Pick Your Cryptocurrency Investments
With Bitcoin gaining so much popularity worldwide, other programmers and investors began to create their cryptocurrency forms and debut them onto the markets through ICOs or initial coin offerings.
Based on the same blockchain technology that Bitcoin was built on, these Altcoins provided new opportunities for investors to get in on the crypto craze by being able to buy in at much lower prices than what Bitcoin was trading at. Some of those newer cryptocurrencies, like Ethereum, Litecoin, and Ripple, are just as popular as Bitcoin itself.
Believe it or not, Bitcoin, which was the first primary cryptocurrency to be invented, was designed as a way for computers to pay each other for borrowing each others processing power and other resources.
It was a novel idea that was largely ignored by those not heavily involved in technology. Its value, at less than a penny per coin, was almost laughable. The creator, who goes by the pseudonym of Satoshi Nakamoto, is still unknown up until this day.
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What Determines The Price Of Cryptocurrencies
Cryptocurrencies are highly dominated by supply and demand forces. However, as they are decentralized, they remain free from many of the economic and political concerns that usually affect movements of traditional currencies. Prices of cryptocurrencies often show high volatility due to the uncertainty surrounding the crypto market. However, there are many other factors that drive prices such as:
- Supply and demand: The total number of coins and the rate at which they are released, destroyed or lost. The higher the demand and lower the supply, the higher the price of a crypto.
- Which is the value of all the existing currencies.
- Reputation: The way the cryptocurrency is portrayed in the media and how much attention it is getting, especially by major investors.
- Integration Level: The extent to which the cryptocurrency easily integrates into existing financial transactions such as e-commerce and online payment systems.
- Regulatory Changes: As the regulation of cryptocurrencies has yet to be determined, value is strongly influenced by expectations of future regulations. In an extreme case, prohibiting local holding of cryptocurrencies will be a possible option. While this may cause the ownership of cryptocurrency to be moved offshore in such a case, it would still severely undermine their value.
How To Pick A Cryptocurrency To Invest In
Before you go ahead and buy some coins or tokens just because somebody says it’s a good investment, it will pay to do some research.
First of all, it’s important to understand that picking a good cryptocurrency is not like picking a good stock. A stock represents ownership in a company that creates profits for its shareholders, or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset with zero intrinsic value.
What makes a cryptocurrency increase or decrease in price is simple supply and demand. If there’s increased demand and a limited supply increase, the price goes up. If supply becomes constrained, price goes up, and vice versa. So, when evaluating a cryptocurrency, the most important questions to answer are how the supply increases, and what will drive demand for the coin higher.
You can answer those questions by reading the white paper that a cryptocurrency team publishes to attract interest in their project. Look at the roadmap for a project and see if anything could spark an increase in demand. Research the team behind a project and see if they have the skills to execute their vision. Try to find a community of people already investing in the cryptocurrency and gauge their sentiment.
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What To Watch Out For After You Invest In Cryptocurrency
While you can buy certain investments and not spend much time tracking them, its a good idea to stay tuned into the crypto markets, so you know whats happening with your portfolio.
As mentioned above, its critical to keep your cryptocurrency accounts and wallet information secure. Losses are likely not recoverable, so be extremely careful with your accounts. Also, be sure not to lose access yourself, as funds are not always recoverable.
Remember that capital gains on crypto are taxable. Even if your cryptocurrency gains are not reported to the IRS, you are required by law to report and pay taxes on those crypto gains. Failure to pay taxes can lead to severe penalties.
How Is Cryptocurrency Taxed
The Canada Revenue Agency taxes crypto transactions as either business income or capital gains.
The difference between the two is immense. If crypto mining or trading is done as a business, then 100% of the capital gains are taxable. If, on the other hand, if an investor is crypto trading or mining that as a hobby, only 50% of the capital gains are taxable.
If youre not sure if your crypto transactions are a business or a hobby, reach out to a tax professional. Its better to pay a professional to help you understand the tax liabilities of crypto than to pay penalties for filing incorrectly later.
Please note, this information is provided for educational use only, and is not tax advice. For tax information that is personalized to your situation, please consult a tax advisor.
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How Do I Buy Things With Cryptocurrency
TTo spend cryptocurrency, you need your private key to unlock the right for you as owner to do the transaction. While private keys are secret, they are paired with public keys that can be shared with others so that you can receive your virtual currency.
For example, say you were a charity accepting donations in cryptocurrencies you could put your public key on your website so people could send you money but to unlock and gain access to those donated funds, you would need a private key.
This system allows transfers to be done easily between two parties, and cutting out the middleman such as a bank means lower transaction fees.
