As the interest over cryptocurrencies grew, s too did the desire to invest in them.
A lot of people saw the huge gains some were making with their crypto investment portfolios and wondered "how do I get in on this".
Well, we can't (and won't) tell you what might be a good investment, but we can explain how it all works.
Let's first get into the basics.
Cryptocurrency is a digital or virtual currency that uses cryptography for security.
It is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Cryptocurrency is decentralized and operates on a distributed public ledger called blockchain, which records all transactions in the form of blocks.
Basically, it's digital money that's not controlled by any one entity.
Crypto is supported by a technology known as blockchain, which maintains a tamper-resistant record of transactions and keeps track of who owns what.
This addresses the problem faced by previous efforts to create purely digital currencies: preventing people from making copies of their holdings and attempting to spend it twice.
Generally speaking, crypto comes in one of two forms...
Coins are intended to be units of exchange for goods and services, while tokens are typically used as stores of value or to participate in specific software programs such as games and financial products.
This is the literal million dollar question for investors.
The value of a cryptocurrency is determined by the market, just like any other asset.
Supply and demand are the main drivers of price, so if more people want to buy a certain coin than there are coins available, then its price will go up.
On the other hand, if more people want to sell a certain coin than there are buyers, then its price will go down.
The technology behind each cryptocurrency also plays an important role in determining its value.
For example, coins that are built on more advanced technology and offer better features may be more attractive to investors than those with less sophisticated technology.
Also, as with any existing asset, ews and events can also have a significant impact on the value of a cryptocurrency.
If a major exchange announces it will list a certain coin, its price could skyrocket as people rush to buy it before anyone else.
Conversely, if there is negative news about a particular coin, its price could drop significantly.
Cryptocurrency investing is all about understanding the market dynamics of supply and demand, evaluating the technology behind each coin, and staying up-to-date on news and events that could affect its price.
Cryptocurrency investing is pretty much the same as any other kind of investing.
It's buying and selling digital currencies in order to make a profit.
And, as with any other investing strategy, you need to know the lay of the land.
That means researching different coins, understanding their technology and potential, and then making informed decisions about when to buy and sell them.
Crypto investors typically look for coins with strong fundamentals that have the potential to appreciate in value over time.
They also need to be aware of news and events that could affect the price of a coin, as well as any regulatory changes that may impact its use or trading.
Investors should also be aware of the risks associated with cryptocurrency investing, such as extreme volatility, lack of liquidity, and security concerns.
As with any investment, it’s important to do your own research before committing any money.
So you want to buy low and sell high.
When you buy stock, you are buying a share of ownership of a company, which means you're entitled to do things like vote on the direction of the company.
If that company goes bankrupt, you may receive some compensation once its creditors have been paid from its liquidated assets.
On the other hand, when you buy cryptocurrency, you don't gain any ownership over anything except the token itself; it's more like exchanging one form of currency for another. If the crypto loses its value, there is no compensation after the fact.
In addition to these differences in ownership and security, there are several other key differences between trading cryptocurrencies and stocks that investors should be aware of.
For example, cryptocurrencies are not regulated by any government or central bank and can be extremely volatile due to their lack of liquidity.
Furthermore, cryptocurrency transactions are often anonymous and irreversible; once a transaction has been made it cannot be reversed or cancelled.
Finally, while stock markets operate during regular business hours around the world, cryptocurrency exchanges operate 24/7 so traders must always be aware of market movements even when they’re not actively trading.
There's also one final area we should examine. That of crypto trading.
Crypto trading is a little different to investing, and you need to know the difference.
Much like investing, trading is the process of buying and selling cryptocurrencies in order to make a profit.
However, there's an element of "timing the market" with trading.
Timing the market is a practice of buying or selling an investment based on a prediction of the optimal entry or exit levels.
it has much shorter turnover times (generally speaking) for the buys and sells of a currency. The trader often believes that they know which way the market will swing and so take riskier bets.
Typically, traders aren't too concerned with the fundamentals of a crypto asset, instead betting on the short-term price vacillations of a crypto asset to turn a profit, frequently within one day.
Crypto traders habitually obey marketplace news and benefit from specialized signals to make their trading choices.
Despite what many traders believe about their ability to read the market, this is a very high risk approach to investing your currencies.
Let's finish of with a more direct comparison of trading vs investing.
Crypto investing and trading are two distinct activities that require different strategies and approaches.
Investing in cryptocurrency is a long-term strategy, where you buy and hold the asset for an extended period of time with the expectation of gaining returns over time.
On the other hand, crypto trading is a short-term strategy, where you buy and sell the asset quickly to capitalize on price fluctuations in order to make a profit.
Investors typically focus on fundamental analysis when making decisions about which cryptocurrencies to invest in, while traders rely more heavily on technical analysis.
Fundamental analysis involves looking at factors such as the project’s team, technology, use cases, partnerships and market capitalization to determine whether or not it is a good investment opportunity.
Crypto traders instead focus on potential market fluctuations cause by developments and news in the space. They're not bothered with the detail of a currency, only how its price will move.
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