Ultimate Guide How to Start Investing in Cryptocurrencies
Summary
1.Long-term investment in cryptocurrency
2.What is cryptocurrency?
3.What is the Blockchain?
4.Cryptocurrency Trader
5.Transaction fees
6.Cryptography
7.Staking: a passive investment that generates interest in crypto
8.Yield Farming
9.Choosing a platform to invest in cryptocurrency
10.Secure your cryptocurrencies
11.How to select an interesting crypto project?
12.Which cryptocurrencies to invest in?
13.Invest in crypto projects without buying cryptocurrency
14.What taxation applies to investing in crypto?
15.In conclusion on cryptocurrency investment
16.Frequently Asked Questions
17.Sources
What if it was time to look at cryptocurrencies? It is still necessary to know how…
In brief
One can invest in cryptocurrency via different platforms. Staking, holding and yield farming are investment techniques. Before you jump in, study blockchain and analyze each crypto project.
There are several ways to invest in cryptocurrency. It all depends on your goals and your knowledge of the market. From passive investing to daily trading, network fees and staking, I explain in this guide the existing ways to invest in cryptocurrency. I then give you some recommendations to choose which project to invest in. If you’re new to investing in digital assets, this guide is for you. But still anyone can learn from this comprehensive guide.
Long-term investment in cryptocurrency
Investing in crypto is theoretically the easiest way to invest. It is about exchanging Dollars ( or some other currency ) for a sum of cryptocurrency, hoping that it will increase in value in the future. The goal will therefore be to realize a capital gain on resale. The long-term investment strategy is also called “hold” in the jargon of the crypto and exchange communities.
Bitcoin (BTC) is still the most traded cryptocurrency. While Bitcoin can be used to purchase goods and services in several countries, cryptocurrency payment is not yet widespread used in some countries ( example France ). As a result, it is more than ever considered as a speculative financial asset to invest, as an investment. Investing in Bitcoin is less and less seen as a risky bet. Today the largest financial institutions buy cryptos, sometimes massively, especially bitcoin.
Long-term investing is more accessible for beginners, since it will be enough to buy cryptos and store them in a wallet. The DCA (Dollar Cost Average) is often adopted for a less stressful passive investment. A wallet (crypto wallet) is like a virtual or hardware safe that can hold and secure crypto-assets.
We take the bet that the value of Bitcoin, for example, increases. If so, it’s up to you to decide when you want to earn your profits (or limit your losses). Some investors settle for a gain of 25% of their capital to resell, while others prefer to wait until their investment has at least doubled (+ 100%).
This long-term strategy requires few transactions, and does not require regular activity in the cryptocurrency market.
What is cryptocurrency?
Cryptocurrencies are digital assets based on a technology called Blockchain. These crypto-assets allow peer-to-peer exchanges without intermediaries such as banks or insurance companies. Anyone interacting with the blockchain has control and responsibility for their money. At any time, the user can transfer his assets without the permission of a third party, regardless of the amount or recipient.
What is the Blockchain?
The Blockchain allows the storage and exchange of value via the internet without a centralized intermediary (banks, state, notary, etc.). A blockchain is a ledger that can be likened to a public account book. This account book preserves and secures data through complex algorithms, using cryptography. It is possible for each user to check the validity of this string. The blockchain is like a book of accounts that can be read and modified by everyone, without anyone being able to modify or destroy its contents.
Cryptocurrency Trader
Trading consists of betting on the movements of a price, up or down, via an online broker. It is a short-term strategy in general. Many crypto traders practice day-trading: they execute one or more market orders per day. While investors are interested in the long-term performance of a crypto, traders take advantage of the daily volatility of crypto prices to make immediate profits.
Being a profitable trader, however, requires a lot of practice. Without real skills or understanding of the market, trading is like a lottery. If the potential gains are increased tenfold thanks to the leverage effect, the risks of loss are just as much. It is therefore strongly recommended to train properly, and to prepare your strategy well before embarking on a trading activity.
Here are some strategic trading concepts to explore if you are interested in this investment method:
- Range trading;
- Scalping;
- arbitration;
- Bot trading.
Transaction fees
Each crypto-asset transaction requires a fee in order to be entered into a block of blockchain data.
These fees make it possible to remunerate miners or validators because they are the ones who “incorporate” your transaction into the blockchain, thus validating it.
They protect the network against attacks (spam, hacks, manipulation attempts).
