How to Invest in Cryptocurrency 2022; A Guide for Cryptocurrency Beginners
Investing in Cryptocurrency 2022; Where Do You Invest in Cryptocurrency
How to Invest in Cryptocurrency: October was a blockbuster month in the world of cryptocurrencies, with the asset class’s leading player, Bitcoin (BTC), surging by about 40%, according to data from CoinMarketCap. It wasn’t just Bitcoin that went parabolic in the month, with several other prominent coins on this list hitting all-time highs.
The Shiba Inu (SHIB) coin, which debuted as a spin-off of the meme-based Dogecoin, went absolutely bonkers, gaining more than 800% in the month and leapfrogging Dogecoin (DOGE) in the process. Such unabashedly speculative, meme-based tokens, however, don’t stand up to scrutiny. Here’s a look at seven of the best cryptocurrencies to buy in late 2021, and the bull case for each.
Bitcoin was considered nothing more than an exciting phenomenon when it first came into the limelight in 2009. Technicians and futurists could see the future potential of cryptocurrency in general, but it wasn’t drawing much interest as an investment vehicle. Many didn’t know how to invest in Cryptocurrency and what really is its potential.
But as the years have passed and hundreds of more cryptocurrencies have appeared and disappeared, Bitcoin has emerged as the standard-bearer and most popular cryptocurrency. This point hasn’t been missed by investors and speculators.
Some are now coming to see cryptocurrency as an alternative global currency that will eventually replace sovereign currencies such as the U.S. dollar and the euro.
Recently cryptocurrency trading activity has also drawn a large number of speculators. They’re betting on cryptocurrencies — Bitcoin trading in particular — rocketing all the way to the moon. Speculators are rarely seriously concerned with fundamentals. They see a sudden and dramatic price rise, and whatever the asset, it draws their attention.
This article isn’t meant to be a seal of approval of Bitcoin or any other cryptocurrency. Instead, it’s a general guide for cryptocurrency beginners or anyone who wants to start investing in cryptocurrency. It is entirely possible cryptocurrencies will continue their march forward over the next few years. And if you’re betting on that outcome and looking forward to investing in cryptocurrency in 2021 or 2022, we hope this information will help.
What Are Cryptocurrencies and How Do They Work?
What is Cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
How Does Cryptocurrency Work?
Cryptocurrencies work using a technology called the blockchain. Blockchain is a decentralized technology spread across many computers that manage and records transactions. Part of the appeal of this technology is its security.
The most popular cryptocurrency is Bitcoin, whose price is regularly tracked in the major financial media questioning- should you invest in bitcoin?. But there are actually hundreds of cryptocurrencies, including many that have already come and gone.
Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
- Supporters see cryptocurrencies such as bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
- Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation
- Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems
- Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money
Are cryptocurrencies legal?
There’s no question that they’re legal in the United States, though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country. Also, be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.
How to Invest in Cryptocurrency — Step By Step Guide for Cryptocurrency Beginners
- Allocate Only A Small Percentage Of Your Portfolio To Cryptocurrencies
- Choose your Cryptocurrency
- Choose a Cryptocurrency Investment Platform or Crypto Exchange
- Store Your Cryptocurrency
- Secure Your Cryptocurrency
As you might envision, you can’t go to a local bank or even a brokerage firm and buy cryptocurrency. It’s still seen as something exotic in the world of financial institutions. Since it’s not well understood and is virtually unregulated, most financial institutions don’t want to deal with it. For that reason, it tends to function within its own network.
Study our tips if you want to start investing in cryptocurrencies.
1. Allocate Only a Small Percentage of Your Portfolio to Cryptocurrencies
You’ll have to decide in advance how much of your portfolio you want to allocate to cryptocurrency. With recent advances, particularly in the price of Bitcoin, it can be difficult to make a rational decision. All investing is ruled by a combination of greed and fear, and it may be hard to keep the greed part under control given the advances cryptos have shown in recent years.
- Most importantly, cryptocurrency should occupy only a very small part of your portfolio. Exactly how much is completely up to you. But you should be wary of investing more than 10% or even 5%.
- Understand that cryptocurrency isn’t an investment in the same way a stock is. Much like investing in gold and silver, it doesn’t pay interest or dividends. To the degree that cryptocurrency will be a good investment all depends entirely upon its price increasing significantly — and staying there for a while.
