How to Invest in Cryptocurrency for Beginners
Investing in crypto doesn’t have to be risky or difficult. Read our beginner’s investment guide to learn more.
Investing in crypto doesn’t have to be risky or difficult. Read our beginner’s investment guide to learn more.
Are you thinking about adding cryptocurrency to your investment portfolio, but you're worried that you've missed the boat? Well, it's never too late to invest in crypto, even if you missed buying Bitcoin in 2011.
For beginners, investing in cryptocurrency doesn't have to be complicated or risky, as you'll find out in this article.
Before discussing crypto coins to invest in, let’s take a look at different ways to do it:
If your answer is 'Yes' to most of the above questions, you can try trading. Trading requires a specialised set of skills and industry knowledge, as well as nerves of steel. Cryptocurrency markets are extremely volatile, so the losses can be devastating even when the trader obeys the golden rule of never spending more than they can afford to lose. While trading has the lowest barrier to entry, if you're new to crypto, starting your crypto journey with trading on your own might not be the best idea. There are still some ways to do it more safely, though, which we will discuss below.
If any of the above questions resonate with you, it’s time to consider opening a crypto savings account. You deposit your crypto with a wealth management firm like Cabital that does all the heavy lifting. After assessing the viability of investment projects, they'll invest in these by lending digital assets as over-collateralised loans. The borrower has to put up collateral valued higher than the loan to ensure that the investors' assets are protected. You'll earn a share of the returns as interest—at Cabital, you'll be able to earn leading APY rates as passive income with your stablecoin deposits.
If you agree with most of the above questions, you may be interested in trying crypto lending. Crypto lending is a safer bet when compared to trading. You issue a loan using your crypto and earn interest on it, although you have to keep an eye on the market to ensure your assets are invested in the optimal project. The crypto lending market has taken off with the advent of DeFi, so you can always find an option that suits your needs. We discussed crypto lending in an earlier blog post, so check it for more information about lending and how to get started.
Finally, there is HODLing, which doesn't require anything beyond patience. You buy an asset and hold it until its price soars to the moon. Investing in Bitcoin is probably the best practical example of this case. Regardless of what price you buy it at, it's likely to increase in value, as it is the first and most popular cryptocurrency with the highest market cap. The main downside to the strategy of HODLing is that you leave your investment at the mercy of market forces without any protections in place, and you lose out on the opportunity of earning interest on your crypto holdings.
These strategies also work as a benchmark for a beginner's guide to Bitcoin investing. Bitcoin is an excellent store of value because of its status as the first cryptocurrency. Its market capitalisation remains the highest at over US$972 billion, which is more than two times that of Ethereum, the second-largest cryptocurrency.
However, returns will be lower than stablecoins for crypto savings accounts due to lower demand for such currencies. You may want to consider converting some of your Bitcoin assets into stablecoins like USDT or USDC to better take advantage of the high-interest rates.
If your risk tolerance is high, you may consider adding altcoins beyond the top 10 and even going for project governance tokens as a short-term investment. If the above checks make a convincing case for profits, you may want to consider setting aside a part of your portfolio for such investments.
Moderate risk tolerance implies that you are not limiting yourself only to the safest bets but are equally unwilling to risk a lot. In this case, your portfolio is likely to be more conservative and include Bitcoin, Ethereum, possibly some altcoins from the top 10, and stablecoins. There may be some riskier assets as well, but these would be limited to only a tiny percentage of your total portfolio.
Finally, if your risk appetite is low, you likely won’t look any further than Bitcoin, Ethereum, and stablecoins allocated in different ways. They are the safest bets in crypto. Bitcoin is growing in the long term and is recognised as a store of value, Ethereum closely follows it, and stablecoins ensure the highest interest rates due to the demand from traders.
An investor should not mistake a high risk appetite for recklessness. A high risk appetite describes the percentage of high-risk assets in a given portfolio. What is crucial is that you understand your investments. After all, if you don't know how it works, you cannot predict its behaviour, and that's a bad strategy.
