The Complete Beginner’s Guide to Cryptocurrency Investing
When I first started deriving an interest in cryptocurrency I supposed I was so lost in this huge sea of the unknowns. Where do I begin? What are the beneficial keywords to look up and to hold in mind? What are the obtainable beneficial or helpful resources? This cryptocurrency investing guide is being written so that in just 20 minutes, you would have a sense of what to anticipate of your upcoming crypto expedition, and how to best go about establishing it. Just enjoy it, it might just be the most thrilling ride of your life.
Rise of the Cryptocurrencies
As the technology literacy of the population growing, acceptance of crypto as an authentic store of value follows, and it boomed. Titles along the lines of ‘Bitcoin price hits new all-time high’ and ‘Ethereum price surges’ are starting to penetrate the general public’s news feed. What we all know for sure is that individual who were once skeptical of Bitcoin and the technology behind it gradually understands and obtaining increasingly involved with crypto. As at the time of writing, the market cap of the whole crypto space is at 30.9 billion USD. It was 20 billion just 4 months ago. What would it be 4 months from now?
Current Makeup of the Cryptocurrency Space
You would have heard of Bitcoin and the ‘altcoins.’ How this naming convention established was because back in the days of 2011, forks of Bitcoin emerged in the markets. The forks, or the clones, each aspire to serve a niche area, pointing to be ‘better’ than Bitcoin. Since then numerous new crypto has appeared, eroding away Bitcoin’s crypto market cap dominance. These altcoins are obtaining market share at a shocking speed. Ten times or more growth rather has been observed in a time span as short as 6 weeks (see PIVX, an altcoin).
Cryptocurrency, Stocks, and Fiat
The currencies as we all know are mentioned to as ‘fiat’ according to cryptocurrency community. Although having ‘currency’ in its name, cryptocurrencies share more resemblance with stocks than currencies. When you procure some cryptocurrency, you are in fact purchasing some technology stock, a part of the blockchain and a piece of the network.
The most usual place where people procure and trade cryptocurrency is on the exchanges. Exchanges are places where you may procure and sell your crypto, by way of fiat. There are different measures to judge the dependability and quality of an exchange, such as liquidity, spread, fees, procure and withdrawal limits, trading volume, security, insurance, user-friendliness. Out of all these, I discover Coinbase as the best exchange hands down. Coinbase has a beginner-friendly user interface, and has a supreme 100% crypto insurance.
After setting up an intermediary bank account and confirming your information or the details with Coinbase, you are only five easy steps away from a Bitcoin purchase:
- Access the ‘Buy or Sell Bitcoin’ tab
- Choose the payment method using the drop-down menu
- Enter the aspired amount
- Just click ‘Buy Bitcoin Instantly.’
- See or view your credited Bitcoins on your dashboard
When you obtain acquainted with purchasing crypto and begin to itch for some crypto trading (e.g. BTC/ETH), plainly perform an immediate transfer from Coinbase to GDAX free of charge and begin trading. You must consider Coinbase as the spot to conveniently procure and store your GDAX and crypto as your margin trading platform. Transfers between the two are quick and free.
As you gradually get familiar with other currencies, you might want to have the option of investing in them. Bittrex and Polo are two exchanges that can offer a broad selection range.
When signing up on these exchanges as a beginner, do create it a point to confirm your account with the required documents as early, as you do not want to be caught in the middle of some boring and slow admin work when the trading opportunity comes. Take note that, verification on these exchanges may take days, and procure/withdraw limits may only grow slowly as you trade.
An additional point to take note: if you are utilizing a currency other than USD, kindly do check out the exchange’s ease of withdrawal and funding. You really do not like your exchange to come into fiat withdrawal problems like Bitfinex did not long ago.
Exchanges have inbuilt online wallets to store the cryptocurrency you purchased. Yet, for those who heard of the Mt. Gox hack, you might feel worried to put on an exchange. If you feel uncomfortable to save your crypto holdings on the exchange, definitely, you have this option to either utilize a paper wallet service like myetherwallet.com or just spend 99 USD on a hardware wallet like KeepKey. Both serve the intent of removing platform risk, at the cost of taking up the liability of keeping your cryptocurrency secure.
To transport your crypto from exchanges into hardware wallet for long lasting storage, plainly follow these steps, using KeepKey and Coinbase as an example:
- Plug in your KeepKey USB cable
- Open your KeepKey Client (on Google Chrome under Apps)
- Locate your wallet address on the KeepKey Client UI
- Access Coinbase ‘Send/Request’ tab and input your KeepKey wallet address
- Confirm the amount and then click ‘Send Funds’
Take note to first send a small amount (e.g. 0.0001 BTC) for testing before sending the bulk, lest an error occurred and the transfer amount is lost. A small network transfer fee might be charged.
