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How to Invest In Cryptocurrency In 2021

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The cryptocurrency market is only a few years old, but it has made tremendous strides within that short period. The market cap crossed the $2 trillion mark in 2021, and it seems like it's just getting started. The technology promises to revolutionize 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 is unmatched amongst other asset classes. This piece will go over several ways you can invest in cryptocurrency today, and some of the things you need to pay attention to before joining the market. 

4 Ways to Invest in Cryptocurrency

There are four main ways that you can invest in cryptocurrency today. 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 using a crypto exchange. Today there are over 8,900 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 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 exchange and complete the Know Your Customer 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. 

Our Recommended Exchange

Below is a comprehensive list of some of the top and most reputable exchanges you can use to buy various cryptocurrency coins. 

1
Min. Deposit
$50
Exclusive promotion
User Score
10
Accepts customers from the USA
Offers 15 crypto coins to buy&sell including BTC, LTC, ETC, NEO and more
Trade on the world's leading social trading and investing platform
Start Trading
Payment Methods:
Bank Transfer, Wire Transfer
Full Regulations:
CySEC, FCA

2. Buy Fractions of Cryptocurrency Through an Exchange

When starting with cryptocurrency investment, there are a few misconceptions. One of them is that you have to buy a whole coin. You will realize this might not be possible since some coins such as Bitcoin cost a lot, presently over $50,000 per coin. However, the good thing is 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. 

Our Recommended Broker

Below you will see a list of some reputable brokers you can use to invest in cryptocurrencies quickly and easily, and many will allow leverage for potentially higher profits than regular exchanges.

1
Min. Deposit
$50
Exclusive promotion
User Score
10
Accepts customers from the USA
Offers 15 crypto coins to buy&sell including BTC, LTC, ETC, NEO and more
Trade on the world's leading social trading and investing platform
Start Trading
Description:
eToro offers a wide range of cryptos, such as Bitcoin, XRP and others, alongside crypto/fiat and crypto/crypto pairs. eToro users can connect with, learn from, and copy or get copied by other users.
Payment Methods
Bank Transfer, Wire Transfer
Full regulations list:
CySEC, FCA

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.

5 Cryptocurrency Investment Strategies

After learning various ways of investing in cryptocurrency, now it's time to go over five tested and proven strategies that will help you make the most of investing in different digital assets. 

1. Buy and 'Hodl'

What is it?

The first strategy is one of the simplest, as you will read in this section. This strategy involves buying and holding on to your tokens for a very long time. ‘Hodling’, which is an incorrect spelling of ‘holding’, is a popular investment strategy that has rewarded its practitioners generously over the years. 

This strategy is best used for investors who expect a project to become widely adopted in the future. The key here is selecting projects with actual use cases: if a project is well thought out and managed by a good team, then it is likely to grow with time, in which case the token’s value will increase. You can compare various coins’ price charts to see how this strategy works on longer timeframes.

All you need to do is join a cryptocurrency exchange where you will purchase a coin or coins of your choice, then transfer them to your private wallet and wait. You can buy small amounts of the coin within periods and keep growing your portfolio over time.

What is the benefit of using this strategy?

If you opt for this strategy, you don't have to worry about daily price volatility. The cryptocurrency market is highly volatile, and it's not surprising to see prices change dramatically overnight. Also, you stand to win big for believing in a project and accumulating its tokens before its price blows up. This strategy doesn't require much technical know-how and is suitable for many new investors. 

2. Day Trading

What is it?

If ‘hodling’ is a long-term investment, then day trading is the opposite. This strategy involves buying and selling crypto tokens within hours or even minutes. It's a great way to exploit the rampant volatility that exists within the crypto market. A day trader will often target coins that seem to have made significant losses within a day or week but are likely to bounce back. 

Based on your analysis, you will buy or sell a coin at a given price, anticipating a price movement in a particular direction. You will need to learn how to read charts by conducting fundamental and technical analysis. It also helps to keep an eye on the latest ongoings within the wider market, and with individual projects too. This will help you make informed decisions and time the market correctly. 

What is the benefit of using this strategy?

You get to profit more often compared to long-term investors, as positions are opened and closed within hours, rather than years. You also won’t have to worry about safeguarding tokens in private wallets, and other risks associated with holding coins yourself, as your chosen trading platform will do this for you. Additionally, you can utilize leverage to make higher profits by speculating on small price movements within the market. 

3. Shorting

What is it?

Short-selling, or shorting, is a strategy that allows you to take advantage of an expected price drop for a given cryptocurrency. Let's say you expect the price of coin X, which is trading at $600, to drop in the near future. You can borrow the coin from a broker and sell it at market price straight away. 

After a couple of weeks, the price drops to $400. You can repurchase the coin and return it to the lender, clearing your debt and keeping the $200 difference as your profit. To make the most of this strategy, you need to learn how to read charts and stay updated on the latest developments likely to influence the price of the tokens, as you will lose money if you incorrectly predict the direction of price movement.

What is the benefit of using this strategy?

Shorting allows you to generate profits even when the price of your chosen coin is in decline. This makes it a great tool for reducing your financial risk. Additionally, just like day trading, you don't need to worry about safekeeping your tokens and other associated risks, which will be handled by the broker you choose. Some brokers will offer leverage for short trading, which can maximize your profits if you execute a trade successfully. 

4. Using a Trading Bot for Trading

What is it?

Trading robots are  pieces of computer software programmed to handle trading on behalf of users. They use artificial intelligence (AI) and machine learning (ML) to complement their trading algorithms, and this helps them to collect and interpret vast amounts of cryptocurrency market data. The robot can then make predictions on a coin’s price movements, and if the user allows it, it can place trades for them. 

AI helps the bot to predict price movements, and ML helps the robot learn and improve its performance over time. Trading bots are the easiest option for investors interested in cryptocurrencies who lack the trading knowledge to get into the market profitably. All you need to do is employ a reputable bot's services by signing up on the platform, securing the account, and funding it. 

Many platforms offer a demo account to teach you how to use the bot before committing to a real money deposit.

What is the benefit of using this strategy?

Trading bots allow people with limited knowledge of the cryptocurrency market to invest in digital assets. The bot will handle the hard work of analyzing and trading for you. Even experienced traders can use these bots to delegate some of their work, which eases their trading burden. Bots are great for establishing a steady stream of passive income, and allow exposure to trading without a large time or effort commitment.

5. Hedging Cryptocurrency

What is it?

Hedging involves taking new positions within the market to cover potential losses from the already open positions, and is a popular strategy with prudent investors. This can be done by combining CFDs, shorting, and futures to secure your cryptocurrency investment. If you expect the value of a coin you hold to fall, you can hedge by opening a short position. In this way, whichever direction the price moves, you stand to benefit. Additionally, you can use futures contracts to agree on a future sale price today, meaning you can guarantee a profit ahead of time. This increases certainty in an often unstable market.

What is the benefit of using this strategy?

Cryptocurrency hedging exists to help investors safeguard their capital. This helps prevent the first position from resulting in losses. Hedging is a strategy that will help you manage your risk effectively. This enables one to minimise losses with little downside. 

Buy Cryptocurrency Today!

What to Consider Before Investing in Cryptocurrency

Now that you understand the methods and strategies of investing in cryptocurrencies, 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 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 digital assets are decentralized 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 by nations as powerful as India and China.

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 less than 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 investment that other asset classes can only hope to offer. Large institutional investors seem to realize 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 utilize 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 security of your assets. By following the advice offered in this piece, you should be able to enter into crypto investments with ease and make the most of the opportunities the market provides today. 

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