The technical details around crypto can be confusing. Understanding how cryptocurrency works is essential, as you'll be familiar with issuance limits as well as what kind of rights your crypto holdings grant you. Without this knowledge, cryptocurrency becomes more of a gamble than an investment.
Therefore, no matter how high your risk appetite is and what investment strategy you have chosen, you have to make sure your portfolio complies with the 3S rule:
There are four ways for beginners to get started with investing in crypto via cryptocurrency exchanges.
Copy trading is an option offered by some exchanges. It allows you to automatically repeat the actions performed by selected top traders on the platform, but with your own funds. This way, even if you are a rookie, you get to tap into the expertise of experienced traders. The trader you're copying gets paid by the platform from your funds. This method comes with the risks of trading, where the market's unpredictability can result in losses.
Staking on exchanges works with cryptocurrencies with Proof-of-Stake (PoS) consensus algorithms. It means that you lock your funds at an exchange to obtain the right to validate blocks on the blockchain and earn rewards. It is a simple and relatively safe way of having passive income. However, the entry threshold may be too high in the most popular cryptocurrencies. For example, to be a full validator on the Ethereum blockchain, you'll need to stake 32 ETH (approx US$ 125,673.56).
The crossover strategy is a relatively simple trading technique. It relies on the moving average—a chart that roughly follows price fluctuations of a particular crypto coin but cancels out peaks and dips that happen along the way. When superimposed over the actual price chart for the same cryptocurrency, several points appear where both charts cross each other and these points signal whether to buy or sell. The risk is that this law is only empiric and does not work 100% of the time.
Finally, there’s lending through an exchange. It is a relatively safe method where you lend your crypto to other users of the exchange, earning interest on the loaned amount. Crypto loans are usually over-collateralised to protect the lender, requiring the borrower to put up collateral of higher value than the loan. Even then, lenders are still at the risk of borrower default, along with abrupt market swings deprecating collateral and liquidity problems of the exchange itself.
Passive income options are an excellent supplement to the active investment strategies above. They are available through crypto savings platforms.
Choosing a platform requires research. First, you should look at the interest rates they offer. These should be competitive: too low and it's unappealing, while too high suggests the risk is high. Then, find out whether they deal with platform tokens: this crypto asset is risky by default, as the value can swing based on market movements. So if your risk appetite is not very high, a platform that abstains from them would be a more sensible choice.
When choosing cryptocurrencies to deposit, you should compare their interest rates. Their market cap and daily trading volume will give you an idea of how much interest a cryptocurrency can generate as passive income: the larger the volume, the greater the demand for the asset, and therefore, the higher the income.
The most sensible options here are Bitcoin, Ethereum, and stablecoins. They are all in high demand: Bitcoin and Ethereum are the most widespread cryptocurrencies out there, so their trading volumes are enormous, while stablecoins are in high demand with traders, and their rock-steady exchange rate makes them a haven amidst the crazy volatility of crypto. For these reasons, stablecoins offer higher interest rates than Bitcoin or Ethereum.
Cabital ensures that any investment you make in crypto is sensible, simple, suitable and secure. It is easy to buy the most reliable cryptocurrencies on our platform. After depositing your money, you can choose the cryptocurrency you wish to invest in and start earning.
We have multi-level safety precautions and an experienced investment team with backgrounds in top banks, financial firms and fintech to minimise the risk of investing in crypto while ensuring the highest potential returns. Before choosing a project to invest in, the team evaluates it based on a set of qualitative and quantitative criteria, mapping yield curves based on the target investment pool reflecting the possible rates we can achieve. If you’re interested to learn more about Cabital’s investment strategy, you can check out our blog post around how crypto investment in Cabital works.
Cabital works perfectly as a one-stop solution for those who want to experiment with or add crypto investments into their portfolio. It’s easy to invest with Cabital. With no minimum sum, you can earn leading interests rates by investing a small amount of USDT into Cabital’s 30-Day Fixed Savings plan.
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