In 2023, digital assets are as valuable as commodities and traditional securities. Nevertheless, although crypto is becoming a common part of our lives, many still don’t know how to benefit from it.
In today’s guide, we are going to explain the basic terms of cryptocurrency investments and reveal the steps that are necessary to be taken for a successful outcome. Let’s get down to business!
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Table of Contents
What is Cryptocurrency Investing?
To begin with, the term investing refers to the action when you put a certain amount of resources into something in order to generate profits from the further performance of the product. Cryptocurrency also follows this rule, but you still need to be aware of some crucial differences between digital coins and traditional assets for investments.
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Foremost, you should take into account the extreme volatility of the cryptocurrency market. It means that the prices of assets change rapidly there. Literally, they might change overnight. Such volatility can both generate extreme gains and lead to huge losses because this industry heavily depends on the stability of blockchain performances, scarcity of coins, and their utility. Besides, this venue is still unfamiliar to many investors who are afraid of potential manipulations by so-called crypto whales.
On the other hand, despite the market volatility, cryptocurrency investments are considered good havens for resources during periods of economic crises. Their demand, security of protocols, scarcity, and popularity don’t depend on interest rates, which makes digital assets heavily considered efficient investments during inflationary periods.
So, cryptocurrency investing is for those who aren’t afraid of taking significant risks and are willing to explore the venue that might potentially drive future trends. That’s why we suggest that you should explore how you do this in 2023.
Steps to Start Investing in Cryptocurrencies
We’ve specified 3 key steps you should take in order to make your first investment in cryptocurrency:
1. Create a trading account/crypto wallet
The first step is to find a platform where you will store your crypto investments expecting them to increase in value over time. You can store coins on a trading account of a crypto exchange or on a separate digital wallet.
Before you open a trading account on a platform, you should make sure that this platform suits you. If your aim is just to make a long-term investment, meaning you will buy a certain amount of coins and will just store them, you don’t need the platform to have very advanced functionality.
However, if you are willing to become an active crypto trader once you find out more about this market, you need to make sure that the exchange enables you to use different technical instruments, types of orders, and risk management tools. This all will impact your success as a crypto trader.
In any case, you will need a trading account to buy and later sell your investment.
2. Create an investment portfolio
A crypto investment portfolio is a basket of cryptocurrencies you invest in. Experts suggest that you shouldn’t allocate too many resources to crypto investments because of market volatility. If you have an investment budget of only $1,000, invest $100 in BTC, and this will be 10% of your total budget.
The choice of cryptocurrencies in your investment portfolio is quite an important aspect because different coins perform differently. You should consider their utility cases, scarcity, demand, and technical peculiarities. To stabilize your crypto investment portfolio, experts suggest that you should consider putting a certain percentage of your budget into stablecoins, such as Tether USDT, which is pegged to the US Dollar.
Also, when you choose which cryptocurrencies should be added to your investment portfolio, consider well-established projects with highly efficient security protocols that eliminate the impact of big investors, known as crypto whales. The crypto market knows multiple cases of projects collapsing completely making their investors lose all the invested funds.
3. Make an investment
Once you prioritize digital coins for your investment portfolio, you can finally buy them. We suggest allocating equal portions of your budget to all positions in your portfolio. This is a risk management technique that helps to eliminate the determining impact of one asset.
In the end, we would like to draw your attention to the fact that investing in cryptocurrencies isn’t as easy as it might seem. This is a complex market that requires long and dedicated research. Take it seriously and never neglect using risk management tools that help to minimize losses.