From Exchanges To Safely Storing Your Assets There’s A Lot To Consider When Investing In The New Technology
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Are you ready to start investing in cryptocurrency?
A little more than a decade after the first cryptocurrency, Bitcoin, was launched, the industry that’s developed around the new technology has seen explosive growth. Today, there aren’t just cryptocurrencies available, but a few blockchain-based digital assets, including crypto tokens and NFTs.
There’s several methods for starting your investment journey in crypto. Depending on whether you want help managing your investment or if you want to align with the ethos of the ecosystem and “be your own bank,” there are opportunities for those just starting out.
Keep in mind that investing in cryptocurrency is still risky you could lose the entire value of your investments so make sure you’re in a financially sound position and take the time to asses your risk appetite before putting money towards the asset class.
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What Are The Main Attractions Of Cryptocurrency
At the moment, it seems as if the two primary attractions of cryptocurrency are:
And for those who bought cryptocurrency prior to the price explosion in 2017 or the most recent price increase in 2021, it’s probably been the best investment in a lot of portfolios.
So what should you do if you want to get in on the cryptocurrency action?
Is Cryptocurrency A Good Investment
The cryptocurrency markets are far more volatile than the stock markets. With less liquidity, and more speculation than traditional financial markets, the value of any given cryptocurrency can rise and fall by 30% or more in a day. Not only that, crypto markets are open for trades 24/7, 365 days a year. There are no evenings or weekends off like the NASDAQ or LSE
If youve been hearing about cryptocurrencies a lot these days, you may feel like its a good opportunity to make a quick profit. But if youre just jumping on the bandwagon and take no steps to educate yourself about how the technology and the market work, you risk losing money.
Lets take a look at Bitcoin, for example the first and by far most dominant cryptoasset.
Early investors in Bitcoin have made millions of dollars in profits. In the span of just one year, Bitcoins price went from $7,000 USD in April 2020 to over $60,000 USD in April 2021! Now imagine what kinds of profits went into the pockets of people who bought Bitcoin back in 2013, when it was a mere $100 USD.
Though that sounds very exciting, it certainly is not the whole picture. Take a look at the entire graph, showing Bitcoins fluctuations in price between October 2013 and the end of May 2021. Its not a straight upward climb.
Thats why you should only ever risk as much money as you can afford. Like Wence Casares, CEO of Xapo, sums it up in an AMA on bitcoin.com:
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Step : Obtain Necessary Permits And Licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a cryptocurrency business. Learn more about licensing requirements in your state by visiting SBAs reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerks office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A cryptocurrency business is generally run out of an office. Businesses operating out of a physical location typically require a Certificate of Occupancy . A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business location to ensure your cryptcurrency business will be in compliance and able to obtain a CO.
How To Start Investing In Cryptocurrency
The question that prospective crypto investors rightly ask themselves is how much to invest in the sector.
The burgeoning crypto universe is susceptible to market fluctuations, partly due to its relative infancy. As such, investors should always retain a cautious attitude toward their investments.
With this in mind, its important to consider several factors:
As important as it is to decide how much to invest in cryptocurrency, it is also necessary to be strategic in understanding the fundamentals of a digital asset, as this can play a major role in the level of risk involved.
Fundamental analyses are the best indicators for long-term investors, so you’ll need an understanding of how a coin or Initial Coin Offering functions, its history and what it brings to the table before choosing to participate in its development.
It might be best to look at the purpose of the cryptocurrency youre interested in, how long it has been in the market, its market capitalization and its underlying tech solutions. Cryptocurrencies that solve problems are less likely to fail than those that are essentially ICOs.
Also, the longer a cryptocurrency has been in the market, the more trusted it is.
If you want to go further, then studying up on market indicators, fundamental and technical analyses, incoming market-moving events, general tech news and developer announcements among other things is the next step to up your game.
Remember: crypto market statistics matter.
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How To Invest In Cryptocurrency In 4 Steps
You can invest in crypto without being technologically savvy. Advanced cryptocurrency users often use decentralized exchanges, enabled by blockchain technology, and physical hardware cryptocurrency wallets, but you can take a simpler approach.
These steps offer the simplest method of buying cryptocurrency through a centralized exchange or retail brokerage with cryptocurrency support :
Step : Create Your Business Website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that its out of their reach because they dont have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldnt delay building your website:
- All legitimate businesses have websites – full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You dont need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldnt take you any longer than 2-3 hours to complete.
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The Legal Concern Of An Unregulated Global Economy
As the popularity of and demand for online currencies has increased since the inception of bitcoin in 2009, so have concerns that such an unregulated person to person global economy that cryptocurrencies offer may become a threat to society. Concerns abound that altcoins may become tools for anonymous web criminals.
Cryptocurrency networks display a lack of regulation that has been criticized as enabling criminals who seek to evade taxes and launder money. Money laundering issues are also present in regular bank transfers, however with bank-to-bank wire transfers for instance, the account holder must at least provide a proven identity.
Transactions that occur through the use and exchange of these altcoins are independent from formal banking systems, and therefore can make tax evasion simpler for individuals. Since charting taxable income is based upon what a recipient reports to the revenue service, it becomes extremely difficult to account for transactions made using existing cryptocurrencies, a mode of exchange that is complex and difficult to track.
Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money. Rather than laundering money through an intricate net of financial actors and offshore bank accounts, laundering money through altcoins can be achieved through anonymous transactions.
Think About The Value That The Project Is Bringing In
Check to see whether the project is bringing in any practical utility into the ecosystem. The perfect example of this is Ethereum. There is a reason why it took off so fast for the first time, developers around the world had a platform that they could use to build their own dapps or decentralized applications on a blockchain.
Along with that, keep in mind the issues that the crypto world is desperately looking to solve privacy, scalability, and interoperability. A good way to go about your investment is to find the projects that are specifically working on solving these problems.
As of 2021, the players trying to solve these same problems and roll them all into their platform, or Layer 1 network include:
Each token role has its own purpose, as outlined below:
- Right: the token holder gets a certain amount of rights within the ecosystem, such as the right to vote.
- Value exchange: the token helps buyers and sellers trade value within the ecosystem.
- Toll: the token acts as a toll gateway in order for the holder to use certain functionalities of the system.
- Function: the token enables the holder to enrich the user experience inside the confines of the environment.
- Currency: the token stores value that can be used to conduct transactions both inside and outside the ecosystem.
- Earnings: the token provides an equitable distribution of profits or other related financial benefits among investors.
So, how does this all help with evaluating token utility?
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How Can You Store Your Cryptocurrency
Cryptocurrency can be stored in something called a wallet, which can be accessed by using your private keythe crypto equivalent of a super-secure password without which the crypto owner cannot access the currency.
A crypto wallet stores the private keys that give the user access to their cryptocurrenciesallowing one to send and receive cryptocurrencies like Bitcoin and Ethereum. It should be noted that your coins are stored on the blockchain, and the private key is required to authorise transfers of those coins to another persons wallet.
There are different types of crypto wallets available that cater to different requirements in terms of security, reliability, accessibility, etc.
Safe Haven Asset In Times Of Crisis
As digital gold, cryptocurrencies are often considered safe haven assets that can cushion the blow if the stock market experiences a downturn.
Since Bitcoin has historically maintained a very low correlation with the S& P 500, declining stock prices usually have no impact on the price of Bitcoin. Therefore, diversifying with Bitcoin can help investors hang onto more of their wealth if a stock-heavy portfolio takes heavy losses.
In the disastrous event of a financial crisis, Bitcoin may be considered a stronger and more reliable store of value than fiat currencies. The chart below demonstrates how well Bitcoin performs relative to other disaster hedge assets like gold, silver, and inflation-resistant stocks, particularly during the 2020 Coronavirus Crash and the subsequent recession.
Figure 1. Source: Reuters
Another key example that demonstrates the hedging benefits of Bitcoin is the Venezuelan hyperinflation crisis, in which Bolivar-denominated cryptocurrency purchases reached an all-time high at over $9 million converted per week, a fortune in the poverty-stricken South American country. Between 2019 and 2021, local business owners converted Bolivars to Bitcoin daily as the local currency became essentially worthless and Bitcoin came to be seen as a stable refuge from runaway inflation.
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Here Are Some Smart Effective Cryptocurrency Investment Strategies
As a budding cryptocurrency investor embarking on the new journey called Cryptocurrency and Blockchain, you must act wisely. You will find yourself inquiring the following questions: Did the bitcoin bubble burst? Is it the right time to get started, and what are the odds to be fortunate in this newfound investment space?
Below, you will get some important pointers to assist you.
Things To Consider Before Investing In Bitcoin
Like any investment, cryptocurrency comes with risks and potential rewards. Compared to traditional types of investments, cryptocurrency is particularly risky.
Here are some things to think about before you invest:
- We dont recommend investing all your life savings on cryptocurrency markets
- Its best to see it a bit like gambling so only invest small amount of your disposable income and be prepared to lose the lot
- Never invest more than you can afford to lose dont just think about the short run
- If you havent got much money left at the end of each month, its best to steer clear of crypto and focus on saving your money instead
Weigh up the pros and cons first:
Pro: Cryptocurrencies are global, meaning they have the same value in every country and no exchange rates.
Con:Cryptocurrencies are extremely volatile, subject to bull runs and market crashes,and so are a very risky investment. People have also reported having to wait to get their cash out because of technical snarl-ups.
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Tips For Investing Responsibly
- Investing in cryptocurrencies can be an intriguing prospect for a portion of your portfolio, but you should make sure to diversify your investments with other holdings. A financial advisor could advise you on asset allocation and help you create an investment plan. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- How much you invest depends on how much risk you are willing to take, and how long your time horizon is. Our asset allocation calculator will help you align your investing strategy with your risk tolerance.
Step : Open A Business Bank Account & Credit Card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get and other financing in your business’s name , better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company’s assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term “net-30,” which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus . This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
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How Many Cryptocurrencies Are There What Are They Worth
More than 15,000 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate. The total value of all cryptocurrencies on Dec. 17 2021, was about $2.1 trillion, having fallen off an all-time high above $2.9 trillion weeks earlier. The total value of all bitcoins, the most popular digital currency, was pegged at about $868.7 billion.