Invest in Cryptocurrency

Here’s a summary of the key differences between investing and trading cryptocurrency:

Investing (long term)

When you’re investing in a cryptocurrency, your ambition is to buy and hold the coin(s) for a long period of time because you believe they will rise in value. For instance, if you pick some tokens today at A$100 because you think they’ll be worth A$200 next year, that’s investing.  Here are the central things to consider when following this strategy:

• Focus on the fundamentals. Making a long term crypto investment involves making a buying decision that’s based on fundamentals and long-term trends. You want to do your research and choose cryptos you believe will perform well over the coming months and years – with less focus on day-to-day price swings.
• Look for value. The ideal cryptos for this strategy will be those that you feel are currently undervalued. This could be because you believe the project underpinning the coin will achieve long-term success, or that the token is new and hasn’t yet been given proper attention by crypto investors.
• Consider your time horizon. You need to have an idea of how long you want to hold your cryptos. For instance, if you bought Bitcoin in late 2017 when it was peaking, your investment would have lost nearly two-thirds of its value by the end of 2019. However, if you kept it longer than two years, then your investment would have risen 2.5x by early 2021. 
• Ride out volatility. While price volatility can and will occur, a true long-term investor will ride out downturns (as well as upturns), aiming for the biggest long-term profit. The term for this behaviour is HODL, a slang phrase that’s meant to indicate that you plan to hold the asset long-term.
• Take an active approach. Rather than just buying some cryptocurrency (e.g. Bitcoin) and sitting on it, you might want to react to market movements. For instance, if you believe that a coin will rise to a specific value and that’s where you’re looking to sell, you might want to get more of it if it dips in the short-term. Alternatively, if you have a maximum loss you’re willing to take, then sell your coins if they fall to this amount.
• Store your coins securely. If you’re planning on holding a large amount of cryptocurrency for the long-term, then it is worth considering getting a personal secure digital wallet. Exchanges and brokers will usually allow you to store your coins on their platforms, but cold storage wallets can give you the peace of mind of added security – much like keeping your valuables in a bank vault.

Bear in mind that investing in cryptocurrency requires a cool head. Prices of individual coins can be very volatile in the short term, which is why it is important to rely on fundamental analysis to spot value and hold firm if you believe the crypto will come good in the end. 

It’s just like investing in a stock. Tesla investors endured weak performance for many years, but as the need for green technology became clearer the company’s stock price rose sharply. This meant investors who kept hold of their shares were rewarded for their foresight, and those who sold early missed out on the benefits.

Trading (short term)

When trading cryptocurrency, your aim is to buy and sell coins frequently within a short period of time and make regular small wins. For example, if you pick up A$100 worth of Bitcoin on Monday and sell it for A$120 on Tuesday, that’s trading. Here are the key things you want to bear in mind when trading crypto:

• Study technical analysis. In order to be a successful trader, you need to master technical analysis (reading and analysing charts). Through this, you can learn to spot trends in the price fluctuations of various cryptocurrencies. Rather than looking for a coin’s long-term strengths, it’s more important to recognise these trends and use them to make future predictions when trading.
• Adapt to events. Nobody can predict the markets with 100% accuracy, and so you need to be ready to adapt if market conditions change. If the whole market suddenly turns South, you need to be ready to get out and cut your losses.
• Manage your risk. Similar to the above point, trading is about making sure your trades are profitable as a whole rather than having to make money every time. You will inevitably be wrong sometimes and so you need to use techniques to make sure you’re not taking on too much risk. Limiting the amount of money you put into individual trades and setting stop-loss orders are good ways to protect your investment. 
• Keep a cool head. One of the hardest things to master when trading cryptocurrency is to avoid getting swept up in the moment. When markets are on the rise some people get carried away and make trades based on emotion rather than research and logic. If you do this, it can lead to large losses when you come back down to earth.

Overall it’s important to keep your focus on the short-term when trading. Let’s say you were to get a coin that’s trading at A$300 and you sell it at A$330, then you’ve made a successful trade that’s yielded a 10% profit. Whether the coin’s price then rises to A$400 is irrelevant – you made the short-term gain you were looking for, which was your aim.

