The cryptocurrency market has gained immense popularity in the recent decade. Bitcoin, Ethereum, and many other virtual currencies have experienced a jaw-dropping surge in value compared to their starting price, thus attracting the growing attention of many investors. In this guide, we will dive deeper into the definition of crypto, explain how to choose a suitable digital currency to invest in, and outline the main features of investing in cryptocurrency as well as the main benefits and drawbacks of crypto investment.

What Is Cryptocurrency?

Cryptocurrency is a type of digital currency. While there are many different types of crypto, the core elements behind them are quite similar. In general, virtual currencies rely on:

Decentralized systems to track transactions and manage the issuance of new units. Such networks help to ensure the security and transparency of cryptos.
Secure cryptography refers to a system of encryption that is virtually impossible to crack. This can be achieved through a variety of methods, including the use of long and complex encryption keys, the use of randomized algorithms, or by combining several types of encryption together.
Blockchain and distributed ledger technologyensure a distributed record of transactions that is tamper-proof and immutable.
Consensus algorithms are used to achieve agreement in the network with distributed processes and multiple agents. The most widespread mechanisms in the cryptocurrency space are Proof-of-Work (PoW) and Proof-of-Stake (PoS).

Different Types of Cryptocurrency Investing

One of the most common ways to invest in cryptocurrency is to buy a crypto asset and hold it during a particular period in an attempt to gain profit on its growing value. There is a wide variety of instruments to choose from, starting from well-known cryptos such as Bitcoin and Ethereum to new coins released through an Initial Coin Offering (ICO). However, apart from direct investing in cryptocurrency, there are many other options available. Here are some of them:

Invest in companies that specialize in cryptocurrencies and blockchain technology. These firms often have profound knowledge and experience when it comes to this rapidly evolving field, which can be essential for navigating the ups and downs of the market. Additionally, many of these companies offer innovative technologies or services, such as crypto wallets or trading platforms, which can help you not only keep track of your crypto investments, but also make better investment decisions based on new and real-time data. PayPal, MicroStrategy, and Robinhood Markets are popular examples of such companies.
Invest in cryptocurrency exchange-traded funds (ETFs). These are funds that hold a variety of digital assets and track the performance of major crypto markets. They offer some diversification benefits, allowing investors to spread their risk across a range of different currencies, protocols, and models. Crypto ETFs also often charge lower fees than other types of investment products, which can help to maximize potential returns over time.
Become a miner. Mining is a core process in the crypto space. It implies contributing computing power to the blockchain network in exchange for cryptocurrency rewards. However, it’s important to mention that in order to become a miner it’s necessary to invest considerable resources not only in the studying process but also in specialized hardware.

Types of Cryptocurrencies

There is a vast variety of cryptocurrencies, each with its own unique features and applications. According to Statista, in February 2022, there were around 10,397 cryptos worldwide, and this number is growing rapidly. Perhaps the most well-known crypto is Bitcoin, which is one of the first cryptocurrencies and is known for its high level of privacy and security. Other popular digital currencies include Litecoin and Ethereum, which are both faster than Bitcoin and have other unique properties. Additionally, newer types of cryptocurrencies like Monero focus on anonymity, while others like Ripple have greater utility as payment platforms. Here you can see a list of the 10 largest cryptocurrencies by market capitalization:

Bitcoin (BTC)
Ethereum (ETH)
Tether (USDT)
Binance Coin (BNB)
USD Coin (USDC)
XRP (XRP)
Binance USD (BUSD)
Cardano (ADA)
Solana (SOL)
Dogecoin (DOGE)

When it comes to cryptocurrency types, it’s necessary to differentiate between the following:

Utility tokens are designed to perform a specific function on a decentralized platform.

Security tokens represent shares in a company or investment product.

Stablecoins are pegged to a stable asset, such as the US dollar or gold, which helps them preserve their value even during market downturns.

Apart from these 3 major types, it’s possible to come across decentralized finance (DeFi) tokens, payment tokens, non-fungible tokens (NFTs), and others.

What to Consider Before Investing in Cryptocurrency

Suppose you are a beginner investor who wants to gain exposure to the crypto market. In that case, there are a number of factors to consider before adding this asset class to your investment portfolio.

Volatility. Cryptocurrencies are notorious for their significant fluctuations in price over a short time period. On the one hand, sharp spikes in asset value can significantly increase investors’ profits. However, on the other hand, they may also lead to drastic potential losses.
Crypto type. Choose a crypto asset that complies best with your existing portfolio and fits your character traits, investment budget, and risk tolerance level.
Have a strategy. Cryptocurrencies are considered high-risk investments. Thus, before entering this market, investors are advised to develop a robust investment strategy and risk management plan. This will help to avoid spontaneous investment decisions that could lead to potential losses.

How Much Should You Invest in Cryptocurrency?

When it comes to investing in cryptocurrency, there is no one-size-fits-all approach. Different crypto investors will have different levels of risk tolerance, time horizons, and investment goals, so it's important to take a personalized approach when deciding which coins to purchase and how much to invest in them.

