Thinking of investing in cryptocurrency? You’re in the right place. Crypto investment certainly has the potential to make a serious profit but, as with any investment, it’s important to make sure you know what you’re getting yourself into before taking the plunge. Beyond Bitcoin there are a lot of altcoin currencies to choose from and plenty of platforms on which to trade – it’s hard to know where to start. Luckily, you’ll find a comprehensive array of learning resources right here – our easy to digest guides are designed to give you the knowledge and insight you need to make a smart crypto investment.
Invest in cryptos, right now
Ready to invest in cryptocurrency? Click on the links below to choose which cryptocurrency you’d like to invest in and learn more about. Our helpful guides will walk you through the best investment choices and show how they work.
What are cryptocurrencies?
Cryptocurrencies are digital currencies that operate independently of central banks or fiat currencies. Encryption techniques are used to regulate the generation of units of currency and verify transfers of funds.
Bitcoin, the first cryptocurrency, was invented by an individual using the pseudonym Satoshi Nakamoto. In the years since, cryptocurrencies have become increasingly popular because they enable secure, decentralized, instant payments and no-fee transactions, while offering anonymity and lower risk of theft.
They’ve become an increasingly popular investment vehicle because of their upside: after trading at around a few dollars per unit for the first few years after its 2009 launch, Bitcoin rocketed in value, peaking at nearly $20,000 per unit in 2017. It’s easy to see why so many investors are attracted by the prospect of a similar scenario.
How to get started investing in cryptocurrencies
Investing in (buying) cryptocurrency is often conflated with ‘trading’ cryptocurrency. But in reality, these are two very different practices that require different tactics and distinct mindsets. It’s important to fully understand the differences before diving into either practice.
Here’s a summary of the key differences between investing vs. trading:
Trading (short term)
Trading cryptocurrency is the act of buying and then selling in a short period of time. Here are some key points about trading crypto:
- Trading cryptocurrency involves aiming for short-term profits, based on rigorous technical analysis, and short-term trends.
- Acquiring the expertise to trade effectively requires more knowledge, research, and learning than simply buying cryptocurrency and sitting on it for longer periods of time.
- You’re going to be wrong a fair amount of the time, and you’ll need to learn to deal with that emotionally. Limiting your losses is an important part of becoming a successful trader. For instance, setting a set-stop loss order will automatically result in you taking a loss of a predetermined size if you the price of the cryptocurrency you’re trading falls.
- You’re going to end up leaving money on the table, which is something you’ll need to come to terms with.
Let’s say you buy 1 Bitcoin at a price of £7,000, and sell shortly afterwards at £7,035. If the price of Bitcoin takes off from there and surges to £7,500 over the next few weeks, that’s not your concern – you’re shooting for short-term gains, and the 0.5% profit you made on your trade was a success.
The current price doesn’t matter as much in trading as it does in investing. You’re focused on banking gains on short-term trades, not sweating the overall valuation of the cryptocurrency and worrying about whether it might be overvalued or undervalued.
Investing (long term)
Long-term investing in cryptocurrency requires buying Bitcoin or another cryptocurrency, then storing it in a secure digital storage wallet (like putting money in your bank safely). Here are some key points about investing in crypto:
- Long-term investing in cryptocurrency involves making a buying decision that’s based on fundamentals and long-term trends. The goal is to eventually sell your cryptocurrency at a significantly higher price than the one at which you bought it.
- With long-term investing it’s important to get a sense for whether the cryptocurrency you’re buying is overvalued or undervalued. 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.
- 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 behavior is HODL, a slang phrase that’s meant to indicate that you plan to hold the asset long-term.
- You can choose to build your position over time, perhaps buying more cryptocurrency if you feel it’s been oversold, or simply adding to your position regardless of price.
- You’ll want to do your research to find the best storage device. A cold storage wallet keeps your cryptocurrency completely offline, making it a more secure method of storage than a hot wallet, which keeps your cryptocurrency online. Digital wallets have become easily accessible items that you can securely buy online, at prices that aren’t prohibitive.