What is best for me?

This is a question only you can answer, and we can help you choose by detailing the key things to think about. Follow these 6 steps to work out how you want to invest.

1. Know your cryptocurrency types. You should never invest in or trade any asset you don’t understand, so read up on cryptocurrency before putting your money into it. Three of the most popular cryptos are Bitcoin, Cardano, and XRP, but there are thousands of coins around, and the more you know, the better equipped you’ll be to become a successful cryptocurrency investor. 
2. Decide how much you’re willing to venture. When investing or trading you’re looking to grow your money over time, so the amount you start with will give you an indication of the potential returns you’re likely to see. If you have a couple of hundred dollars to invest, you might want to consider investing it in a prominent coin; whereas if you have more at your disposal then you could consider trading a variety of cryptocurrencies at once.
3. Decide how much risk you’re willing to take. The more you put into crypto investing or trading, the more you can lose if things go wrong. To mitigate your risk when investing, it’s a good idea to diversify your portfolio with several different coins. With trading, you’ll want to figure out the maximum loss you can tolerate on each individual trade and manage your trade amounts accordingly. The latter of these can be more time-consuming and complicated, but at the same time you’re generally risking less in one go with trading than when investing.
4. Decide what your timeframe looks like. Investing to build a nest egg for 20 years from now requires a very different strategy than trying to make quick profits through day trading. Your money will be tied up for a longer period of time when investing, meaning you might miss out on other investment opportunities – but shorter-term trading offers less security in the form of planning for the future.
5. Stagger your investment over your time horizon. Regardless of whether you’re investing or trading, you should do so in stages over time. Let’s say you’re willing to invest A$1,000 long-term, start by getting A$100 worth of crypto, and then the same again the following month, and so on. Similarly, if you’re willing to trade the same amount – a similar approach can stop you from losing too much during your learning curve. 
6. Choose the right broker or exchange. If you’ve decided you want to invest over the long term, then it’s generally best to sign up for a cryptocurrency exchange that offers low fees. Alternatively, traders should look for a crypto broker that offers a range of trading options and which is regulated to practice in Australia by the Australian Securities Investment Commission (ASIC). ASIC has some of the most stringent investor protection rules in the world, so brokers that operate in Australia are very safe to use.

Remember that it is possible to pursue both strategies at once. You might want to invest some of your money in a prominent cryptocurrency over the long-term, but also make regular trades in the crypto markets on another platform. The next section takes you through your options.

What to invest in and ways to invest

There are many ways to get involved in cryptocurrency. As the space has grown over the past decade, there has been an expansion both in the number of cryptos in existence and the ways to trade and invest in them. Your strategy will depend on the choices you make out of the options available, which are all listed below.

What should I invest in?

Rather than giving a list of specific cryptocurrencies, the prices of which are constantly fluctuating, it’s more helpful to answer this question in terms of the different types of cryptos available today. While there are thousands of coins, they all tend to fall into one of the following categories:

• Digital currencies. The most common form of cryptocurrency, of which Bitcoin is the original iteration. These types of coins use blockchain technology to keep a record of transactions, allowing you to spend digital currency just as you would any fiat currency. Two examples of digital currency such as these are Dash and Bitcoin Cash.
• Developer platforms. Blockchain technology has attracted a large amount of interest from developers across the world, and many platforms have emerged that support the building of decentralised apps (DApps) which use cryptocurrency tokens. Polkadot and Algorand are among the best known.
• Entertainment hubs. To help create a world where content creators are rewarded for their work without the middleman taking a cut, a range of cryptocurrencies are attached to platforms that let consumers pay those creators directly. If you’re interested in this idea, check out Tron and Theta.
• Decentralised finance (DeFi). Just as digital currencies decentralised the process of verifying transactions, digital finance tokens are used to give access to financial services (e.g. loans) without the need for centralised institutions. Two examples of major DeFi coins are Yearn Finance and AAVE.
• Marketplaces. Rather than simply operating as a medium of exchange for all goods and services (like digital currencies), some cryptocurrencies take the form of coins designed for trading specific things. For example, Enjin allows people to tokenise items from the world of online gaming and trade them with other users, and Ravencoin offers a similar service for trading any physical asset on the blockchain.
• Stablecoins. Designed to counteract the notorious volatility of cryptocurrency prices, stablecoins are tokens traded on the blockchain that are pegged to the price of another asset (for instance, Tether is attached to the value of the US Dollar) or programmed to maintain a steady price (for example, Ampleforth). 
• Data sharing protocols. To keep personal data out of the hands of tech companies such as Google and Facebook, a range of cryptocurrencies focus on storing data and files on decentralised blockchains for their users. Two of the biggest names in this space are The Graph and Filecoin.