In general, many experts agree that cryptocurrencies should not account for more than 5% of your entire investment portfolio. This is a balanced amount that, on the one hand, allows investors to feel a positive impact if their crypto asset grows in value. On the other hand, it protects them from periods of high volatility in the market.

It’s crucial to note that the key to success with cryptocurrency investing is to invest only what you can afford to lose, while keeping an eye on trends and developments that may impact your portfolio.

Top 5 Cryptocurrencies to Consider as a Beginner Investor

As previously mentioned, nowadays there is a wide choice of cryptocurrencies, all coming with particular features, benefits, and drawbacks. When opting for one of them, it’s crucial to have a clear understanding of how they work and match their core characteristics with your investment goals. Here, we list some of the popular crypto assets that could be considered by inexperienced cryptocurrency investors.

1. Bitcoin

Bitcoin (BTC) is one of the most popular choices for investors new to the world of crypto, thanks to its wide adoption, accessibility, and relative ease of use. BTC is widely accepted as both a payment method and an investment asset on the majority of cryptocurrency exchanges and platforms. Moreover, being one of the first digital currencies, it has managed to establish itself firmly on the market and gain the trust of a big audience.

2. Ethereum

Ethereum (ETH) is a great option for those who want to get involved in crypto but aren't quite ready for the high-stakes environment of more volatile assets like Bitcoin. Unlike many other digital assets that are relatively young and experimental, ETH has a long track record of success, and its underlying technology is extremely robust. The Ethereum ecosystem is governed by smart contracts, which makes it well-suited for a wide range of applications, including DeFi apps, NFTs, gaming, and more.

3. Cardano

Cordano (ADA) is a unique cryptocurrency with several advantages over other options, including fast transaction speeds and strong security features. Just like with Bitcoin, Cordano's supply is limited, which potentially may lead to an increase in its value over time. Additionally, this crypto has a large and active community of users who are always happy to share advice and support with newcomers.

4. Binance Coin

Binance Coin (BNB) is another popular choice among beginner crypto investors. It stands out with its lower market volatility and relatively large market cap (as of October 2022, it takes the 4th position in the list of the largest cryptocurrencies). This means that BNB can potentially offer good returns, while also minimizing risk.

5. XRP (Ripple)

There are many reasons why beginners should consider investing in Ripple (XRP). This digital currency offers great value for the money. Compared to Bitcoin and Ethereum, XRP is much more affordable. In addition, Ripple offers low transaction fees and fast transaction speed, which makes it ideal for use in everyday transactions. Last but not least, this digital currency is well-established in the financial community and backed by some of the biggest banks and financial institutions in the world.

How to Choose the Right Cryptocurrency to Invest In

Investing in cryptocurrency differs much from investing in other asset classes. Thus, we have prepared some tips that will help you make the right choice.

Make some research. When choosing a digital currency to add to your crypto portfolio, it’s important to understand that this financial instrument, unlike stocks or commodities, doesn’t have an intrinsic value. That means that the price of cryptocurrency fluctuates only due to the forces of supply and demand. Thus, before you buy cryptocurrency, it’s reasonable to read whitepapers released by crypto creators, analyze the market data, find out the sentiment of the crypto community, and more.
Consult an investment adviser. If you are a beginner investor, you can ask for the help of an experienced crypto consultant who can provide expert guidance on how best to build your portfolio and maximize your returns over time.

How to Buy Cryptocurrency from an Exchange

As previously mentioned, direct crypto investments are one of the most popular ways to get exposure to this market. If you want to buy cryptocurrency, you can do it through a crypto exchange. Here are the steps to follow.

Find a suitable exchange. Many mainstream investors and institutional investors have been turning from traditional investments to the crypto space, so there is now a wide choice of established exchanges that offer easy access to crypto markets. When opting for one of them, give preference to trustworthy and well-regulated platforms that can ensure a high level of security for your assets.
Create a brokerage account. At this stage, you will be asked to provide some personal details and pass through the verification process.
Fund your account. Different crypto exchanges offer various funding options. You can usually top up your account with fiat money such as USD, e-money through such platforms as PayPal, etc.
Choose the crypto you want to purchase. Different coins often serve different purposes, and some may be better suited for your investment goals or trading style.
Place an order. Choose the amount of crypto you want to buy and place an order by following the instructions of the exchange.
Store your crypto. When investing in cryptocurrency, it’s essential to plan how to store your assets. It is usually done with the help of digital wallets, which can be offered by independent providers or built into the cryptocurrency exchange.

How to Invest in Blockchain

Investing in blockchain can be a lucrative and exciting opportunity, but it is essential to do your research and take the right approach in order to see the best results.

One option is to purchase individual stocks involved in the blockchain industry. This may involve buying shares of companies that are working on developing new blockchain technologies, or investing in businesses that use blockchain as part of their operations. Some examples of such companies include IBM, Coinbase, BlockFi, and others.

