How to invest in Cryptocurrencies are attracting more and more investors, despite their high level of risk. Is it a bubble that is about to burst or an interesting financial investment?
This is actually hard to predict. And the market is not very readable: there are currently more than 2000 cryptocurrencies. But, if you want to get started, find out how to invest in cryptocurrencies and which currencies are the most promising.
What is a cryptocurrency?
A cryptocurrency is a virtual currency that is exchanged peer to peer, thanks to a decentralized database system called Blockchain. This currency is completely electronic: it always remains virtual.
These cryptocurrencies are beyond the control of states and central banks. It is the blockchain that acts as a central bank, keeping a decentralized register of all transactions carried out.
1.1 What is blockchain?
The cryptocurrencies therefore based on specific database types: the blockchain. This database is decentralized, which makes it very secure.
Concretely, how does this happen? Cryptocurrencies are a series of numbers, stored on computers in the form of “blocks” of numbers. For each transaction, a new block is added to the list of all transactions already carried out. This list must then be validated by numerous volunteer members, in a decentralized manner.
This is what makes the blockchain particularly secure: to falsify a transaction, it would be necessary to successfully falsify the transaction history, on the computer of several members. And for cryptocurrencies with a very long transaction history like Bitcoin, it takes considerable computing power to validate each transaction. We cannot therefore easily validate them from our own computer.
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1.2 The cryptocurrency market
The cryptocurrency market started in 2009, with Bitcoin. Then Litecoin and Ethereum quickly joined the cryptocurrency bench and experienced strong growth. Since then, many other currencies have appeared.
There are currently nearly 2,000 cryptocurrencies on the market, each of which claims to be the worthy heir to Bitcoin. But, in reality, a large portion of cryptocurrency projects fail even before entering the market. Indeed, 92% of cryptocurrency projects launched since 2015 have failed. You must therefore be very careful when you decide to invest in this investment.
In 2017, the *price of Bitcoin* started to soar, with its price increasing by almost 4000%. But he experienced an equally impressive relapse afterwards. Thus, it is important to keep in mind that the cryptocurrency market experienced very significant fluctuations.
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The main cryptocurrencies
In order to help you see more clearly in this market, here is an overview of the main cryptocurrencies existing on the market.
1.1 Bitcoin
The Bitcoin is the first cryptocurrency, created in 2009. From its inception, it was decided that there would be 21 million Bitcoins, knowing that the founders already have 1 million. Currently, 17 million Bitcoins have already been passed. This mode of operation creates an effect of scarcity: with the number of available Bitcoins decreases, the price of this cryptocurrency increases.
The Bitcoin is the most popular crypto money, which can make it a good investment. Initially, this asset attracted mostly cryptocurrency fans, but the impressive rise in its price in recent years has changed that. Thus, more and more seasoned investors are interested in it. This explains in particular that its price has increased by 50% over the past 12 months.
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1.2 Litecoin
The litecoin was created in 2011 by Charlie Lee, a former Google employee. It is one of the first cryptocurrencies created after Bitcoin. It is faster than the latter. Indeed, the generation time of a block is 2.5 minutes against 10 minutes for Bitcoin and transactions are processed about 4 times faster.
Currently, 57 million coins are in circulation and the price of Litecoin is steadily rising. In the last 12 months, its value has notably increased by 12%. However, the problem of the consequent energy resources that are spent by this cryptocurrency is the same as for Bitcoin.
1.3 Ethereum
The Ethereum is crypto money which was created in 2015 by Vitalik Butherin. It is the largest distributed computing system in the world. It is the most widely used platform for ICO (Initial Coin Offering) projects, i.e. fundraising carried out in cryptocurrencies. Indeed, Ethereum holds 50% of the market share.
This is usually a good option for investing as it is a fairly recognized cryptocurrency. On the other hand, its price has fallen by more than 30% in the last 12 months, even if it has experienced a strong rise since December 2018.
1.4 Binance Coin (BNB)
The Binance Coin (NBB) comes from the exchange platform crypto money Binance. The latter is now one of the leaders in cryptocurrency trading. Thus, Binance Coin is used to buy or sell any cryptocurrency present on the site. By using this cryptocurrency on the site, you are dividing your transaction costs in half. It is, therefore, more interesting for you to trade with Binance Coin than with Bitcoin or Ethereum on this platform.
It is the cryptocurrency that has lost the least value since the bubble burst in 2017. Its price has notably doubled in the last 12 months.
On the other hand, it is quite difficult to predict whether this success will be confirmed thereafter. To be taken with a grain of salt, then.
1.5 Ripple (XRP)
The Ripple platform enables secure payment transactions globally for banks and banking institutions. In 2012, Ripple created XRP, its cryptocurrency. It also supports fiat currencies, such as the euro and the dollar, and not just its own cryptocurrency. This currency is particularly fast: it makes it possible to carry out more than a thousand transactions per second.
On the other hand, its price is currently not looking good: it has fallen by nearly 25% in one year.
1.6 Libra
The Libra is crypto money that has done much talk about it recently. Indeed, it is the cryptocurrency developed by Facebook which will be launched in 2020. It promises to be widely used, but is it a good investment? Some hope that by investing very early, they will be able to meet the same fate as the first Bitcoin investors, who became millionaires.
On the other hand, in countries where the local currency is very unstable, Facebook’s cryptocurrency could become a safe haven. The inhabitants of these countries would then have more confidence in Libra than in their national currency. To be continued.