The way your spending is recorded also differs to the main banks:
- So if you spend £5 on a sandwich with your debit card, your bank records the transaction
- But if you spend 100 satoshis online the transaction is recorded in a block of other transactions and added to the blockchain .
How To Invest In Crypto Without Buying Coins
The easiest way to get investment exposure to crypto without buying crypto itself is to purchase stock in a company with a financial stake in the future of cryptocurrency or blockchain technology.
But investing in individual stocks can bear similar risks as investing in cryptocurrency. Rather than choosing and investing in individual stocks, experts recommend investors put their money in diversified index funds or ETFs instead, with their proven record of long-term growth in value.
Believe it or not, most individuals with a retirement plan or an investment portfolio allocated in an index fund already have some exposure to crypto, says Daniel Johnson, a CFP with ReFocus Financial Planning.
Many of the best index funds like S& P 500 or total market funds include publicly traded companies that have some involvement with the industry by either mining crypto, being involved in the development of blockchain technology, or holding significant amounts of crypto on their balance sheets, says Johnson.
For example, Tesla which holds over a billion dollars in Bitcoin and accepted Bitcoin payments in the past is included in any funds that track the S& P 500. Since its 2020 inclusion, its become one of the most valuable, and therefore influential companies in the index. And Coinbase, the only publicly traded cryptocurrency exchange, is in the ARK Fintech Innovation ETF.
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Dont Make Investments On Hype
Its true for stocks and even more true for crypto. Ignoring hype around a project or coin is going to be crucial to your success.
When cryptocurrencies are involved you should never base your investing on what others are saying . Instead you should be studying the market, the project, and the price action of the coin and then taking all that knowledge and using it to make informed investing decisions. You still might take some risks, but at least they will be well-informed and calculated risks.
Basing your research on the advice of others can be acceptable, but you will need to learn how to distinguish between those with good knowledge of trading and investing and those who are simply trying to shill for a coin. Mastering this will allow you to filter out much of the noise in the crypto markets and focus on important information that lets you develop your own strategy.
Alternative Ways Of Mining Cryptocurrency
Apart from the ways of obtaining digital currency that we mentioned before there is an alternative solution. Cloud mining can be called an improved version of the usual mining method. Here you lease or purchase mining equipment from a third-party hardware provider, which takes responsibility for maintaining and supporting the hardware. This method is much easier and less expensive than mining with your equipment. Cryptocurrency cloud mining comprises a couple of different models with different approaches: leased hash power and hosted mining.
The leased hash power approach means that you lease a part of the overall computing power of a specialized mining farm. In this model, the investor gains the overall part of cryptocurrency produced by a farm. Also, in this model, the provider is responsible for maintaining the farm. To start cloud mining with leased hash power you need to go to the cloud mining company, create an account and make a contract by selecting a contract period and the amount of rented hash power.
How Does Cryptocurrency Get Value
Out of all the thousands of different cryptocurrencies, bitcoin is the largest and best known:
- The number of bitcoins is finite
- About 89% that will ever exist have already been created
- The limit is 21 million and 18.6 million have been generated to date
As the above suggests, the economic law of scarcity and demand applies here, with the price of bitcoin being supported by the fact that it is a finite resource whose supply is strictly controlled.
With more people wanting to own bitcoin, but a limited amount available, the price they are willing to pay can rise dramatically.
In 2010, soon after the currency was launched, the price of a single bitcoin was 5p, but in March 2022, it was worth about £36,000.But the crypto market is highly volatile and by July 2022 the bitcoin price was about £17,500.
Disadvantages Of Cloud Mining And Hosting Mining
And even such an efficient and profitable mining method has some disadvantages. One of them is scams. Because mining became so popular some people decided to make money through fraudulent projects. To avoid giving your money to scammers you should invest in cloud mining only through trusted and credible cloud mining providers, like Minery. Another negative aspect is possible diminishing profits due to the increasingly complicated mining process of bitcoin. Another disadvantage, for those who want to mine other digital currencies apart from bitcoin, is that alternative coins are tied with demand. This way in case people leasing hash power decreases it would result in fewer profits. On top of that, cloud mining models promote the centralization of cryptocurrencies, which can lead to the creation of a decentralized ecosystem.
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Cryptocurrency: How To Actually Invest In Crypto
What to consider before investing
Acryptocurrency or crypto is a digital currency that circulates without a central authority like a bank or a financial institution.
Unstable economic environments fomented the creation of cryptos.
Cryptos were made to protect you from economic crises or unfair governments that can take away your resources.
“Cryptocurrency is one of those categories of investing that doesn’t have those traditional investor protections,” said Gerri Walsh, senior vice president of Investor Education at the Financial Industry Regulatory Authority.
“They’re outside the realm of securities trading. It’s an area that’s in flux, as far as regulations go.”
