Crypto Investing For Beginners
Crypto Investing For Beginners
Cryptocurrency started with Bitcoin in 2008, and since then, it has grown in popularity. However, there are various misconceptions and questions surrounding it. The early misconceptions concerning cryptocurrency were that it was a get-rich-quick scheme or Ponzi scheme. If you have any of these notions about crypto investing, we’re here to correct them.
Undoubtedly, the popularity of Bitcoin and other cryptocurrencies has increased since its inception because it has revolutionized the world of financial transactions. However, the current market crash has caused Bitcoin’s price to reduce by more than 70%, causing the other coins in the market to drop also. With Celsius freezing its withdrawals and Coinbase laying off 18% of its staff, one would wonder if cryptocurrency is a worthy investment.
Continue reading this article to learn about cryptocurrency, its features, how to invest, and crypto trading bots.
What is Crypto?
Crypto is the short form for cryptocurrency. It is an alternative to physical money (fiat currency); crypto is money in digitalized form. This type of currency circulates without the input of any authority or government. You can store cryptocurrency in a crypto wallet that works like a bank account, especially since you can make transactions with your mobile device.
The term “cryptocurrency” consists of two significant terms: cryptography and currency. Cryptography works like a secret writing technique that only the recipient can decode. Cryptocurrencies use a trustless system to ensure that transactions are secure, anonymous, and transparent. Cryptocurrency is a means of exchange that you can use to pay for goods and services. However, you can invest in cryptocurrency similarly to assets such as bonds, stocks, or precious metals.
In addition, cryptocurrency is based on blockchain technology which works as a distributed ledger system that stores transactions in code. It works like an accounting book that’s distributed among individual computers across the globe. However, this technology has gotten popular because it makes it difficult for transaction histories to be forged. After all, the records remain identical.
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Is Cryptocurrency A Good Investment?
With the many troubling incidents in the crypto space, it’s only natural for you to wonder if it is a good way of investing. Many have gotten huge amounts of money through cryptocurrency; however, the market still possesses a lot of risks. Cryptocurrency is a highly volatile asset that can offer massive profits, but it also has a downside because you can lose all you have.
Cryptocurrency comes with hype which can make you make poorly informed financial decisions and lose all you have. This digital currency is only a great idea if you’re ready to do your due diligence on every asset you plan to include in your portfolio. Know the risks behind every cryptocurrency you’re willing to buy.
Pros of Investing in Cryptocurrency
Despite the recent crash, cryptocurrency has come to stay. Its primary aim at disrupting the traditional financial system has proven noteworthy due to its many advantages. If you’re considering investing in cryptocurrency, here are some reasons you should consider it.
Crypto is a high-risk investment, which can have sudden increases and drops in value. Various factors influence the prices of different coins and tokens; however, it is mainly affected by the number of mined coins and the demand from investors. When demand exceeds supply, the price increases, making those holding it gain rewards over their assets.
Investing in cryptocurrency allows you to make anonymous transactions that enable you to retain your privacy. Unlike traditional financial systems, cryptocurrency is decentralized and allows you to make transactions without disclosing your identity.
Utilizes Secure Blockchain Technology
Cryptocurrency uses a secure infrastructure known as blockchain technology. A blockchain is a ledger that keeps track of transactions on it. It is an immutable system where you cannot erase data, making every information stored on it safe. You can trust that your investments will remain secure.
Investing in cryptocurrency comes with no time restrictions. Traditional banks only function within certain hours, which makes them limited. Mined coins and transactions are recorded on the blockchain every time, allowing you to make your trades without waiting for exchanges. It beats the regular stock exchange market that only functions during bank hours. This feature allows you to trade even after trading hours.
A Transparent System
Cryptocurrency offers an alternative to regular banks through its transparent system that eliminates intermediaries. With blockchain technology, you can track your investments anytime and anywhere. You can play an active role in the financial markets without the long process that involves intermediaries.
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Risks of Investing In Cryptocurrency
Since we’ve already identified the benefits of investing in crypto, it’s only fair to include the potential risks you can face while investing in digital currency.
Highly Volatile Investment
While investing in cryptocurrency, you must understand that it is a highly volatile asset. It offers high results when the price skyrockets, but it can also with depressing lows within a short time. The market functions on speculations, making it vulnerable to rapid price fluctuations.
Investors store cryptocurrencies on wallet exchanges which makes them prone to attacks. Cybercriminals are particularly drawn to cryptocurrency because it offers anonymity and online dependence. These features make it difficult for fraudulent activities to be traced. Make sure that whatever wallet exchange you choose takes security protocols seriously so your assets can remain secure.
Unregulated Trading Platforms
Although cryptocurrency offers numerous benefits compared to banks and stock exchanges, it lacks regulations. Without proper actions to provide regulations for cryptocurrencies, they will only remain prone to scams and market manipulation. However, the EU recently agreed to place some regulations on cryptocurrency to ensure investor security and foster confidence.
