If you like to keep abreast of financial trends, you must have heard of cryptocurrency. Like stocks/shares, cryptocurrency can also be a great investment opportunity for people with a surplus income.
But some basic information is essential before one can dive into the process. Let us go through a quick and simple beginner’s guide to investing in cryptocurrency in 2023.
What is cryptocurrency?
In very basic terms, a cryptocurrency is a form of virtual currency. It can be bought, held, and sold online. It acts like a digital asset for the owner. Like stocks, shares and bonds go up and down in value according to market trends, and Cryptocurrency prices also change according to market trends.
But what sets cryptocurrency apart from other financial instruments is that crypto is entirely decentralized. This means that there is no central authority governing the transactions in cryptocurrency. Some governments may levy taxes on crypto assets, but the cryptocurrency system as a whole does not have any banks or governing bodies.
Another significant aspect to understand about cryptocurrency is that there is no physical asset tied to a crypto coin’s value. For example, in the stock market, particular share prices go up or down depending on how well that company performs in that quarter or has performed in the past. But in the case of cryptocurrency, the price is determined almost entirely by how many people want to buy particular crypto.
Crypto prices go up when lots of people start investing in them, and the prices fall when interest in crypto purchases is low. This makes cryptocurrency a more volatile asset than other traditional financial instruments, but because the risks are a little higher, the rewards can also be much higher.
Moreover, if investors study market patterns closely and make intelligent decisions, they can use surges in the crypto market and rake in massive profits.
Bitcoin (BTC) is the most popular cryptocurrency and is almost synonymous with cryptocurrency. But now, there are numerous other cryptocurrencies and altcoins which also act as lucrative assets. NFTs and other digital assets are also gaining popularity among new-age investors who want to move away from the traditional bank-controlled financial transaction system.
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How to start investing in crypto?
Once an investor has a basic understanding of what crypto means, it’s time to get into the investment process. The investor must make some decisions before purchasing or trading cryptocurrencies can begin.
#1. Choosing the currency
There are numerous crypto coins available for investors to buy. So, investors must first research the kind of coin they want to invest in. Bitcoin is the oldest cryptocurrency and a more reliable investment opportunity. Coins like Ethereum, Cardano and Solana are also doing very well in recent years.
Investors looking for more off-beat investment opportunities can consider Dogecoin. The final choice will ultimately depend on the coins’ market prices when the investor wants to purchase and the investor’s end goal. Some coins are better suited for long-term investment, while others may be more rewarding in the short term.
#2. Choosing an exchange
Now, investors need to find an exchange from which they can make their purchase of cryptocurrency. Investors must register with the exchange using their personal documentation before beginning transactions. There are numerous exchanges as well at present, but some are more reliable than others.
The kind of coin the investor wants to trade must also be considered because not all exchanges allow transactions with all types of currencies. Some crypto exchanges even charge customers a nominal fee on specific transactions. Investors need to read client testimonials, check security credentials, and study the list of available coins on any exchange before they decide to use it.
#3. Buying the coins
After the investor has chosen their exchange and coin, they will have to open up their account at the exchange. They may also need their digital wallet to store their purchased currency. The kind of wallet should be chosen depending on its speed of completing actions and its compatibility with different currencies.
Investors will verify their identity using personal documents and link their bank and digital wallet with their accounts. The final step is to put in the amount of crypto the investor wants to buy.
The exchange will show the amount of fiat currency the investor will need to put in to make that purchase. Investors can also input the fiat value and check how much crypto they can buy.
Once the investor is happy with their choice of coin and the amount, they will have to finalize the transaction.
The purchased crypto asset will be deposited in their crypto wallet. The investor is now ready to trade their crypto to buy other coins, keep it on hold for the future or sell it for fiat currency as and when necessary.
Crypto exchanges have become very user-friendly in recent years. Verifications are processed quickly, and multiple payment methods are approved. Users with a legitimate bank account with proper credentials can buy BTC with credit cards.
Some online stores and marketplaces allow users to make direct purchases using crypto. There is no need to convert the crypto back into cash to make purchases. These options are still limited but are expected to grow in number quickly in the coming years as more and more people start becoming crypto holders.
Documents needed to become a crypto investor.
Investors need two documents to open an exchange account and a digital wallet.
- Personal identification proof – here, the investor has to furnish their IDs issued by a government-recognized body to prove that they are adults and residents of a particular country. Users generally have to provide some address proof as well that is current.
- Bank details – the next data investors need to keep on hand is their bank details. The account number, bank name, etc., will be required to link the investor’s bank account with their crypto exchange account. Once the linking has been completed, all further transactions will be completed in seconds without any added hassle. The fiat currency will be credited or debited to the linked account. On the other hand, the crypto assets will be credited or debited to the digital wallet linked to the exchange account.
Is crypto a good investment?
The definition of cryptocurrency and the process of investing in it have already been explained in detail. But investors may still be in two minds about investing. This is because crypto has no intrinsic value and no physical asset, making it seem risky for investors.
But in reality, the entire cryptocurrency market is based on a very complex and highly sophisticated technology called the blockchain. The blockchain contains information about every owner of every coin of a particular currency.
There is no way that any of that information can be tampered with or the coins duplicated. Digital assets are completely secure as long as investors take care not to reveal their passwords and security information to any unknown persons.
Of course, a risk is involved with investing in the open market. Just like stock or bond prices can fall, crypto prices are also prone to severe dips. So, it is essential to remember that only those with a surplus income should invest amounts that will not hinder their daily lives.
Over the last few years, many people have become millionaires and billionaires from their crypto assets, so the potential for growth with these financial instruments is immense. Digital assets also provide investors with the chance to diversify their financial portfolios. A diverse portfolio with different investment instruments is a great way to minimize risks and maximize profits.
So, if you feel that you are in a position to invest in a somewhat volatile market and if you believe that you have the time and mental energy needed to put in the effort to learn about this market, then cryptos are an excellent investment for you.
Numerous blogs provide information on the crypto market, and the various crypto exchanges also have information guides for beginners. Just make sure to read up well, research who runs the exchange, and check the history of security breaches.
The cryptocurrency world encourages beginner investors to make purchases because the market works on customer demand. So, do not let your inexperience hold you back. If you are ready to become a crypto investor, take that plunge in 2023.
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