On some blockchains, fees may vary depending on the period, depending on the affluence and congestion of the network at the time of exchange.
Cryptography
Cryptography intervenes when a transaction is requested. In order to be validated, some kind of mathematical equation must be solved by computers using complex algorithms. The necessary computational capabilities make the equation impossible for humans to solve. The two main cryptographic consensuses are Proof-Of-Work (PoW) and Proof-of-Stake (PoS).
Proof-of-Work (PoW) consists of putting all computers mining cryptocurrency in competition, with the aim of being the first computer to solve the riddle and validate the block of the blockchain.
This process is commonly referred to as “mining” and computers are commonly referred to as “mining”. Mining requires a lot of computing capacity. These machines can therefore consume a large amount of electricity because many computers compete for one and the same thing, the next block.
Proof-of-Stake (PoS) allows computers (“validator” and not “minor” in the case of PoS) to be chosen for the creation of this or that block. This approach makes it possible both to have a fairer reward system while reducing energy consumption.
Staking: a passive investment that generates interest in crypto
Staking involves investing a “locked” amount of cryptocurrency in order to earn regular interest. On blockchains, it is a way to participate in the validation of transactions and / or the security of the network. Your investment therefore contributes to the proper functioning of a blockchain.
Staking is possible on blockchains using a verification model called “proof-of-stake”. This is a much less energy-intensive operation than the proof-of-work model. Indeed, the latter requires miners to use the computing power of their computer hardware to validate blockchain transactions.
This is an interesting option if you plan to keep a crypto in the medium or long term (at least 1 year). Rather than leaving your chips in a wallet waiting for them to increase in value, you receive daily, weekly or monthly interest that accumulates.
How does staking work?
Staking is therefore a means of validating new transactions that are added to a blockchain. Participants start by committing their investment by buying the crypto native to this blockchain. The blockchain protocol will then choose validators to confirm the blocks of transactions among the participants. The more they invest, the more likely they are to be rewarded.
Each time a block is added to the blockchain, new crypto tokens are created and distributed throughout the network.
To access this type of investment, simply create an account on an exchange platform that offers this service. If you decide to opt out of a staking program, a withdrawal period may apply. In some cases, however, the money is locked for a fixed period of time.
Start by learning about the proof-of-stake cryptos you’re interested in, how their proof-of-stake works, and the staking rewards provided for each.
Finally, here is a summary of the advantages and disadvantages of this investment.
Benefits of staking:
. contribute to the security and operation of a blockchain;
. investing in a more environmentally friendly blockchain;
. Take advantage of compound interest by making your cryptos work.
Disadvantages of staking:
Some protocols require that the sums invested be blocked for a certain period of time. The withdrawal of sums invested in staking can take several days.
Yield Farming
Yield Farming is a method that also passively generates interest in cryptocurrencies. Except that, unlike staking, it is no longer a question of blocking a sum, but of lending it to a platform of Decentralized finance. These cryptos will be locked in a pool (pool) of liquidity, in the form of a shared smart contract or an investment fund.
Blocked funds provide liquidity to a decentralized finance protocol, used to enable trading and borrowing. When a user borrows crypto from this liquidity pool, they will repay the sum with interest, which is then redistributed among investors who have locked their cash in this pool.
For example, if a trader wants to exchange Ethereum (ETH) for Dai (DAI), he pays a fee. These fees are paid to liquidity providers in proportion to the amount they have invested. The greater the capital provided to the liquidity pool, the higher the rewards.
Complex yield farming strategies are quite a deterrent for novices who have not yet started investing in cryptocurrency. However, the returns on investment can be higher than those of staking.
Choosing a platform to invest in cryptocurrency
Players have multiplied in this very lucrative market. That’s why we think it’s essential to help you select a trusted crypto exchange.
In order to avoid as much as possible abuses in this new market with little supervision, the law has established a framework to regulate platforms selling cryptocurrencies. The Federal Reserve who regulates banks in the United States, monitors cryptocurrencies held by banks in the US and, by several government agencies on a federal level and by local regulators. This category includes financial intermediaries offering services relating to investment in crypto-assets. In concrete terms, a platform that has not been registered as “safe” may be on government agencies or on a local regulators blacklist.
We strongly recommend to check the legitimacy of a platform before using it. You should know that its the Federal Reserve who regulates banks in the United States, so it only monitors cryptocurrencies held by banks in the US.