- Cryptocurrencies weren’t designed to be investments. They are mediums of exchange. They’ve widely been seen as an alternative to sovereign currencies, like the dollar, yen, and euro. It’s been thought that they’ll ultimately represent a more efficient means of commerce, particularly on the web. That’s because its value is determined strictly by the market and not by manipulation as sovereign currencies tend to be.
- But at least up to this point, cryptocurrencies haven’t satisfactorily filled the role of being a medium of exchange. Only a very limited number of merchants accept them, so most trading is taking place between individuals.
Up to this point, both the current uses and the future of cryptocurrencies are numerous.
2. Choose Your Cryptocurrency
This is one of the real complications of cryptocurrency. There isn’t just one, but hundreds. Maybe even more than a thousand.
Complicating the issue is that more are coming online all the time. That has to be counterbalanced by the reality that hundreds of cryptocurrencies have come and gone already. And the whole concept of cryptocurrency started only about a decade ago.
Bitcoin is the Most Dominant Cryptocurrency as of November
Right now, the largest cryptocurrency is Bitcoin. It’s also the crypto that’s drawing the most attention and investment dollars. In a very distant second position is Ethereum, and there are others like Zcash, Dash, and Ripple.
Given its dominant position, Bitcoin seems to be the most reliable among all the many cryptocurrencies available. In fact, Bitcoin has become practically synonymous with “cryptocurrency.” What’s interesting about the connection is that while the media has been carefully following the price action of Bitcoin, some cryptocurrencies have performed even better.
Because of the dominant position of Bitcoin, your cryptocurrency position should be mainly in this crypto. Other cryptocurrencies should occupy a much smaller position in your portfolio. And if Bitcoin as the bellwether of cryptocurrency is speculation, any other cryptocurrency you hold should be seen as even more speculative.
This assumption should not be underestimated. Most of the cryptocurrencies that have come on the market in the past decade have either flatlined or disappeared completely. That means any investment you make could go all the way to zero. And given the price volatility that’s common with cryptocurrencies, your investment could disappear completely with very little notice. This makes the traders constantly looking for the next big thing (one example is NFTs, read about it here).
3. Choose a Platform to Buy and Invest Cryptocurrencies
One of the demerits of buying cryptocurrencies is that you can’t get them in all the usual financial places. Banks don’t offer them and neither do investment brokerage firms.
For the most part, you’ll be limited to buying, holding, and selling cryptocurrencies on dedicated cryptocurrency exchanges.
Only a few cryptocurrency investment platforms are out there and getting access to the Best and Trusted Bitcoin Investment Sites and Crypto Exchanges is a difficult task for crypto beginners and pros alike.
List of Best Cryptocurrency Investment Platforms and Exchanges
4. Store Your Cryptocurrency
Cryptocurrency is typically stored in a cryptocurrency wallet, which can be either a hot or cold wallet. This is a complicated topic, particularly since there are so many wallets available. But we’ll try to boil it down to the basic facts.
A cryptocurrency wallet is a software program that stores the private and public keys that connect you to the blockchain where your cryptocurrency exists. Wallets don’t actually store your cryptocurrency but enable you to access it on the blockchain with your public key (your “cryptocurrency address” that the other party in the transaction sees) and private key (known only to you). You must have both in order to complete a transaction. They’re called “keys” because they’re used to unlock your cryptocurrency on the blockchain.
In addition to enabling you to access, send and receive cryptocurrency, a digital wallet also provides a record of transactions that are stored on the blockchain, as well as your current balance.
Types of Cryptocurrency Wallets
There are several different types of digital wallets:
- Desktop wallets are installed on your personal computer. Since storage is on your own computer, the information is safer than with online wallets.
- Online wallets are on the cloud and can be accessed from any computer. They’re more convenient to use, but your private key is stored online and controlled by a third party. This makes them less secure.
- Mobile wallets. As the name implies, this type of wallet is an app on your smart device. They have the advantage of being able to be used to make purchases where various cryptocurrencies are accepted.
- Hardware wallets. These stores your private key on a hardware device, such as a USB device. They’re more secure because the private key isn’t stored online, where it could be accessed by unauthorized parties. They also let you access your cryptocurrency from multiple devices.
Which digital wallet you choose will depend on your own desire for a balance between security and convenience. Some cryptocurrency exchanges also offer digital wallets for your cryptos.
You can also use software to track your cryptocurrency just as you would other types of investments. For example, with Personal Capital‘s cryptocurrency BETA you can input the amount of crypto you own, and track it alongside the other assets in your portfolio.