How to invest in cryptocurrencies?
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The *cryptocurrency* is very investment volatility that can save you a lot, but can also make you lose a lot. You must therefore invest very carefully, investing only the money you are prepared to lose. For example, Bitcoin lost 85% of its value between January and November 2018.
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To invest in cryptocurrencies, there are two strategies. You can decide to invest for the long term, which will smooth out the price of the currency a bit and compensate for sharp declines, potentially followed by spectacular increases. But you can also decide to trade for the short term, betting on the next big rises and selling your assets directly as the price rises.
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To invest in cryptocurrencies, you can invest in platforms like Coinbase, Kraken, Coinhouse or Binance. On these platforms, you buy cryptocurrencies in currency, at the rate in effect at the time of purchase. You can also obtain cryptocurrency by selling a good or service by requiring payment in that type of currency.
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Which platform to choose? Coinbase insures you in particular against theft and piracy up to 250,000 euros. Binance, on the other hand, offers the lowest transaction fees in the market.
1.2 How to use your cryptocurrencies?
The cryptocurrencies allow you, like any currency, to purchase goods and services. As they have long escaped any regulation, they have been used to carry out numerous illicit transactions. But their audience has grown since then, gradually moving away from this sulfurous reputation. Thus, more and more e-commerce sites accept payments in Bitcoin, for example.
You can also use cryptocurrencies to participate in the financing of certain companies. Indeed, some campaigns crowdfunding are performed in crypto-equity, although this is still quite confidential. This is more commonly called an ICO (Initial Coin Offering).
But, in reality, cryptocurrencies are primarily used as a *financial investment*, usually speculative.
1.3 How much money to invest in cryptocurrencies?
Many traders who want to get into cryptocurrency don’t know how much money to get started with. This is normal because the answer to this question depends on several factors to be taken into account, including your trading experience. So there is no one standard answer that can suit everyone.
Clearly, you should only invest part of your savings based on your knowledge in the field of cryptocurrency trading. You can use one of the following 4 typical profiles to help you:
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Total beginner: invest between 5 and 10% of your savings in it. This is important because if you do not know the industry, you are going to do big mistakes that will make you lose money. So it’s best to limit the number of your mistakes as much as possible at the start.
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Intermediate beginner: invest between 10 and 20% of your savings in it. Beginner intermediate means that you have already started to be interested in cryptocurrencies, but that you don’t have much more experience in it than that.
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Intermediate level: invest between 20 and 25% of your savings in it. You already know the basics and have the ability to analyze the markets for yourself.
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Advanced level: do not exceed 50% of your savings even if you already know the environment and these markets no longer hold any secrets for you. Indeed, I advise you to keep some of it because even if the risk is low in cryptos, it is not totally zero.
How Much Money Can I Make Trading Cryptocurrencies?
To better understand how much money you can earn by trading in cryptocurrencies, let’s take the example of the ChainLink crypto which has seen its value multiply by 10 in recent times.
Let’s say you bought 1 ChainLink in August 2019. You paid 1.50 euro for it. By keeping it until August 2020, i.e. for 1 year, you would have earned 13.50 euros, the ChainLink having reached 15 euros last August, a gain of nearly 900% in 12 months.
To get a better idea of the money that can be made on the ChainLink over time, let’s take a quantified example, with the following assumptions: an initial investment of 100 euros and an annual return of 900% on this investment.
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After 1 year, your starting capital has increased from 100 euros to 1000 euros,
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After 2 years, your starting capital has increased from 100 euros to 10,000 euros,
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After 3 years, your starting capital has increased from 100 euros to 100,000 euros.
Some tips before investing in cryptocurrencies
1.1 Understand blockchain technology
As with any investment, it is important to understand exactly what you are investing in. Here you are faced with complex technology that you need to understand. Before investing in a cryptocurrency, read the technology behind each cryptocurrency. You can then choose the one that you think has the most investment potential.
1.2 Consider the number of tokens remaining
Tokens are called the number of units of a cryptocurrency. They can be limited in number, as is the case with Bitcoin, which has a strong impact on prices. This is because coins can become increasingly scarce, which can drive up the price of the cryptocurrency.
1.3 Stay regularly informed about the world of cryptocurrencies
To anticipate the different variations of each asset, it is important to consult the latest news from the world of cryptocurrencies. In particular, you can see what the different communities think of each coin, they are often quite active on specialized websites and forums. So before investing, take the time to educate yourself and have a genuine interest in this area.
1.4 Discover the team of developers behind the cryptocurrency
Behind each cryptocurrency, there is a team of developers, essential for its operation. Inform yourself before investing. Are they a united community? Are they experienced and efficient? Do you share a common vision of the cryptocurrency you are working on? How are they financed? All of these questions can help you predict potential internal stresses that could weaken the cryptocurrency in question.
Since this financial investment is very volatile, you should not invest much in your savings. This is because the possibility of loss is still quite high, although you can also make a considerable profit. So invest cautiously knowing you could lose money at stake.
1.5 Beware of regulatory risks
Cryptocurrencies remain a poorly regulated industry. But that may have to change dramatically over time. In fact, laws could go into effect to further control cryptocurrencies. This can have a significant impact on your prices, making this investment less attractive.
Conclusion
We hope this article has helped you to solve your doubts about how to invest in cryptocurrencies correctly. You should always know well the risks of any instrument in which you are going to invest and what are the different options to do so, choosing the best one for you and your profile as an investor.
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