It Can Be Difficult To Understand
The cryptocurrency market is a relatively new market that is still difficult for many to understand. Before investing, you have to put in much time and effort to understand it. It means looking for resources and information about the assets you plan to add to your portfolio. Also, a large number of the world population are still in the dark about crypto which makes it somewhat complex. The little percentage that understands it uses jargon and terms that make it difficult to understand.
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Popular Types of Cryptocurrency
According to CoinMarketCap, there are 1583 cryptocurrencies across the globe and the number keeps increasing. These digital currencies have proven to be investment assets that can be used to gain high yields depending on the market state.
The first cryptocurrency to be created was Bitcoin (BTC). This digital asset was formed by a pseudonymous personality named Satoshi Nakamoto. It marked the beginning of a new era and has seen sizeable growth from its inception. However, Bitcoin uses the proof-of-work mechanism that requires much computational power. The high level of electricity that Bitcoin consumes was one of the reasons it was banned in China.
Despite the situations surrounding digital currency, it is still considered digital gold. Investors and blockchain enthusiasts measure other cryptocurrencies against the pedestal of Bitcoin because it’s the first of its kind.
An altcoin is a short form for an alternative coin. It covers all other coins apart from Bitcoin. The most popular altcoin is Ethereum (ETH) because it introduced the smart contract system and offers multiple use cases even more than Bitcoin. Most of these altcoins use the proof-of-stake mechanism and other consensus mechanisms to reduce computational power and make up for the shortcomings of Bitcoin in that area. Other popular altcoins include Cardano (ADA), Litecoin (LTC), Algorand (ALGO), Solana (SOL), Ripple (XRP), and Avalanche (AVAX), etc.
Stablecoins, just as the name implies, are cryptocurrencies that offer price stability. These coins are tied to an external asset such as a fiat currency like the dollar or an asset like gold. For every stablecoin that is issued, the companies in charge keep an equivalent in the external asset in their reserve. However, Tether (USDT) recently failed in retaining its stability which made investors doubt stablecoins. Despite the incident, some stablecoins still are reliable like the United States Dollar (USDC), Dai (DAI), Binance USD (BUSD), etc.
You can use tokens as a means of exchange with a project’s ecosystem. There are platform tokens, security tokens, transactional tokens, utility tokens, and governance tokens. Platform tokens are useful for supporting apps built on the blockchain while security tokens, on the other hand, are used for legal ownership of assets. Transactional tokens can be used for exchange while governance tokens power the voting system. Lastly, a utility token is included in a protocol that already exists to access its services.
How to Invest in Crypto?
In crypto investment, speculation and uncertainty are two keywords that top the list but the uprise of the long chart of cryptos in the market today outperforms our thoughts. However, if you are looking to put your eggs in one basket, you must also be aware of the fact that you must have some table-laid cash to invest in crypto.
Though, crypto has gotten the attention of a lot of investors, marketers, and even online retailers. We must be armed with the right information to know how to go about it. As thought out, it is wise to invest in a market that you have a lot of information about. Are you new to crypto or do you need as much information as every other person?
Here you have it! Look no further because you have the answers staring right at you. Below are the top ways to invest in crypto.
Understanding what you are looking to invest in.
Cryptocurrencies like Bitcoin, Ethereum, Solana, Dogecoin, and other successful coins in the market need to be understood. For what it’s worth, a notable plack of work should be put into knowing what you’re getting at.
As opposed to stocks or bonds in companies, crypto has paved its way through the market and it has come to stay. Although, these cryptocurrencies rely solely on the market and its volatility. The trading marks can carefully be positioned well and monitored to get as many returns after the whole trading session or investment.
For instance, Mr. A has Solana, and Mr. B needs it transferred to his crypto wallet. Imagine Mr. A has no idea about what to do with his precious coin. Isn’t it okay to say that this is another issue on its own?
Look into the Future
Being aback is unpromising, many crypto investors take the wrong notions and facts into consideration. Cryptocurrencies didn’t have as much value in the market even a decade ago but it is different right now and are way intuitively futuristic. There is no imagining what the future of crypto would be. If you are looking to invest in Crypto, you must have a positive outlook to get the best results at first. As a trader, losing hurts but what is a great investment without some little ups and downs?
If you can't afford to lose – Don't invest!
Asides from the monetary aspects of investment, Yes, a trader could invest as low as $5 on crypto but what if you cannot invest much more than the monetary value required? Crypto investment is not for the weak who would get frustrated at every pang of disappointment and lose their cool at the first setback.
Volatility controls a huge part of crypto investment and if the traders lack the highly sophisticated skill on the go, there’s going to be a huge problem. Risk management is important in crypto investment, the ability of the trader or investor to manage risk is a great asset for the job. This helps to stabilize the ongoing investment and holdfast the possibilities of the investment.