Sensationalism generates expectations. Knowing that a crypto investor became rich generates interest among people.
Nevertheless, many people entered the cryptocurrency market with blind knowledge of the matter.
Have An Emergency Fund
Cryptocurrencies are volatile. Prices go up and down dramatically. Investors should have an emergency fund to cover unexpected costs before investing in assets.
It is crucial to have money for emergencies before buying any cryptocurrency.
Without an emergency fund, you could be forced to sell all your assets with a loss margin.
“Investment professionals suggest that investors keep their exposure low — even for those who are all-in on the technology,” says
“Anjali Jariwala, a certified financial planner and founder of Fit Advisors, recommends that clients allocate no more than 3% of their portfolio into crypto.”
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How To Invest In Cryptocurrency In Canada
Its hard to ignore the hype around cryptocurrency. Once considered an overinflated phenomenon by the worlds biggest investors , many billionaires and traditional investors alike are joining the ranks of crypto enthusiasts to further develop this half-currency, half-investment. Whether backed by Elon Musk or not one thing is clear: cryptocurrency could change the future of finance not just in Canada, but the world.
But its notoriously difficult to understand. From Bitcoin to buying and selling crypto on an exchange crypto forces us to learn a lot of technical stuff fast. So, whether youre new to the concept or youve picked up bits of information here and there, lets start fresh: what is cryptocurrency, how does it work, and how can Canadians invest in it? Lets take a closer look.
Maintain A Healthy Crypto Portfolio
Keeping a healthy portfolio means creating your core investment, and making sure you diversify by adding in a number of satellite investments. This helps to even out your returns as the winning picks offset any losing picks.
This is true of diversifying your entire portfolio by including cryptocurrencies and its true of the crypto portion too. By adding a number of different cryptocurrencies youre diversifying your risks and spreading your exposure to a broader mix of assets.
While this type of diversification means youll almost surely have some losers in your portfolio its far better to lose a few while winning some rather than losing it all because you kept all your crypto investment in one coin. You might not get the eye watering returns of a single rocketing coin, but you also wont risk losing everything if the coin you pick crashes and burns.
As 2022 is off to a rough start for the cryptocurrency markets, many are wondering if we are in the midst of a bear market. As things are looking quite bearish you may be wondering what the best cryptocurrency to invest in a bear market are. We were wondering the same which is why we wrote this article about The Best Cryptocurrency to Invest in to Survive a Bear Market.
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How To Invest In Cryptocurrency
This beginner’s guide on how to invest in cryptocurrency in the US will now conclude with a detailed walkthrough of how to purchase your first-ever digital asset.
The steps below will show you how to open an account with eToro, deposit US dollars fee-free, and subsequently invest in your chosen cryptocurrency from a stake of just $10.
How To Buy Other Cryptocurrencies
You should follow the same steps for buying other cryptocurrencies as for buying Bitcoin. However, keep in mind that investing experts recommend sticking with the two largest cryptocurrencies, Bitcoin and Ethereum, if your goal is to invest in crypto as a long-term store of value.
Youll be able to find Ethereum for purchase on many of the same exchanges and platforms as you can Bitcoin. If youre looking for a very specific altcoin , then you may need to factor that into the exchange you choose. While some large exchanges have upwards of 50 different coins, some platforms offer only a small number of altcoins .
Whether you choose to add Bitcoin or an altcoin to your portfolio, always make sure that youre comfortable with the risk of investing in such a speculative asset in the first place. Never invest more than youre OK with losing, and dont invest at the cost of not meeting other financial goals.
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Bitcoin Remains Dominant In 2022
Historically the largest cryptocurrency by market cap has been Bitcoin, and that continues to be the case in 2022. Thats why it is the most talked about cryptocurrency, and the cryptocurrency that attracts the most investment capital. Bitcoin dominance in January 2022 is over 40% of the total market. In a far second place is Ethereum, which has a market domination of just over 18%. Then there are others such as Binance Coin, Ripple, and Cardano.
Given its dominant position and longevity Bitcoin is currently the most reliable cryptocurrency for creating a core position. That said, Ethereum has performed better in 2021, albeit with more volatility as well. And some smaller cryptocurrencies have done even better. Thats why we recommend a diversified crypto portfolio.
Either Bitcoin or Ethereum would work well as a core, with smaller cryptocurrencies making up the satellite positions in your portfolio.
Keep in mind too that the broader market often takes its lead from Bitcoin. So when Bitcoin is rising the rest of the market also tends to do well. And when Bitcoin is falling the rest of the market tends to follow it lower. Consider Bitcoin as the core and all other cryptocurrencies as more speculative in nature and you will have a good start to a cryptocurrency portfolio in 2022.