Cryptocurrency can be overwhelming to new investors. What’s an ICO? How does the blockchain work? Where am I supposed to put my Bitcoins? What about altcoins? When do I buy? When do I sell? There’s a lot to internalize, even for experienced conventional investors. Fortunately, crypto investing is more similar to traditional investing than you might think. We’ve got your guide on how cryptocurrency stacks up to conventional investments.
When most people think “investing,” they think of stocks, bonds, mutual funds, IRAs. They probably don’t think of Dogecoin, the cryptocurrency launched as a joke that now has an $800 million dollar market capitalization. But Dogecoin has outperformed all those categories put together, and it’s not the only cryptocurrency that’s seen huge growth. An investor with a diversified portfolio of stocks and bonds might see a respectable 7% return on investment in a year. Holders of Bitcoin pulled in 1,800% return on investment last year. Buyers of Ripple raked in a staggering 4,000 return in just weeks last year. These are extreme examples, but they illustrate the point: the returns achievable in cryptocurrency dwarf traditional investment.
But don’t sell your kidney to buy Litecoin just yet. Responsible investors dipping their toes into crypto should take a look at their portfolio and determine how much they feel comfortable allocating into a high-risk, high-reward investment. There is no set number or percentage. It will vary from person-to-person based on age, income, family situation, risk tolerance, and a bevy of other factors. Make a decision on how much you’re okay losing if everything blows up.
So you’ve set aside some money. Great! But there are thousands of coins listed on CoinMarketCap. Now what? No one can tell you what coins to buy, and it’s your responsibility to do thorough research on a project before putting your hard-earned money in. Bitcoin is the largest cryptocurrency by market cap, as well as the most expensive. However, you might get better returns on smaller cryptocurrencies that are lesser known. We’re, of course, talking about “altcoins.” Many investors like these because they have perceived higher room for growth. Getting in on the ground floor of a cryptocurrency that “moons” in crypto slang, can be extremely profitable.
Let’s say you purchase some of the big names like Bitcoin and Ethereum and took shots on some smaller coins like Ardor, XTRABYTES, and TenX. Congrats! Now you need to keep those coins safe. This is one area crypto investing diverges from conventional investing. You don’t need to worry about someone hacking Bank of America and stealing all your money. But cryptocurrency exchanges can and are hacked. It’s poor security to hold your coins on an exchange, no matter how much you like it.
There are two main options to secure your coins: hardware and software wallets. Software wallets are special programs on your computer that hold your coins. Hardware wallets look like USB drives and function pretty much the same way. You plug it into your computer, load up your coins, yank it out, and keep it in a safe place. Your money is safe and sound. Pick one, the other, or both, but for the love of all that’s holy, please don’t leave your coins on an exchange.
Let’s recap. Much like traditional investing, you need to decide what you can afford to lose before putting money into a high-risk investment. Have the patience to keep a long view, and be willing to ride the ups and downs. Be sure to keep your coins safe, and follow news and new releases in the space. You never know when a coin that has high potential could drop, or when a government issues a regulation that might affect a crypto investment of yours. Stay smart, stay safe, and you’ll reap the rewards of investing in crypto.
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