Considering the basics of investing in stocks, it can be said that investing in crypto is no different from investing in stocks. It has the same risk factors associated, and investors might end up holding one cryptocurrency for a long period if there are no buyers in the market. Just like the large number of stocks listed on different stock exchanges across the globe, crypto investors also get a long list of cryptocurrencies to choose from. Talking about crypto trading platforms, there are a lot of exchanges and brokerages that allow online trading in cryptocurrencies and curious traders can easily find top available platforms.
The Advent Of Cryptocurrency
Cryptocurrency, or simply crypto, is a type of online payment in exchange for goods and services. Cryptocurrency uses a decentralized technology called blockchain for managing and recording all such transactions. A lot of the well-known cryptocurrencies often show rapid increases in their market price in a short span of time, garnering increased interest among traders for making profit, with inflow of buyers driving the prices bullish.
Recent years have seen a surge in the trade of cryptocurrencies. A Bloomberg report says that the total value of these cryptocurrencies is now more than 2 trillion dollars, with Bitcoin alone having a share of one trillion dollars (CoinMarketCap.com). All this hype has led investors with little information and a lot of hope to rush into this crypto boom.
Investing In Crypto
Just like the investors of real currency, cryptocurrency investors must not expect regular cash flow in forms of interest and dividend. All the profits in crypto trading depends entirely upon its price increasing significantly – and holding it for a while. To do so, investors need to open accounts on a trading exchange that allows wallet creation and trade in listed cryptocurrencies. Other ways include online brokers that offer cryptocurrency trade. Few brokerages like Robinhood,Tradestation, and eToro are a good stop as some of them offer free trade in cryptocurrency as well.
Investing in Crypto is Similar to Investing in Stocks
Here are a few tips that suggest that investing in crypto and stocks is the same in many ways.
1. Put only a small fraction of a portfolio into cryptocurrencies
As an act of diversifying stock investment portfolios, cryptocurrency can occupy a very small part of an investment portfolio. Investors can decide the amount based on their risk factors. It is advised to keep this up to a maximum of 7%. “Don’t put all your eggs in one basket” is true here as well. Investors should not put all their money in just one currency, and divide their investments among several currencies.
2. Look For Exchanges/Brokerages That Allow Crypto Trading
Needless to say, there are 500+ crypto trading exchanges to select from. Before investing, investors should prepare themselves by reading user testimonials and consulting with veteran investors or market experts. Sounds familiar? Yes this is how everyone starts their stock trading.
3. Understand How Accounts/Wallet Works
Cryptocurrency is stored in exchange and crypto wallets, offering specific options, benefits, technicalities, and assurance. Finding the most suitable storage method for such currencies can be achieved either by seeking expert suggestions or by initiating a hit and trial experiment. Investors should weigh in aspects like additional charges, authentication, security etc before saying yes to one option.
4. Be Ready For Volatility
Trends show that the cryptocurrency market is more volatile than regular stock markets. Investors must be ready for sudden rises and falls in prices. It is advised to stay ashore from crypto trading in case the mental well-being of the investor is affected to a great extent due to the extent of these volatilities.
5. Alternate Investment Opportunities
Alternate ways investors can invest in crypto include investing in companies with cryptocurrency holdings, investing in cryptocurrency infrastructure, and cryptocurrency (exchange-traded fund) ETF to name a few. This again is very similar to conventional options like bonds, Exchange-traded funds, and more.
A lot of investors are restructuring their portfolios due to the rapid growth of cryptocurrency as a trading option. Although there are similarities in the way one can invest in crypto and stocks, there are several differences as well. A striking dissimilarity is that stocks are ownership interests backed by assets and cash flow, whereas cryptocurrencies are not backed by any sort of physical asset or interest.
Right now, cryptocurrencies are all the hot, but they are just starting to gain momentum. Investing in something new always poses some unforeseen challenges, so it is smart to be ready. “Plan investment carefully and start conservatively if there is an intent to participate”. It’s what’s known as “the greater fool” theory of investing. An organized business listed on a traditional stock exchange, on the other hand, adds to its market value over time, which boosts profits and cash flow for the investors.
This article is not intended to endorse Bitcoin or any other cryptocurrency. Rather, it serves as a guide for anyone looking to start trading in cryptocurrency. As cryptocurrency prices are likely to show a positive moving average over the next few years, it is a wide-open space with a lot of potential.