What is best for me?
Deciding whether you want to trade cryptocurrency or invest in it long term requires thought and consideration. We’ve come up with a to-do list that should help you arrive at a decision:
- Know your cryptocurrency types. Some of the most popular cryptocurrencies to trade or invest in are Bitcoin, Ethereum and Litecoin. You’ll want to read up on these and other cryptocurrencies before deciding which investment you want to pursue. The more you know, the better equipped you’ll be to become a successful cryptocurrency investor.
- Decide how much you’re willing to venture. While investing might not carry the same all-or-nothing implications as, say, gambling on a sporting event, you can lose considerable sums of money if you’re not careful. A common rule is to only invest what you can afford to lose. Also remember that investing £100 requires a different approach to investing £10,000.
- Decide how much risk you’re willing to take. Different cryptocurrencies carry different levels of volatility, a subject we will cover in more detail below. You can also choose to use leverage – a practice that involves borrowing money from a broker — to increase your position in a given cryptocurrency. But just as leverage increases your potential gain, it also increases your potential loss.
- 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 a quick buck through day trading. We’ll provide more details about the differences between cryptocurrency investing and cryptocurrency trading in the next section.
- Choose your broker. Find an online brokerage with low fees, high levels of customer service and an intuitive platform that makes it easy for beginners to invest.
- Make your first investment. When you’re satisfied that you’ve done your due diligence, it’s time to take the plunge. Remember, you’ll make plenty of mistakes during your investing journey. The important thing is to learn from those mistakes and get better as you gain more experience.
Ways to invest
There are many ways to invest in cryptocurrency. Let’s take a look at two of the most popular types of cryptocurrency:
- Top cryptocurrencies. By far the most widely-held form of cryptocurrency, Bitcoin also tends to be a little less volatile than other forms (of course that’s all relative, as Bitcoin has lost nearly two-thirds of its value since its late-2017 peak). Ethereum is another well-known cryptocurrency. Its total market capitalisation is slightly more than half of Bitcoin’s. Although both Bitcoin and Ether (the currency that lives on the Ethereum blockchain) can be traded, Bitcoin serves as a digital currency, while Ethereum’s primary use is to enable smart contracts.
- Altcoins. Technically, all coins that aren’t Bitcoin are referred to as altcoins. More recently, the term has come to be associated with forms of cryptocurrency that are considered riskier, more volatile and less liquid than the industry leaders. Litecoin started trading in 2011, making it one of the best-established forms of cryptocurrency. It’s also been incredibly volatile, peaking around $375 in December 2017, then plunging all the way to $23 a year later. Of course, increased volatility can mean both more risk and more potential reward on short-term trades, if you have the stomach to handle that level of risk.
Other notable altcoins include XRP, Tether, TRON, NEO and many others. There are about 3,000 different types of cryptocurrency currently being traded.
Beyond investing in digital currencies, you might also opt to invest in shares of companies that use blockchain and/or crypto-related technology. Some of the leaders in that space include IBM, Walmart, Facebook, and JP Morgan Chase. Large-cap stocks such as these tend to be far less volatile than cryptocurrencies, but also usually offer less potential for big gains, especially short-term gains.
Finally, you should consider how you want to invest or trade. You have two principal options: brokers or exchanges.
- Brokers. Brokers are usually the preferred method for shorter-term trading. One of the advantages to using a broker to trade is that brokers offer derivative financial products such as CFDs (Contracts for Difference). A CFD is a financial contract you enter into with your broker, allowing you to benefit from the rise or fall in the price of a given cryptocurrency. When using a CFD, you exchange the difference between the opening and closing price of your trading position with your broker. You never actually own any cryptocurrency, you’re simply betting on price fluctuation.
Exchanges. Exchanges allow you to buy actual units of cryptocurrency. Owning cryptocurrency makes sense if you want to use it to shop or to transfer money somewhere quickly and securely (assuming of course the vendor or financial institution in question accepts cryptocurrency payments and transfers). Some of the leading exchanges include:
- Coinbase, a platform used by millions of investors that’s also appealingly easy to use.