5. Secure Your Cryptocurrency
Keeping your crypto secured after you buy it is very important. This is especially true if you decide to use your cryptocurrency to buy products or if you have a hot wallet. Basically anytime you use crypto online, you need to make sure your investment is secure. That’s why we recommend using a VPN like NordVPN to make sure your online transactions are secured and encrypted.
When you use a VPN (Virtual Private Network), your online connection is secured. Having your data encrypted means that no one can see any of your online transactions. It’s an extra layer of protection that ensures both your data and your crypto purchases are completely anonymous. It makes it harder for others to hack into your accounts, especially for users who own a lot of cryptos. ExpressVPN is another VPN that can help secure your accounts and add an extra layer of protection.
3 Best Cryptocurrencies to Invest in Now
Which is the Best Cryptocurrency to Invest in Now?
This is a personal question based on your interest in technology and risk appetite.
The Best Cryptocurrency to Invest in Bitcoin, Bitcoin is on top of the food chain that everyone knows about, but it’s not the only kind of cryptocurrency out there. Bitcoin was what started it all and has the highest market cap of any other coin, at over $1 trillion as of writing in mid-October 2021.
The project has a healthy developer ecosystem constantly working to upgrade the code and has the most users by many metrics.
Currently, bitcoin is trading around $57,000 a coin, although the price sees massive swings in both directions from time to time. For instance, bitcoin reached an all-time high price of $63,576 on April 14, 2021, before falling by more than half to $29,971 only a couple of months later.
Ethereum is another good bet for investors. Ethereum innovated on Bitcoin by implementing what’s called smart contracts that allow for more complex tokens and transactions. While the Ethereum blockchain has dealt with significant scalability issues since it launched at the end of July 2015, it is the most actively used blockchain.
It’s been the blockchain of choice for several innovations, including the crypto fundraising mechanism initial coin offerings (ICOs), NFTs, and decentralized finance (Defi). Ethereum also has the largest developer community of any cryptocurrency project.
You never have to buy a full unit of a cryptocurrency. Cryptocurrencies are highly divisible. For instance, you can purchase $10, $100, $10,000 of bitcoin, instead of one whole bitcoin.
Let’s emphasize the 3 contenders:
1. Bitcoin (BTC)
Theories on Bitcoin’s utility differ, but there’s no denying that it’s been the dominant player in its field since its creation. Bitcoin’s growing adoption is its saving grace; both retail and institutional investors are primed to dip their toes into cryptocurrencies with Bitcoin first. Plus, some of today’s smartest business minds are increasingly gravitating toward the “digital gold.” Twitter Inc. (ticker: TWTR) and Square Inc. (SQ) CEO Jack Dorsey has said he doesn’t think there’s anything more important in his life to work on, seeing it as a way for poor countries to guard against currency depreciation and for faster, cheaper funds transfers across borders. And although Bitcoin’s price lost more than half within two months of hitting all-time highs of about $65,000, Tesla Inc.’s (TSLA) decision to put Bitcoin on its balance sheet earlier this year could serve to usher in more corporate treasury inflows over time.
2. Ethereum (ETH)
The Scottie Pippen of cryptocurrency, Ethereum has been capably playing second fiddle to Bitcoin for years now. With a market capitalization of about $276 billion, Ethereum’s share of the overall crypto market is about 18% — a far cry from the 47% commanded by Bitcoin but more than four times the next-closest token. The native currency on the platform is technically called ether but is colloquially referred to as Ethereum. The leading platform for decentralized finance, or Defi, Ethereum allows users to create smart contracts that automatically execute when certain conditions are met. The potential to cut out third parties such as banks, brokerages, and clearinghouses make Ethereum an exciting, money-saving platform. The rising tide of Defi should continue resulting in higher usage of this platform, which can be used to issue new cryptocurrencies or create and exchange nonfungible tokens, known as NFTs, among other things.
3. Cardona (ADA)
Like Ethereum, Cardano is a decentralized blockchain platform that uses a native cryptocurrency, in this case, Ada, to enable secure peer-to-peer transactions. It was founded in 2015 by Ethereum co-founder Charles Hoskinson, who left what is now the leading platform for decentralized finance to found Cardano, which is designed to use a fraction of the energy demanded by Bitcoin and Ethereum. One way Cardano does this is by using a “proof-of-stake” protocol that doesn’t incentivize high energy usage and is an increasingly popular way for blockchains to validate transactions for security reasons. Cardano, which at $43 billion is the fifth-most valuable cryptocurrency, is transitioning toward enabling smart contracts that should be fully operational by fall 2021.
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The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.