2022 proved to be even more challenging for the global economy than 2021 and 2020. Now the world economy is crumbling. Central banks representatives warn global society about the possibility of a financial crisis, a lack of resources and food. People worldwide are shocked that their long-term investments in real estate, business, securities etc can become worthless in a few hours. This devaluation can happen due to various unexpected and uncontrolled situations or “black swans” like war, market collapse, or even a tweet from an influential person that can lead to a price change.
More and more people are turning their attention to the digital finance and cryptocurrency sector as an alternative way to preserve the value of their capital and increase it. The cryptocurrency market over the past decade has proven to be profitable, viable, and competitive with traditional markets.
In many jurisdictions, digital assets are equated with securities, banks are mastering blockchain and collaborating with crypto projects, and the cryptocurrency industry has exceeded $2 trillion. The crypto industry has matured to be divided into DeFi, GameFi, NFT market etc. Each area has its functionality and opportunities for investors ranging from staking and farming to copy trading and short positions trading. But all this infrastructure may seem too complicated and alien at first glance.
Many investors are afraid to start investing in this sector even after several years have passed since the emergence and active development of cryptocurrencies. Like all other areas, the cryptocurrency market is subject to strong fluctuations at the stage of rapid maturation. For example, in mid-May, for a single day (May 20), the crypto market’s capitalisation decreased by about $1 trillion. This is how the market reacted to the statement made by the Chinese government about a ban on crypto transactions.
Anyone looking at the growth rate of the leading cryptocurrencies over the past year will wonder: has the digital train gone? Is it possible to start investing in cryptocurrencies now?
In this article, we will explain what you need to know before investing in cryptocurrency, how do you know when to invest in crypto, and how do you know when to invest in bitcoin in particular. Enjoy!
Ask Yourself: Why Do You Need to Invest in Crypto
The first step for everyone who wants to invest in cryptocurrencies is dedicated to the fundamental questions. Why have you chosen such a risky and innovative way of investment? The traditional market has many options available which are more stable and do not need special technical knowledge. You have to be ready to study the basic information on how the crypto works, what is mining, how to install a crypto wallet and pass KYC on the crypto exchange. No one can do this part of the work for you as every crypto enthusiast is a part of crypto society with its rules, traditions and even memes.
By becoming a crypto investor you are entering the whole world of decentralised money. This world is really huge and includes web3, blockchain and all kinds of decentralised finance (DeFi), and also decentralised applications (dApps) and more. Also, there are thousands of tokens and digital currencies so you need to research a lot in order to choose the proper one for you. You need to join the online crypto community where you can find support and get a feeling of this industry. So you can join different groups, Telegram chats, follow major crypto accounts on Twitter. You can find the list of popular crypto persons, bloggers, developers, traders on Google. If you are happy with this let us move further.
You Need a Plan: What to Consider Before Investing in Cryptocurrency
Now as you decided to join the Wonder World of crypto, you definitely need a plan. The question is, which strategy do you manifest: short-term investment or for a more distant future? Do you want to become a trader or do you want just to hold or stake?
For a deeper understanding of the market, it is necessary to know market indicators and the basics of fundamental and technical analysis, read announcements, news about technological innovations and events that can be used on market conditions. And remember that statistics play an important role in the cryptocurrency market.
The logic of the investment strategy is to examine the behaviour of the market during different periods of time. This can sometimes be difficult to keep track of, but market dynamics cannot be ignored, especially if you plan to engage in short-term investments.
To put it simply, choose the cryptocurrency that you like, study its statistics and catch the trend based on the reviews using market indicators.
Also, you need to consider the sum of investments that you can do right now and make a plan for the amount you expect to get. The basic law is to invest about 10% of your current income in case of long-term investment, but you can create your own plan.
How to Choose the Cryptocurrency for Investment
There are thousands of projects, altcoins, meme coins, NFTs and many other tokens and digital coins. For a novice, this is a hell full of unclear opportunities. Do not panic because this is not as complicated as may seem. You can use Coinmarketcap or CoinGecko to find the most proven and valuable coins. There you can see statistics on the level of volatility, read the history of the project, find connected news and make research about the team. You should remember that all this money is made by teams of people and the price often depends on how passionate and dedicated is the team. It is also important to define the main idea or the moto of the project and to understand how real are the goals. Every company has its own roadmap with key highlights and it is urgent to study this before investing.
You also need to make research the company’s state of registration to know if the company may have some legitimacy problems in the future. It is important to study the list of partners, auditors and contributors.
One of the easiest ways to choose the coin is to join its community and if the community is active and enthusiastic so maybe the project is decent to invest in.
Every project has its technical documentation called white paper on the website. Usually, it contains all the necessary information about the project’s ecosystem and tokens utilities. It is important to look at the total tokens emission and total supply and also the mechanism of inflationary containment. If there is no token burning system or unlimited token supply so maybe this project is not so good.
One of the main problems with crypto is cyber security. Many projects lack security which is clear because crypto security is really hard to maintain. There is a variety of complicated cryptography tools which need advanced code development. You will never know how secure is the project until you are not the system architect. But there are auditing cybersecurity companies that audit and check crypto projects and give some ratings to them. You can find 10+ most trustable names in the cyber security field just to know them.
And remember also to diversificate your investments. One coin is good but if you create your investment portfolio you can gain more profit with less risk.
The world of crypto is like Wild West sometimes because some people are looking for easy money creating scams and Ponzi schemes. The era of ICO created a bad reputation for the whole industry. And this is true that the crypto sphere is full of projects that do not have any value in the real world. You need to think about what will you do with these tokens in the future before buying them.
Let us do some summary: to choose the proper coin you need to get to know about the team, company registration, roadmap, white paper, project partners, security audits, volatility statistics, news on the project, token total supply. And remember you can always invest in Bitcoin or Ethereum which are considered to be the Gold and Silver in the world of digital currencies.
How to Choose a Crypto Exchange
We almost hit the goal. Now as you decided which cryptocurrency is worth your investments it is time to actually buy your first crypto. You can buy crypto at decentralised crypto exchanges or at p2p platforms. Also, you will need a crypto wallet to hold and transact your crypto. But most of the exchanges have a wallet tool, so you will not have to look for it additionally except if you want to get more security. In this case, you need to buy a cold wallet.
So how to choose a crypto exchange? Again you need to study the market with Coinmarketcap or CoinGecko. There you can find the list of exchanges and wallets. All you need to do is to look at their market capitalisation, trading volume and read analytical reviews. Also, you need to find an exchange with strong liquidity and a wide number of supported currencies. There are some biggest exchanges like Binance, Kraken and Coinbase. You can choose any of these. Do not forget to check their payment methods and legitimacy in your country.
Crypto investments are risky and need a deep dive into technical details, also it might seem confusing and even stressful but anyway, this is a great instrument to save money when the global financial system is in turbulence. Everyone can access this constantly growing world of digital currencies. You just need to do your own research on the market, study a few instruments, choose your currency and make a plan. Remember to avoid scam projects and to protect your private keys. Have fun!