How to Invest in Cryptocurrency in 2024
The cryptocurrency market is a little over a decade old, but has made tremendous strides within this short period. The market capitalization momentarily crossed the $3 trillion mark toward the latter end of 2021, and it seems like it’s just getting started.
The blockchain technology promises to revolutionise our traditional financial systems, which have excluded a majority of the population by hoarding wealth among a select few powerful individuals.
Cryptocurrencies are decentralised, and this gives power and autonomy back to the individual. Many can be used as payment methods, as well as tradable assets whose ROI (Return of Investment) is unmatched amongst other asset classes.
This piece will go over several ways you can go about cryptocurrency investing, and some of the things you need to pay attention to before joining the market.
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4 Ways to Invest in Cryptocurrency
There are four main ways that you can do cryptocurrency investing. All of them are simple and straightforward, and by following our steps, you should be able to use any of the listed methods to invest in the cryptocurrency of your choice successfully.
1. Buy Cryptocurrency Through an Exchange
The first and most common method of buying cryptocurrencies is by using a crypto exchange. Today, there are over 10,000 different coins that exist, according to reputable platforms that track the market.
Most beginners will only know of a handful of tokens when starting their cryptocurrency journey, and the larger projects are available on all reputable exchanges.
Before purchasing cryptocurrency on an exchange, you need a wallet. Cryptocurrency wallets allow users to hold their private keys, and there are two types that exist: software and hardware wallets.
Software wallets come in the form of websites, desktop apps, and mobile applications. They are easily accessible and convenient for traders and individuals who make regular transfers using their coins.
Popular examples of software wallets include Guarda, BitGo, MetaMask, Exodus, Atomic Wallet, and many others.
Hardware wallets are physical devices that resemble USB flash drives. They host applications that one can use to store private keys for various cryptocurrencies offline. They are hack-resistant, and it’s hard to infect them with viruses and malware, which could compromise their security.
They are suited to long-term cryptocurrency investors who buy tokens and hold on to them for years. Popular examples of hardware wallets include Ledger, Trezor, Corazon, and KeepKey.
After acquiring a wallet, register an account on a reputable cryptocurrency exchange and complete the Know Your Customer (KYC) process. You will have to submit a photo of your ID/passport, proof of residence, and a picture of yourself for verification.
Secure the account by activating the two-factor authentication (2FA). Then fund the account and proceed to purchase the token of your choice, and move the coins to your private wallet.
2. Buy Fractions of Cryptocurrency Through an Exchange
When starting with cryptocurrency investments, there are a few misconceptions. One of them is that you have to buy a whole coin. You will realise this might not be possible since some coins such as Bitcoin cost a lot, presently over $36,000 per coin.
However, the good thing is that these coins are divisible by up to eight decimal places. This makes it possible to buy small fractions of the token and accumulate them over time to grow your portfolio. Most exchanges will allow you to purchase cryptocurrency worth as little as $10.
This is the best way to enter the market and grow your investment with time as you improve your knowledge of digital assets.
3. Trade Cryptocurrency Through a Broker
Another popular way to get into cryptocurrency investment is through an online broker. This is ideal for individuals who don’t want to deal with the actual asset and the complications of buying and safekeeping the assets, as brokers will store your coins securely for you.
Brokers also allow users to speculate on price movements within the market for profits, using derivative products like contracts for difference (CFDs). CFDs, along with other derivatives such as futures, are extremely popular with traders. They enable users to access speculative options, and can be combined with leverage to amplify profits significantly.
4. Invest in a Cryptocurrency ETF
Another way to invest in cryptocurrency is through an exchange-traded fund. ETFs are typically used to track indices, sectors, commodities, and other assets. It’s possible to invest in cryptocurrency using an ETF through a stock exchange.
As ETFs are listed on stock exchanges, they are subject to stringent regulatory requirements, making them one of the most secure investment vehicles in the cryptocurrency space. ETF managers have to prove the security of funds to regulators, so you can rest assured that you will not be scammed, and your coins will be well-protected.
Some ETFs are composed of multiple assets, and this extends to the cryptocurrency sector as well. You can use a carefully managed ETF to gain exposure to an expertly managed portfolio of digital assets, without having to worry about selecting the right coins yourself.
What to Consider Before Investing in Cryptocurrency
Now that you understand the methods and strategies of cryptocurrency investing, it’s time to check out three key areas you need to pay attention to as you enter the market. These can impact your profitability and even the security of your investment.
Fees
Fees are common among all service providers, and this is how they make their money. Different platforms will charge differing fees. Some of the fees you can expect include trading fees for buying and selling your tokens. Some crypto exchanges will have discounts if you hold their native tokens and use them for trading.
There are also network fees associated with the coins themselves. These are used to reward the independent node operators that verify transactions on the blockchain, and they vary depending on the coin in question.
Network fees for the most used networks, like Ethereum and Bitcoin, can rise drastically, especially when the networks are highly clogged. Ethereum ‘gas’ fees can be $5 or more, even for simple transactions.
Brokers will not charge any network fees since you are not dealing with the actual asset, but commissions are to be paid for trading. Finally, you are likely to incur fees associated with the payment processor you chose for depositing and making withdrawals from your trading account.
Risks
The cryptocurrency market is relatively young and has many risks. First of all, regulators are yet to implement adequate rules to govern how things work. The fact that these assets are decentralised and can be anonymous doesn’t help.
Therefore, there is a risk of these assets or platforms associated with them being banned. It’s something that is frequently talked about, and implemented, by nations as powerful as India, China, and Russia
The lack of adequate regulation and education around these assets has also seen frequent scams aimed at exploiting less scrupulous investors, so due diligence is required before joining any platform.
Also, avoid investment schemes attached to various digital assets, especially those making promises that seem too good to be true.
Another risk associated with cryptocurrencies is the substantial market volatility, but this can be exploited with trading, or mitigated with hedging.
Payment Methods
Platforms that allow users to invest in cryptocurrencies support various payment modes. Depending on where you are located, you may find out that some platforms don’t have a convenient way to enter the market. This is usually related to local regulations, and you may find yourself struggling to purchase your tokens on some platforms.
A good investment platform should support some of the most common payment modes accessible by most people. These include the likes of bank transfers, credit/debit cards, use of other cryptocurrencies, e-wallets, third party payment processors, and peer-to-peer (P2P) purchases where you can use your local currency, or even cash.
Why Invest in Cryptocurrency?
The cryptocurrency market as it exists today is over ten years old. It’s astonishing how fast it has grown. People are starting to believe that cryptocurrency is the future of money. The technology behind cryptocurrencies, blockchain, is also being used to solve myriad problems outside of finance. As awareness of the technology grows, prices will likely follow.
As an asset class, cryptocurrencies are delivering unmatched returns on investments that other asset classes can only hope to offer. Large institutional investors seem to realise this and have already entered the market. Therefore, you don’t want to miss out on this opportunity.
Summary of Investing in Cryptocurrency
This guide covers four ways and five key strategies you can utilise to enter the cryptocurrency market. It offers tips on how to go about each method and outlines a few things you need to pay attention to, impacting your profitability and the security of your virtual currency.
By following the advice offered in this piece, you should be able to enter into cryptocurrency investments with ease and make the most of the opportunities the market provides today.