Lastly, do not hold on tight to something that’s not worth losing on your path. Do you want to invest in crypto? You can take a portion of the money and shove it down the confines of crypto. When it yields, which depends on the market, you can continue trading with the rest later.
To invest in cryptocurrencies, the basic ways to approach your quest are mentioned above. These are the fundamentals that determine if you’d be going on with the investment. Furthermore, once you have seen the best crypto for you, you can as well begin to invest in it. In line with these, here are the ways to invest in Cryptocurrency which will be greatly emphasized.
Open a Cryptocurrency Exchange Account
The first approach is to open an account with the Cryptocurrency Exchange you will be investing in. Most platforms do not support trading or buying Cryptocurrencies that are not platform-based, being dead sure of the exchange account is a little more topping on the cake.
The account created can then be funded using fiat currency, after which an order is placed to purchase the Crypto of your choice. Not long after the placed order, the exchange occurs which happens in real-time for both the buyer and the seller and the actual cost placed on the order. If the transaction ends, your coin or crypto is held in a wallet by the exchange made earlier.
Getting the Cryptocurrency you desire is not the hard part at all. Crypto has to do with volatility which holds the investors at a soft spot. Therefore, traders must always stay alert, focused, and prepared for any unforeseen circumstance that tends to lift its head in the trading sessions.
Trading crypto is a great deal and before opting for it, you would have made your research well about it as it can pay off well for what it’s worth if given the appropriate attention and analyzed well.
Lastly, the reins of crypto investment are pulled tightly by the traders. Ensure to rise and rebalance once it swings negatively or falls out of confines to a point of restructuring. The merits of investing in Crypto are more than its drawbacks. Note that, a great crypto investment return is way better than that of company bonds or stocks.
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Crypto Trading Bots
Buying and selling cryptocurrency can be quite risky, especially for a beginner. You will have to encounter multiple losses before you can get the hang of crypto’s investment structure. Why not save yourself from trouble with crypto trading bots?
You must be thinking, what exactly is a crypto trading bot?
A crypto trading bot helps individuals buy and sell cryptocurrencies automatically. They are computer programs that make calculated moves at the right time to gain profit. It can help you get consistent returns on your assets and reduce the risks you will encounter. A crypto trading bot is not tailored to help you gain high returns traditionally, rather, it offers risk-adjusted returns that will accumulate over time.
How Do Crypto Trading Bots Work?
There are 3 essential moving parts in a trading bot, and they include:
This works in making predictions. Mainly, data enters the signal generator while a buy or sell signal springs up on the other side. It is at this point that suggestions on the best buys are revealed.
After the buy and sell signal pops up, the risk allocation determines how much of the coin to buy. This point is where the appropriate amount for you to buy is determined.
This is the part that executes the trade. If you want to purchase multiple coins from your clients, it might be ideal for running it in different trades to get a favorable price.
Ensure you choose a bot that runs through these processes so you can guarantee profitability.
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Differences between a Trading Bot and a Human Being
There are obvious differences between a trading bot and a human in buying and selling cryptocurrency.
- Length: Since crypto investing runs throughout the day, you need a medium also runs 24/7. Human beings have to sleep and rest, but trading bots don’t require that.
- Emotions: Crypto trading bots have no emotions, which mean they can make clear financial decisions without sentiment. On the other hand, humans are driven by greed, fear, uncertainty, and doubt, which can cloud their decisions.
- Speed: Humans are limited in speed compared to trading bots. Bots think and react quickly, while humans must ruminate deeply on every detail before making their choices.
- Capacity: Robots can run through gigabytes of data merely in seconds. However, humans require more time to be able to process the same level of data
Types of Trading Algorithm
You must note that the best algorithms are great at managing their passive to active ratio and trade in different platforms. There are majorly two types of trading algorithms that are used for trading, and they include:
- Momentum: This trading algorithm is used when prices are rising, and they’re predicted to increase further, making it an excellent time to buy. Although most momentum strategies rarely win, when they win, they go big.
- Mean-Reversion :When prices are up and predicted to fall, it is a perfect time to sell. Many times, the mean-reversion strategy wins lesser times than its losses.
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Factors to Consider When Choosing A Trading Bot
Picking a trading bot is an informed decision that requires much care.
- Check the experience of the leaders of the firm. This will help you determine the company’s track record and see if you’re on the right track.
- Ensure that their algorithms are widely known, easily accessible, and replicable.
- Before choosing a trading bot, ensure it succeeds if you also succeed. That way, they would offer better guidance and resources to inform your decisions.
In A Nutshell
The world of cryptocurrency can be difficult to predict because of its volatile nature. However, it offers enormous benefits and is continuously evolving, so innovative solutions would help investors scale through the market quickly. Crypto trading bots are a great way to solve the significant problems plaguing the crypto market.
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