Furthermore, is cryptocurrency in America being regulated by several government agencies on a federal level and by local regulators on a state level. In France for example you can check the legitimacy of a platform by knowing if it is certified by the AMF.
There are of course other criteria to take into account when choosing a platform:
- its date of creation;
- cryptos traded;
- its expenses;
- accepted deposit methods;
- the opinions and feedback of its customers;
- the level of liquidity of the platform.
To learn more, read our Tips for choosing a crypto platform.
Comparison of cryptocurrency exchange platforms
Secure your cryptocurrencies
Knowing how to secure your digital possessions is essential when you start investing in digital assets.
The first thing to do is of course to enable two-factor authentication as soon as possible on applications and websites used to buy and sell cryptocurrency.
Also avoid trading cryptos when using insecure internet connections in public places.
Next, you will need to familiarize yourself with wallets (digital wallets). There are several types:
hardware wallet or cold wallet: an external crypto storage medium disconnected from the internet (the safest method);
Hot Wallet: A virtual wallet that stores cryptos on a computer, phone, or tablet. Less secure, but more convenient to use.
Hacking is a real threat to be taken seriously in the world of crypto-assets. That is why if you doubt the safety of your private data on your computer, we advise you to check your entire system with a good antivirus. Investing is much more enjoyable when you have peace of mind!
The Securities and Exchange Commission (SEC) is a U.S. government oversight agency responsible for regulating the securities markets and protecting investors.
How to select an interesting crypto project?
Choosing a project in which to invest your savings can be complex. Every day, hundreds of tokens appear or disappear. Stories of scams and thefts frequently appear in the news. Many self-proclaimed experts advise betting on the “next Bitcoin”. In summary, it’s easy to get lost in a jungle of information about a market that never closes.
As in the stock market, no one can determine with certainty whether a company will increase in value or not. However, we can limit the risks and maximize the chances of Bet on a crypto project that has potential.
Analyze the documentation and media at your disposal
Spend time observing the documentation and materials available on the web about the crypto project you are interested in. The website is the first step: it allows most of the time to disqualify or not a crypto project.
The white paper should be easily accessible on the website. This document is comparable to the business plan of a company that is starting out.
It must explain:
. the objectives of the project
. the technologies used
. who is in charge of developing the project
. What is the economy of tokens or cryptocurrency?
Also check the legal notice and contact pages. Information about the status of a company and the identity of representatives is usually accessible from the bar at the bottom of a site.
Good to know
a company based abroad in a tax-efficient country (Malta, Isle of Man, Estonia, etc.) is not necessarily shady. However, in case of problems, you will have very little recourse to recover your funds because your Countries jurisdiction might not be of any help to you.
Finally, learn about referral and affiliate programs. Almost all crypto platforms as well as many blockchain projects offer them. The principle is simple: the customer of a company invites one of his acquaintances to join the company, and everyone receives a bonus (in dollars, euros, crypto, free subscription, etc.). An affiliate program is common, it is normal to find some. However, if it is put forward excessively, and seems excessive, beware: it could be a pyramid scheme, and that you are facing fraud!
My trusted affiliate program for this is ESPERIO
Esperio is an international company providing access to trading on different financial markets.
It is an universal solution for those who like to earn online. They provide a quality service, favorable trading terms, high speed of execution of trading orders, and a clean spread from liquidity providers.
The safety of their clients’ funds is guaranteed by a multi-level protection system.
They use reliable payment systems for depositing and withdrawing funds from trading accounts.
A distinctive feature of the company’s development strategy is the timely introduction of advanced technologies and services in the financial markets, active work with clients, and the processing of community requests.
With Esperio you get unlimited opportunities to generate profit thanks to a credit leverage of up to 1:1000 and various financial instruments.
About The Affiliate Program:
Not difficult to be approved!
The broker offers the following affiliate programs:
1. Fast CPA:
They give 90% of the profit under the terms of the program.
With this combined program “CPL+CPA+%” you get a reward in the form of a triple payout: for a verified client, for an active client, and commissions for the further trading of the referral according to the terms of the affiliate program.
2. Multilevel:
Get both active income through referrals and passive income by attracting other partners. The conditions of the program are not permanent, but flexible: you can manage the number of levels and commissions between them, by attracting new partners to your network, in fact, you create your own ecosystem, which develops on its own, sometimes even without your participation, thus bringing you passive income. You can make several multi-level systems, test them and then choose the most profitable one.
