The topic of investing in cryptocurrencies in 2021 has become more relevant than ever before. Of course, bitcoin and altcoins set new value records almost every week. However, the ups may be followed by equally precipitous drops. What else should be kept in mind for those who want to invest in “crypto” or use it for entertainment on platforms like 22bet.com, we will tell you in our article.
Features of the Cryptocurrency Market
If we talk about investing in cryptocurrency, it is necessary to note the peculiarities of this market.
The first feature is volatility. If we compare the cryptocurrency market with the stock market or the forex market, cryptocurrencies have much more volatility compared to these two markets. On the one hand, it gives a good opportunity to make good profits from exchange rate fluctuations, but on the other hand, it carries higher risks (if the price suddenly goes in the wrong direction – there may be financial losses).
The second peculiarity is the technological aspect of this sphere. On the stock market, in order to invest in the company’s shares, you need to have financial knowledge (be able to read financial reports of companies to predict which way the share price will go – up or down). When we talk about cryptocurrencies, we need more technical knowledge because fundamental analysis, in contrast to the stock market, is more about assessing the idea behind a specific cryptocurrency and a specific project, understanding its practical application, and potential for use in the market.
It turns out that an investor in the cryptocurrency market must have certain risk-management skills and must also be technically savvy (one must have certain knowledge in programming or technical specialties to understand which cryptocurrencies are worth investing in and which are not).
Distinguish Between Investing and Trading
The main queries on the Internet on this topic are “how to make money from cryptocurrency” and “how to make money from bitcoin.”
This suggests that when it comes to opportunities to make money from cryptocurrency – people don’t quite understand the difference between investing and trading. We get that because the cryptocurrency market is volatile, there is an opportunity to buy and sell a coin quickly, thus making a 1k daily profit.
When the task is to buy cheaper and sell more expensive – this is not investing, this is trading. Someone does this within a day, someone in a longer interval (for example, bought today, sold in a month or two or six months), but if the main objective is to buy and sell – this is trading.
If we are talking about investing in cryptocurrency, we are rather talking about finding undervalued projects or startups.
We can distinguish two areas of investing:
- Looking for undervalued coins, that is, coins that are already trading in the market and have a lot of potential, but, for example, failed to get their idea to a wide audience, so the coin is trading at a fairly low price. In this case, one of the investment options is to gradually buy up this coin at a low price (usually done in small batches, so as not to dramatically raise the price and prematurely arouse the interest of other market participants). And when you already have a certain amount of coins, you can either independently generate interest in the project, or wait until the project will shoot itself. That is, if the project has a good potential for growth and application of the technology (which is embedded in the coin or the project behind the coin), it can give X’s (a multiple of the value of the asset) sooner or later.
- Choose a startup. Here it makes sense to attend offline events, exhibitions, and forums where startups in the crypto industry are presented. There are also special sites that aggregate news about cryptocurrencies, there you can also find press releases of young companies. You can buy their cryptocurrency at the presale or ICO (initial public offering) stage, or if they have already started trading, you can buy back their coins at a value that has the potential to grow.
Needed Knowledge for Investing in Cryptocurrency
In order to invest in cryptocurrency, at a bare minimum you need to have knowledge of how blockchain works, what cryptocurrencies are, how a token differs from a blockchain, and so on. The big problem is that no one teaches this yet. The crypto industry is just starting to emerge, so the training segment in this area is not yet developed. The generation of people who have the knowledge and are ready to share it has not been prepared yet. At the moment, there are a certain number of bloggers who tell something useful and really meaningful, but mostly these projects are focused on inserting referral links to some crypto project. That is, the knowledge that can be found on the Internet now is often not systematized.
In addition to knowledge of cryptocurrencies, you also need technical knowledge. If you are a programmer and understand how blockchain technologies work, it will give you certain advantages over other participants in the cryptocurrency market. Basically, cryptocurrency code is open, and with some knowledge, you can analyze and understand whether this or that technology is promising or not.
Also, if you have engineering knowledge, it also gives you some advantages in understanding how this or that technology can be applied in practice (i.e. you can be more likely to find promising startups that most people haven’t figured out yet, which means you will have a head start over other investors in the market).
The Amount of Money You Need to Invest
In order to invest in the cryptocurrency market, you need a very small amount of money. If in the stock market and forex market for investing the amount is regulated by brokers, in the cryptocurrency market there is no global regulation yet, everyone sets himself the minimum amount to invest in his project. When it comes to buying currency on the exchange, the minimum purchase lots are usually small, so those who do not have much capital can also trade and buy cryptocurrency.
In addition, the high probability of obtaining a multiple of capital growth also indicates that it is possible to obtain a high income even with small capital. If you take specific figures, you can start investing and buying cryptocurrency even with conditionally $1.5.
Summing Up
We can say that investing in cryptocurrency is a highly profitable and promising area for investors, but it is necessary to enter this sector with caution and not take the first instruments you see. You must first understand carefully both the cryptocurrency and blockchain industry and technology itself, as well as the specific projects in which you intend to invest your money.
Before making an investment, conduct a detailed analysis of the projects and weigh all the risks and potential opportunities of a particular company. You should also remember about the need to diversify your portfolios, so don’t invest all your money in cryptocurrencies. Because this sector is the most profitable and the riskiest, it is recommended for investors under 30 to keep no more than 50% of their assets in this portfolio, and for older investors no more than 20-25% of the total portfolio. And all the generally accepted rules of risk management are also suitable for investing in cryptocurrency, so a cold calculation and preliminary analysis will allow you to earn money by investing in cryptocurrency.