- Kraken, a platform that supports at least 17 different types of cryptocurrencies and also offers a fiat currency exchange, using major fiat currencies such as dollars, Euros, and British pounds.
- BitMex, a high-volume cryptocurrency exchange that deals primarily in Bitcoin but also supports some other forms of cryptocurrency.
It’s worth doing some research to work out which exchange is right for you. You’ll find plenty of information about all the exchanges right here on Invezz.
You can find out loads more about crypto investment by reading our guides and courses on cryptocurrency. But if you feel you’re ready to invest, click on the above links and begin your investment journey.
Our top tips for investing in cryptos
By now you’ve got a broad overview of how to invest in cryptocurrency. Let’s run through some of the key takeaways:
- Don’t start without fully understanding the differences between investing in cryptocurrency and trading cryptocurrency contracts. Decide which method is best for you before proceeding.
- If you do plan to invest in cryptocurrency through an exchange, make sure you choose a reliable exchange that’s easy to use and offers competitive fees.
- Consider market conditions before investing. For instance, when the market if you tried to invest as the market overheated at the end of 2017, your investment plummeted in value soon afterwards.
- If you decide to invest in/own cryptocurrency, make sure you find a secure way to store, such as a cold digital storage wallet.
- If you decide to trade cryptocurrency, learn as much as you can about technical analysis and short-term trends. You want to understand what winning charts look like, rather than simply closing your eyes and hoping for the best.
- Whether you’re investing or trading, develop a cohesive plan that you can follow, rather than letting yourself become governed by emotions.
- That said, don’t be stubborn. If market conditions change, you might want to reevaluate your approach. Similarly, if you keep losing money on your trades, it might be time to do some serious self-examination to make sure you’re on the right track.
Unsure what to invest in?
Feeling unsure where to go from here? That’s normal. Here’s a short list of considerations to help you decide how to proceed:
- Budget size. If your budget is less than £1,000 and you want to make frequent trades, you may wish to steer clear of investment options that carry significant fees, because those fees will eat up a bigger percentage of your capital. If your budget is less than £1,000 and you’re willing to assume some risk, altcoins will cost far less per unit, and often offer greater potential for sizable short-term moves. Conversely, if you have a larger budget (greater than £10,000, say), you’re currently able to afford at least one coin from any form of cryptocurrency. You’ll also have more wiggle room to make mistakes while trading.
- Risk assessment. The more you know, the better equipped you’ll be to understand and deal with risk. If you’re interested in putting in the time to learn, more volatile investing options such as altcoins could be for you. If not, Bitcoin is the most established, most liquid form of cryptocurrency, and usually carries a bit less risk.
- Market conditions. If cryptocurrencies have tumbled into a declining market (also called a bear market), like they did immediately after the late-2017 peak, more defensive investment strategies such as investing in shares of companies that operate within the blockchain or cryptocurrency space could make more sense than pure-play cryptocurrency investments or trades. On the flip side, if cryptocurrencies are performing well, you can invest while feeling more confident that you’re buying on strength.
- Know your investing goals. If you’re trying to make money quickly, you’ll need to learn the ins and outs of cryptocurrency trading. This includes learning how to effectively read charts. If on the other hand your timeframe is more like 30 years, you can opt to simply pick an established form of cryptocurrency and HODL.
- Keep track of emerging trends. Cryptocurrency investing and trading has become increasingly popular over the last decade. New forms of cryptocurrency pop up all the time, and there’s no telling when a hot new form of crypto coin could emerge. Follow the market closely, and be ready to pounce when new opportunities arise.
Try some of our crypto courses for beginners
Still not feeling ready? We get it. We recommend starting here, learning cryptocurrency investment and trading fundamentals via our easy-to-understand educational courses. Learning the ins and outs of investing and trading cryptocurrency will help you feel prepared, secure, and ready to invest like a pro.