For my part, I have a hardware wallet, as I love the feeling of having around a tangible reminder of my crypto holdings. Also, the hardware wallet’s user interface creates it simple to store or keep multiple coins, which is especially convenient when you participate in ICOs (Initial Coin Offering) in the future.
Cryptocurrency as a Percentage of Your Investment Portfolio
This part will be extensively subjective. Crypto has the potential to understand many ‘rags to riches’ stories, however, its volatility creates it unpredictable. As a precaution, the money you place in crypto should be money that you are fine with losing. I cannot point up the significance of this as we often underestimate how the volatility affects our emotional capacities. The upside is truly big, but it comes with lots of risks and, if I may put it, emotional torment.
A conservative portfolio I would suggest is as follows:
< For 30 years old (max) 30% Crypto, 50% Traditional Investments
30 – 40 years old (max) 20% Crypto, 60% Traditional Investments
> For 40 years old (max) 10% Crypto, 70% Traditional Investments
This is not meant to be age discriminatory but think about the fact that one takes up more financial responsibilities (mortgage, family) as he gets older.
Within the assigned crypto share of your portfolio, you may expand your coins based on your risk appetite.
Show Me the Money! Cryptocurrency Investing
Now, this is where it gets really exciting.
How do we choose the winner? How do we shun picking the loser?
Take note that crypto is now in a large bull market and anything could emerge over time. Also, do not take for granted the possibility that we may be in a bubble like the-dot-com boom back in 2000. Still, you need to ask yourself these questions before you decide to invest in a coin:
- Are my investments secure with the dev team? The first rule of investing should always be the conservation of the capital. Can you really trust the dev team with your money? Are you going to leave your money with founders who have been engaged in previous scams? If you see these telling signs, back off instantly. The coin’s price might really grow for all you care, but it is just not worth it to place your capital at such risk.
- Does my coin of interest have a long-lasting plan? If you cannot understand their yellow paper, you may at least read their white paper. What are the team aiming to achieve? Do they have the means, or have they already worked towards their goals? What are the timelines and milestones?
- Does my coin of interest appear to be a well-marketed plan with no backup? Lots of ICOs nowadays just have a pretty webpage, and then they are shipped out to sell. Watch out for these: are they able to deliver?
- How long should I stay in this? Do I have an exit plan for this? There will be coins where you do not want to hold continually, but wish to flip for some short-term gains. In this case, make sure to set a timeframe, or an exit price, to lessen the effect of emotions on your trades. You need to stick to your plan and watch your emotions.
- Does it have a real-world use case? Some coins seem to remain increasing in value plainly due to supply-demand factors. This trend might not be sustainable. For a coin to have long lasting supported value, it must have a real-world use case eventually. Search out for coins that look too much like a get-rich-quick scheme.
Short Term Trading with Margin
Once you already easily grasped with crypto, you may wish to trade on your ‘stash’ in hopes of growing it. For the experienced forex traders, this is nothing new. But for the new crypto investor, you may wish to brief up on how to create a leveraged trade.
Short-term trading takes advantages of incoming news to create an instant buck. If you foresee good news from an upcoming release of a coin, you may need to open a long and see how it goes. Remember, buy the rumor, sell the news; act quickly and be daring if you wish to create a profit with short term trading.
For those individuals who are more convenient with a predictable form of reward, mining is the way. Mining engages setting up of a rig, consisting of GPUs or CPUs and an investment in the electricity. Mining is only possible on cryptocurrencies that follow the Proof of Work protocol. It gets some effort to setup and takes things running, but it is attractive as a long-term passive income as long as you frontload the work.
Staking is the Proof of Stake version of ‘mining.’ Think of this as creating dividends on your stock. The reward rate and staking method vary greatly among Proof of Stake coins, but in general, it gets less effort as compared to mining.
As you get a hand in various exchanges, you may wish to procure from one exchange and sell on another to create ‘arbitrage’ gains when you spot an arbitraging opportunity. Remember of two things if you want to do so: remember to factor in fees, and remember that the price could really change when you are transferring your coin between exchanges, particularly during volatile times. USD tends to be liquid so this happens less for it, but for other currencies such as CAD (Canadian dollar) and SGD (Singapore dollar), there may exist more arbitraging opportunities to exploit.
Check out coinmarketcap for the tabulation of multiple coins’ market cap and price. Check out cryptowat for the prices of popular coins across various exchanges. Check out the respective coins’ subreddits for obtainable news and market sentiments. Lastly, check out hhypecoaster for how much more crypto you require for a Lamborghini Aventador.
That’s about all I have, as of now, invest wisely and most significantly, do not forget to have fun!