How to invest in cryptocurrency: The 5 best ways
Investing in cryptocurrency has ceased to be considered exotic and has become commonplace for many people. This article will help to understand how to invest in cryptocurrency, what are the pros and cons of cryptocurrency assets, and what to look for when choosing a currency.
Table of Contents
Investing in cryptocurrency has ceased to be considered exotic and has become commonplace for many people. This article will help to understand how to invest in cryptocurrency, what are the pros and cons of cryptocurrency assets, and what to look for when choosing a currency.
Top 5 options for investing in cryptocurrency
There are different ways to get income from investing in cryptocurrency. Having studied the advantages and disadvantages of each of them, it is easy to choose the most suitable option.
Trading
A trader makes money by speculating with cryptocurrency and its derivatives, such as CFDs (Contracts for Difference). Unlike long-term investments, trading does not require long-term investments, but rather regular short- or medium-term transactions.
Minus of trading is necessity to spend some time for analysis of current market situation and carrying out of trading operations. Time expenditures can be reduced (as well as risks during transactions) by placing special orders – stop-loss and take-profit. They will close the transaction automatically when the specified price threshold is reached.
Long-term investments
Another option is to buy bitcoins or other decentralized digital currencies and wait for them to significantly increase in value. The fact that cryptocurrencies will grow over a long period of time is not in doubt for most experts. Therefore, such a strategy is very likely to turn out to be a winning one and in a few years or decades will actually bring the investor an excellent profit. This method is similar to trading, only instead of trading cryptocurrencies day in and day out, the investor keeps his assets for a long period of time.
However, it is worth understanding that in the case of long-term investments, the money cannot be withdrawn at any point in time. And over a long period of time, crypto can fall seriously from time to time. In addition, you should keep in mind that even if the asset will show steady growth, the amount of earnings on it will depend on the amount of invested capital. That’s why for long-term investments large initial investments are desirable, otherwise the profit will be insignificant.
Crypto Mining
Mining is the mining of cryptocurrency money using computing power. Cryptocurrency consists of blocks or chains of blocks, called blockchains. To get digital currency, you have to decipher the correctness of the blockchain. It is impossible to do this manually because the mathematical calculations prove to be very difficult for humans. Therefore, miners must use powerful computer equipment.
The main advantages of mining are:
- No time commitment – computers decode blockchains without the user’s supervision;
- complete anonymity – all the coins earned by the miner are not visible to the regulatory authorities.
But there is a very significant disadvantage to mining – it is impossible to make good money on an ordinary computer. For more or less normal income you need to first buy expensive equipment, and then regularly update it. It turns out that a miner has to make a solid initial investment. It is good, if the rate of currency will go up, and the user can recoup the costs and get additional income. But if the crypto falls in value, the miner will be left with serious losses.
Getting cryptocurrency for completing tasks
It is possible to earn bitcoins and other independent currency if you register and start performing tasks on one of the sites operating on the principle of PTC – Paid To Click, which translates into Russian as “pay per click”. These sites reward users with cryptocurrency for viewing ads or for clicking on links given by advertisers.
But since this activity does not require any skills, the payment is very low. Most often the user can earn only a few hundred or even tens of satoshi in an hour. (Satoshi is a minimum transferable value in BTC payment system. It is one hundred millionth part (10-8) of bitcoin).
That’s why this way will suit users who have a lot of free time and don’t know what to do with it. But for most of them it is better to use other variants.
Indirect Investments
Another way to invest in crypto is to invest indirectly without buying coins. Indirect investments in cryptocurrency assets can be:
- Buying ETFs that use bitcoin or some other liquid crypto as an underlying asset.
- Purchasing units of funds that are partially invested in cryptocurrency.
- Buying securities that are invested in industries related to crypto in one way or another. For example, it could be the shares of a company that produces mining equipment. Or shares of a specific cryptocurrency exchange.
But it should be understood that in such investments, a significant portion of the profit will go to intermediaries, and if the loss is fixed, the investor will not receive even the minimum compensation. For example, a bitcoin-ETF management company will take its remuneration for the work both in case of growth in the value of units and their fall.
And a company that produces mining equipment can pay bonuses to its employees at any time, which will reduce the company’s capitalization. There is also a risk that the firm will simply begin to develop another line of business, and the shareholder’s investment will not even be indirectly related to crypto.
Risks of cryptocurrency investments
It is worth remembering that investments in cryptocurrency cannot be considered completely safe. The risks of investing in cryptocurrency include:
- The risk of digital currency prohibition and invalidation of completed transactions at the legislative level. Although Russian legislation, on the contrary, is beginning to change toward increasing recognition of cryptocurrencies, and there are already discussions about allowing certain types of digital coins to be used as a means of payment.
- The risk of a systemic decline in exchange rates. However, this risk is inherent in all investment assets without exception – you can never give a one hundred percent guarantee in the growth of something’s value.
- The risk of losing coins due to a hacker attack. To avoid such an outcome, you should use cold wallets. This is the name of cryptocurrency storages without constant access to the network, which makes it difficult to attack hackers and ensures the safety of digital money.
Conclusion
Cryptocurrency is a promising investment option. Crypto-currencies can be invested in various ways, but trading is considered more effective because cryptocurrency speculation allows you to earn quickly and profit from both the rise and fall of assets.
