The fall of FTX and the current media frenzy over Binance have placed a spotlight on crypto exchanges in recent months. It has caused some investors to think twice about the wisdom of investing in crypto. However, to a large extent, that represents muddled thinking. The success or failure of these particular crypto businesses is a separate conversation to the overall performance of Bitcoin and other altcoins.
Crypto adoption is higher than ever
To understand the wisdom or otherwise of investing in crypto, it is necessary to look at the overall market and assess its risks and opportunities. One of the key market drivers is adoption. More people and institutions using digital assets means higher demand and drives up value.
Over recent years, adoption has increased dramatically. More businesses are accepting crypto as payment, more individuals are using it for peer-to-peer transactions and more investors are including it in their portfolios. This increase has come as advantages of crypto such as speed, security and transparency have become apparent.
So far so good, high adoption and manifest benefits combine to present a strong argument in favor of investing. What about the counter-arguments?
Volatility will always add a risk factor to crypto investing
The volatility of the crypto market has been well documented over the past decade or so. Bitcoin has seen some massive price swings, and these have left investors both elated and deflated in equal measure.
There have also been some instances of market manipulation. These have typically related to pump and dump scams using minimally traded coins. As regulation improves in the world’s crypto markets, these risks should tail off, but right now, vigilance is key.
Regulation can also be a potential risk. Nations across the world are gradually introducing regulatory frameworks for crypto. These improve transparency but do not always play in the investors favor, especially when it comes to areas like tax exposure.
First steps for new crypto investors
On balance, 2023 is a good time to start investing in crypto for many investors. The market is evolving and growing, adoption continues to rise and the net effect of clearer regulation can only be positive in the long term. It is, nevertheless, important to remember the volatility of the market and to assess both risk and return before making an investment decision. If you decide to proceed, these are the first steps to consider.
1. Choose your cryptocurrency
You might invest in one or more cryptocurrencies. Avoid small or new coins, as these can expose you to pump and dump scams. Use multiple sources to review the options, and remember, not every so-called expert on social media will have your best interests at heart. Major cryptos such as Bitcoin, Ethereum and Litecoin are relatively safe bets.
2. Choose your cryptocurrency exchange
An exchange is a platform where you can purchase your cryptocurrency. By opening an account you can hold various digital investments at any one time. As we mentioned earlier, crypto exchanges have been under the spotlight lately. It is again worth spending some time reading independent reviews. Binance is probably the most famous exchange, but the recent attention from the SEC has driven many to look at other exchanges such as xt.com, which scores consistently well among the independent reviewers.
3. Consider your storage options
Whichever exchange you use, it is good practice to avoid leaving it deposited there in the long term. In this case, you will need a digital wallet. You can choose either a hot wallet, which is purely online or a cold wallet, a physical storage device that is a little like an external hard drive. Most people find a hot wallet is most convenient.
4. Make your investment
The amount you invest is a personal decision that depends on a variety of factors, including your budget, your risk appetite and your overall investment strategy. Also keep in mind any minimum investment rules or transaction costs, as these vary from one exchange to the next.
5. Manage your investment
Investing in cryptocurrency is different to other types of investment as you can do more with it than with stocks or bonds. You could use your crypto to make purchases or you could hold on to it as a long-term investment, relying on that famous volatility to bring you a profit. Of course, that can equally easily end in disaster. The point is, crypto investment is demands a proactive and hands-on approach.
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