Another strategy is to invest in blockchain ETFs, which combine a variety of individual stocks from different industries into a single investment vehicle. This investing strategy comes with diversification benefits, as blockchain ETFs include a wide range of companies across different sectors, from technology and finance to healthcare and real estate. Among the most popular blockchain ETFs are Global X Blockchain ETF (BKCH), Bitwise Crypto Industry Innovators ETF (BITQ), etc.

Advantages and Disadvantages of Investing in Cryptocurrency

Just as with any investment instrument, cryptocurrencies come with their benefits and drawbacks. Here are the most important of them to be aware of.

Advantages

Flexibility. Investors can directly buy or sell digital tokens online with minimal friction. Moreover, cryptocurrency markets are working around the clock, so investors don’t need to wait for the exchange to open.
Security. Crypto assets are built on blockchain technology, a powerful system that provides unparalleled levels of security and transparency.
Helps to beat inflation. Cryptocurrencies are often not directly correlated with other financial assets and economies. Thus, they are well-suited for diversifying investment portfolios and providing protection against inflation. Moreover, the majority of cryptos are capped: some have a limited supply (like Bitcoin), and some are capped annually (like Ethereum). That means that cryptos themselves are not prone to inflation since their amount can’t go out of control.
Potential for high returns. The crypto market is a highly volatile space, meaning that the price of a particular asset can spike to unprecedented levels, bringing sudden profits to its owners. However, it’s crucial to remember that it can also work in the opposite direction. Crypto prices can either surge or fall dramatically, resulting in substantial losses for investors.

Disadvantages

Steep learning curve. Cryptocurrencies are complex financial instruments coming with a rather high level of risk. Thus, to become a professional in this market, it’s necessary to devote much time and effort to gain the necessary knowledge, skills, and experience.
Volatility. As previously mentioned, volatility is a double-edged sword. It can result in high potential profits if managed correctly. However, for inexperienced investors, it implies a higher risk of losses.
Lack of regulation. Cryptos lack governmental regulations. Although this may seem appealing at first sight, it has some significant drawbacks. One is the absence of legal protection. Without regulatory measures in place, unscrupulous operators can take advantage of investors and undermine trust in the entire industry.

Is Crypto a Good Investment?

On one hand, the cryptocurrency market is volatile and risky, and there is no guarantee that prices will go up or that you will be able to sell your investments at a profit. On the other hand, many investors believe that the long-term outlook for crypto is positive. Despite fluctuations in value and some security issues, more and more businesses and individuals are using cryptocurrencies as a means of exchange, suggesting that these new technologies have staying power.

Overall, whether or not crypto is a good investment is up to each investor, depending on their individual goals and risk tolerance.

Protecting Yourself While Investing in Cryptocurrency

The crypto sphere is relatively new and still causes some concerns among investors, especially when it comes to security, privacy, and the credibility of exchanges and platforms. Thus, below we have gathered some key tips to keep yourself protected while investing in cryptocurrency.

Do thorough research on the coin you want to invest in.
Continuously educate yourself about this type of financial market.
Choose a well-established and reliable platform or exchange to buy cryptocurrency.
Develop and strictly follow your investment strategy and risk management plan.

Conclusion

Cryptocurrencies have come a long way since Bitcoin first appeared on the scene in 2009. With more than 10,000 different types of crypto available and a growing number of investors interested in them, it’s clear that this industry is here to stay.

For those looking to invest in cryptocurrency, there are a few things you to be aware of before taking the plunge. First, understand what cryptocurrency is and how it works. Then, research which coins are worth investing in and where you can buy them. Finally, be prepared for the ups and downs of the volatile crypto market by understanding both the benefits and drawbacks of investing in cryptocurrency.

FAQ

How do I start a cryptocurrency investment?

First, you will need to do some research about the various available virtual currencies and their market performance to identify which is the most suitable choice for your investment portfolio. Then, you need to decide how much you want to invest in cryptocurrency and whether you want to buy assets outright or through a more speculative investment strategy like crypto trading. Ultimately, the most important thing is to develop a clear plan and follow strictly, while avoiding impulsive decisions.

What is the best cryptocurrency to invest in for beginners?

There is a wide choice of cryptocurrencies nowadays. They all come with unique features, purposes, advantages and disadvantages. There is no universal solution for every investor. To find the best crypto, it’s necessary to consider your investment goals, the time you can devote to cryptocurrency investing, and your risk tolerance level.

How much money do you need to start investing in crypto?

While the exact figure will depend on a variety of individual factors, including your investment strategy and the type of cryptocurrency you are looking to purchase, most experts would recommend that cryptocurrency investment not account for more than 5% of your entire portfolio.

How much do I need to invest in cryptocurrency to become a millionaire?

Although investing in cryptocurrency can be a very lucrative venture, it’s crucial to remember that it can also be rather risky. Thus, if you are interested in gaining some returns in this highly volatile market, it’s reasonable to clearly understand how this investment instrument works and, if you are a beginner, to seek personalized investment advice from a professional who understands the complex nature of digital currencies and can help you navigate this risky market.

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