These are the broad categories into which cryptocurrencies fall, but some investors prefer to select coins by their share of the market rather than the project that drives them. If you’re thinking of investing or trading using this approach, then there are four main categories to think about:

1. Bitcoin. Worthy of its own category is the coin that started it all. Bitcoin is by some distance the world’s most famous and largest cryptocurrency.
2. Large-caps. The biggest and most well-known cryptocurrencies are the large-caps. These coins have a market capitalisation in the billions of dollars and are the most traded on cryptocurrency exchanges each day.
3. Mid-caps. Smaller than the large-caps, mid-cap coins still have significant trading volume but lack significant overall value when you add up all the tokens in circulation.
4. Small-caps. Small-cap cryptos are often known as ‘altcoins’ and are the coins with the smallest market capitalisation. These are usually riskier investments, but can be very profitable if you get in on the ground floor of a token that ends up going to the moon.

On top of these options, there is one other alternative you can use. Instead of venturing into the crypto market directly, you can invest in the stocks of companies that are involved in blockchain and/or crypto-related technology. Some of the companies worth considering in this space are Tesla, Square, MicroStrategy, IBM, Walmart, Meta, and JP Morgan Chase.

Ways to invest

Now we’ve been through the investment opportunities out there, you need to consider the options you have in terms of how you make your investment. These are the different ways you can get exposure to cryptocurrency today:

• Cryptocurrency brokers. For buying cryptocurrency quickly and easily, your best option is a broker. These platforms are designed to make the process as easy as possible, and many also come with integrated apps. In Australia brokers must offer a lot of investor protection and prove they hold user funds securely before they are approved to practice in the country by ASIC.
• Cryptocurrency exchanges. To find the best prices and trade coins on a peer-to-peer basis with other users, crypto exchanges are the places to go. These services act as an open marketplace where you can buy from and sell to other people in real time, and commonly offer the widest selection of cryptos of any type of platform.
• Cryptocurrency ETFs. Using a crypto ETF you can invest in a coin (or selection of coins) without having to own them. ETFs are ‘exchange-traded funds’ and can be freely traded on stock exchanges during market hours.
• Cryptocurrency funds. Now that cryptocurrency has established its place in the world’s financial landscape, there are several prominent funds that have exposure to cryptos. Investing in these means you’re placing your faith in the fund manager to make wise moves in the markets to generate profits.
• Cryptocurrency mutual funds. With a mutual fund, investors pool their money together and entrust it to a manager who decides how to invest the overall sum. You can now find a variety of mutual funds that specialise in making cryptocurrency investments.
• Cryptocurrency debit cards. If you want to spend your coins as well, then there are a range of services that come with a debit card that allows you to do just that. Companies such as Wirex offer all-in-one crypto accounts to Australian users, and mean you can shop on the high street with your Bitcoin.
• Cryptocurrency apps. For almost anything you could want to do with crypto, there is now an app that lets you do it. Find the best apps for buying, selling, trading, and storing your coins here.
• Cryptocurrency wallets. Especially if holding for the long term, you might want to consider getting yourself a cryptocurrency wallet to store your coins securely. Some of these services now also have integrated exchanges, so you can buy, sell, and store coins all in one place.

These are all viable options for making your first cryptocurrency investment. If you’re still making your mind up about whether you want to invest, we recommend checking out our cryptocurrency courses so you can learn more before you start.

What now?

If you are ready to invest now, then simply follow any of the links above to explore the site and start your cryptocurrency journey today. Or keep scrolling for our latest news, live data, and educational courses.