Bitcoin is one of the hottest topics both in and out of the investor world. Many people are intrigued by the thought of investing in cryptocurrency but don’t have enough knowledge to get started. The cryptocurrency industry is very broad, so you must learn all you can before you start investing.
Background of Cryptocurrency
Unless you’re already an expert, there are tons to learn about crypto.
Types of Cryptocurrencies
There are over 7000 cryptocurrencies right now, with Bitcoin being the first and most popular. These are the different types available:
- Cryptocurrencies: Cryptocurrencies are coins with a digital ledger where transactions between users of the coins are recorded. The ledger is known as the blockchain.
- Crypto Tokens: Crypto tokens are referred to as tokens instead of cryptocurrencies because they are created on another blockchain or ledger.
- Stablecoins: Stablecoins are another class of tokens that solves the price fluctuation problem both crypto and tokens have. Both of these currencies fluctuate based on the market supply and demand. Stablecoins, however, offers steady pricing that is typically pegged to a currency, such as the US dollar. Therefore, one unit of Stablecoins is equal to 1 dollar. This type of cryptocurrency allows users to send payments without the price of their assets falling.
Where Do You Buy Cryptocurrency?
To use crypto, you need to buy some. You can purchase cryptocurrency in two ways:
- Bitcoin ATMs
The easiest place to purchase crypto for a beginner is an exchange.
Once you’ve bought cryptocurrency, you can send it to someone who accepts it for payment. You may transfer it to your wallet to secure your new assets. To send crypto, you need:
- A wallet with a balance: If you purchased your crypto through an exchange, you will have a wallet.
- A recipient address: The address consists of letters and text where crypto is sent and spent from.
Have the person you want to send crypto to send you their address. If you use an exchange, you can log back into the exchange and withdraw the amount and wait for confirmation that the crypto has arrived at the correct address.
Sending crypto like Bitcoin through any exchange will almost be the same process. However, you will not have full control of your wallet on these exchanges.
Now that you know how to buy coins and send crypto, you’ll need to learn how to store your cryptocurrency on an exchange. You can store your assets in several ways, including:
- Hardware Wallets: Typically the safest place to store your assets, these keep your coins offline so hackers can’t get to them.
- Non-Custodial Mobile Wallets: Mobile Wallets help you send transactions from your hardware device while storing funds on exchanges. These wallets give you total control of your assets.
Monitoring Your PortfolioWhen you invest in crypto, you’ll need to begin monitoring your portfolio. If you plan on purchasing a few coins and letting them be for a few years, then monitoring your assets won’t take too much work.
However, if you plan on becoming an active investor, you’ll need to frequently check prices and your portfolio’s performance.
Is Crypto Taxable?
The short answer is yes. Cryptocurrency is taxable, so you must use a professional tax software to determine how much you’ll owe.
Risks of Investing in Crypto
Investing in cryptocurrency is much riskier than investing in something like the real estate market for many reasons, including:
Bitcoin can go up or down 30% in just one day. To mitigate this risk, you should only invest money you can afford to lose or put away for a long time.
You shouldn’t leave your coins on exchanges because hackers can steal them. Exchanges have security breaches and risks that result in a loss of your funds and/or personal information. The best way to keep your coins safe is to withdraw them to a non-custodial mobile wallet or a hardware wallet.
User error can result in a significant loss. Common errors include sending coins to the wrong address, storing your passphrases online, and failing to log out of your exchange account when using a public device. Mitigate your risk by double-checking all information before transferring funds and not exchanging in a public place.
Tips for New Investors
Investing in crypto is confusing even for seasoned investors. Here are a few tips for new cryptocurrency investors.
Don’t Become Impatient
Being an investor means being patient so you can make a profit. Don’t rush into buying Bitcoin because the price recently went up or sell if the price drops overnight. Always buy low and sell high.
Do Your Research
Spend time researching what you’re investing in. Investigate everything from the number of users to reviews, along with project milestones. Never base your investment on advice from people who don’t know anything about investing, and don’t take an influencer’s word for it.
Only Invest What You Can Lose
As we’ve mentioned before, you should only invest an amount you’ll be comfortable with losing because there are so many risks involved.
Basic Crypto Investment Definitions
When you begin investing, you’ll read a lot of words you’ve never seen before. You must know what they mean before you buy any crypto.
- HODL: Misspelt “HOLD”-holding investments until they become profitable.
- FUD: “Fear, Uncertainty, and Doubt”- misleading news that negatively affects prices
- FOMO: “Fear of Missing Out”-investing in an asset because the price increased.
- JOMO: “Joy of Missing Out”- failing to buy an asset before price drops.
Beginning Your Crypto Investment Journey
Investing in cryptocurrency can be an exciting thought. Unfortunately, many investors have learned that doing it without the right knowledge behind the investment can result in losses. These individuals may have also fallen victim to crypto scams. Before you decide to invest, make sure you do as much research as possible to determine if this is the type of investment that’s worth it for you.
About the Author
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.