by following these instructions.
- Named companies are just examples.
- The market is subject to constant change, which is why the author rejects any responsibility for up-to-dateness and validity.
Thank you ver much for reading this article, I hope he could help you. If you have any questions you can ask me these in the comments. I would be very happy about an upvote. If you do not want to miss anything on this blog you are welcome to follow me. See you next time, stay tuned!
My contributions are not financial advice, they are for informational purposes only.
To form your own opinion, it is always advantageous to consult several sources.