Cryptocurrency can be intimidating. Blockchain technology is complex, and there are so many different tokens that it can be difficult to know where to start. Despite these challenges, you've decided to get started in the crypto world. Now you need to learn how to invest in cryptocurrency.
There are hundreds of digital currencies to choose from, but don't let that scare you. Investing in cryptocurrency can be a positive and rewarding experience, as long as you do a bit of research. Remember, the crypto market is well-known for its volatility, so only invest as much as you can afford to lose.
Let's start:
01-Selecting a cryptocurrency
If you're a beginner in the world of crypto, you may be overwhelmed by the sheer volume of digital assets available. Of course, most people have heard of Bitcoin (BTC). Still, there are also popular cryptocurrencies like Ethereum (ETH), Litecoin (LTC), Dogecoin (DOGE), Bitcoin Cash (BCH), Ripple (XRP), and many, many others. Any crypto that's not Bitcoin is referred to as an altcoin.
But how do you select the right one for you? With a little investigating and digging, you can find the best cryptocurrency for you. Here are a few items to consider as you think about your investment strategy.
Leadership
Who is leading the project? Are they known as reliable and trustworthy members of the industry? Have they had success in previous projects? These are important questions to ask since the leadership team holds the power to drive a project toward a positive outcome — or a negative one.
Technology
A large part of whether or not a cryptocurrency is successful is the technology behind it. You may want to consider how the project compares to its competitors or what makes it stand apart from other, similar offerings. When looking at the technology behind a cryptocurrency, think about how much it's going to disrupt the current market.
Reputation
A project's reputation goes hand in hand with its leadership. Does the team have a good reputation or a bad one? If you're hearing negative things about a cryptocurrency, it might be wise to steer clear of it. Before you invest in a crypto, dig through the community pages and do extensive research on its credibility and reputation.
Community
Speaking of community, a significant part of the success of any given crypto can be given to its followers. Visit a project's YouTube, Reddit, or Twitter pages to get an idea of how loyal its users are. See what people have to say about the project. Plus, if any part of the crypto is confusing, a solid community can quickly answer your questions.
Roadmap
What does the future look like for the cryptocurrency you're considering? Are the timelines clear and concise? Do they focus on the development of the token? A project with no clear roadmap may not be the wisest investment. Along those same lines, a digital asset that shows clear indications of where it's headed are good signs of strong leadership and high expectations.
02-Pick an exchange
Once you've decided on the crypto that's right for you, it's time to pick a crypto exchange. Like cryptocurrencies, there are plenty of exchanges available to choose from. These are platforms that allow you to buy, sell, and trade your preferred digital asset. Here are some things to consider when choosing a crypto exchange.
Supported Cryptos
What good is an exchange if it doesn't have the cryptocurrency you want? Larger exchanges like Coinbase, Binance, Kraken, and Gemini will more than likely support the digital asset you want. However, if you search for a small-cap coin, you might have to look for a more specialized exchange.
Security
Cryptocurrency trading isn't without its flaws. Several exchanges have suffered hacks that resulted in significant losses. That's why it's important to use an exchange that provides plenty of security. This might include features like two-factor authentication (2FA), know-your-customer (KYC), and anti-money laundering (AML).
Deposit Methods
How can you buy your crypto if the only deposit method the exchange accepts is cryptocurrency? If you're starting out, you should probably look for a crypto platform that accepts fiat — like the U.S. dollar (USD) — from your bank account or other financial institution. This includes options like wire transfers, debit cards, and credit cards.
Fees
Cryptocurrency exchanges offer a wide range of fees. Some exchanges are easy to use and navigate but have higher fees. Others are a little more complex and require more personal information but offer lower fees. Before you start using an exchange, look at its fee structure. This will give you an idea of how much you'll pay when you deposit, withdraw, buy, sell, or trade crypto.
User Interface
The user interface of an exchange isn't the most critical aspect of selecting a platform, but it can make a difference if you're new to the cryptocurrency market. For those not familiar with cryptocurrency investing or trading, having a simple, easy-to-use interface can make all the difference. Some users are even willing to pay higher fees in exchange for a clean, user-friendly exchange.
03-Buy crypto
This is where the rubber meets the road. You have your cryptocurrency selected, and you know what exchange you're going to use. All that's left is to purchase your digital assets. Keep in mind that higher-valued cryptocurrencies could be thousands of dollars. For example, as of June 2021, the price of one Bitcoin runs in the tens of thousands.
Fortunately, most cryptocurrencies allow you to buy fractions, which is much more affordable for many investors. So, to purchase your crypto, log in to the exchange you chose, deposit your funds, and start buying. That's all there is to it.
04-Use a wallet
When you purchase your crypto, it will be deposited into a digital wallet stored on the exchange. However, it's safer to keep your digital assets in an offline cryptocurrency wallet for security reasons. Some people like desktop or mobile wallets, while others prefer hardware wallets like Ledger and Trezor.
Desktop and mobile wallets are typically connected to the internet and exist either on the desktop of your PC or on your mobile device. These wallets are great if you plan to do a lot of buying, selling, and trading.
Hardware wallets, on the other hand, are physical wallets that store your crypto. These devices usually look a lot like a USB drive. They are much safer than desktop or mobile wallets since they're usually offline, which means hackers can't access your funds. So if you plan to hold on to your crypto after you buy it, a hardware wallet might be the choice for you.
How to invest with cryptocurrency in DeFi
An up-and-coming method for investing in cryptocurrency is through decentralized finance, or DeFi. Platforms like Coinbase and Binance are considered centralized because a singular entity controls them. The idea of decentralization is to remove the central authority and allow investors to trade directly with one another. There are several ways to invest in DeFi. Let's take a quick look at a few options.
Trading DeFi Crypto
Like any other digital asset, assets in DeFi can be traded on decentralized exchanges. As a result, investors can buy, sell, or trade their DeFi crypto anytime they want. So whether you're a long-term HODLer (Hold On for Dear Life) or a short-term trader, exchanging your DeFi crypto is a great way to get your feet wet.
The digital tokens issued by DeFi protocols can also be used for yield farming. Some of the more popular DeFi tokens are even listed on Central Exchanges (CEXs) like Binance, Gemini, Kraken, or Coinbase, in an effort to capture the trading volumes on Decentralized Exchanges.
Liquidity Mining
Liquidity mining is when investors provide funds for a decentralized protocol. These investors are called liquidity providers and are incentivized to take part, as they tend to receive large shares of the fees collected on the platform. However, providers are able to withdraw their funds whenever they want, which means they don't have "withdrawal periods" that other centralized exchanges use.
Yield Farming
Yield farming is a lot like liquidity mining, but with a bit of a twist. As opposed to investing in just one single protocol, yield farmers look for platforms that offer the highest yields or returns. Yield farmers provide liquidity to the platform in the form of digital assets. This liquidity is then used to execute transactions for traders who have to pay a fee. A portion of these fees goes to the yield farmer, based on the contribution amount.
Passive investments abound
Now that you know a little more about how to invest in cryptocurrency, take some time to consider what makes the most sense for you. Does a specific project or digital asset pique your interest? Is there a certain exchange you plan to use? One of the great things about cryptocurrency is that there is a wide variety of options available.
This is also true for ways to invest in cryptocurrency. Just remember that the crypto market is a volatile, high-risk industry, so only put in as much as you're willing to lose. With that in mind, if you do decide to invest, there are excellent opportunities to make your crypto work for you. One example of this is Unagii, which offers a platform for both yield farming and staking digital assets in DeFi.