3. In both cases:
Their professional team of marketing managers, designers, and copywriters will help you with a set of conversion-boosting tools.
A personal manager will help you with your personal account, and tell you about current market trends and sources of income increase. You will be able to receive these payments even if you stop your activity as an affiliate.
They do not impose any restrictions on the withdrawal of funds for attracted customers. Detailed statistics are available in your account.
You can attract an unlimited number of clients. You Can Go Here To Join The Program.
Communication around the project
Like all companies, projects built around blockchain technologies use marketing to make themselves known. This is normal. However, some communication campaigns can alert on the seriousness or not of a project.
First, a project that promises a performance prospect should be discarded. Some terminologies should alert you, especially when the founder(s) sell their invention as “an innovation not to be missed” or “the opportunity of the year”.
Focus your research on crypto projects run by a team of experts who explain what they plan to do and what problem they want to solve. Serious speeches popularize technological explanations to help explain an intelligent solution in the world of blockchain.
Finally, it is important to know how to recognize the right sources of information. Discovering a blockchain/crypto project on an authority site, whose content is recognized as a reliable source is more reassuring. Conversely, hearing about a blockchain project through dubious influencers, or worse, being contacted directly by the founder is often a bad sign.
Which cryptocurrencies to invest in?
As a novice in the world of cryptocurrencies, it is not recommended to look for the next nugget at all costs. Perhaps you will achieve this one day, by improving your level of understanding of crypto markets. Here are some food for thought to invest in cryptocurrency in 2023.
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Cryptocurrencies preferred by beginners
For starters, it is safer to focus on already well-established cryptocurrencies: Bitcoin, Ethereum, or Cardano and Solana. One of the most essential reasons is that the information available about these cryptos and their blockchain is understandable, and easily accessible.
Bitcoin (BTC) is the cryptocurrency preferred by most beginners. Often compared to a digital version of gold, Bitcoin is the most traded cryptocurrency in the world.
Ether (ETH) is also positioned as a good starting point. Ethereum blockchain technology is used in the majority of decentralized finance projects. These projects use Ethereum to issue smart contracts. The growing adoption of decentralized finance is creating a high demand for Ether.
Other crypto-assets, also called “alternative coins” or “altcoins” have emerged in 2021. Cardano (ADA) and Solana (SOL) are among the tokens with high development potential according to many blockchain specialists. They are likely to rank among the major capitalizations in the coming years.
Invest in crypto projects without buying cryptocurrency
The sometimes extreme volatility of tokens scares many investors who fear a speculative bubble. Others are anxious about making a mistake or not securing their cryptos well. Fortunately, there are solutions to expose yourself to the blockchain innovation sector, metaverse and cryptocurrencies in other ways.
Investing in crypto ETFs
Recently, a big news shook the crypto world. This is the IPO of the ProShares Bitcoin Strategy ETF (tracker, or index fund). An ETF is a fund that replicates the price of a financial asset. Here, the ProShares ETF holds futures contracts on the valuation of Bitcoins.
Futures contracts are financial instruments that anticipate changes in the price of a so-called “underlying” asset in the future: a stock index, a stock, or a digital asset such as cryptocurrency. This financial asset is bought and then sold at a specified price and quantity, on a date scheduled upon purchase of the contract.
The main interest of this ETF is that you can invest in it by buying shares via a securities account, without buying Bitcoin directly.
Build a basket of targeted stocks on the stock market
Apart from ETFs, it is possible to buy shares of listed companies already present, or having plans to invest in the blockchain sector.
Here are some examples:
. Coinbase (NASDAQ: COIN): crypto platform;
. Block (NYSE: SQ): payment application, blockchain innovation with Square Crypto;
. Nvidia (NASDAQ: NVDA): the world’s leading producer of graphics processors used to mine cryptocurrency;
. IBM Blockchain (NYSE: IMB): blockchain research and development.
To go further, read our presentation of methods for invest in cryptos on the stock market.
What taxation applies to investing in crypto?
The tax return saw a new box appear in 2020: these are digital assets. The beginnings of this taxation on crypto income have created a lot of confusion.
Today, the tax regime applied is clearer. If you have already opened a crypto exchange account, and made capital gains by buying and reselling cryptos, you are taxable (over $335.5 profit). You are not taxable until you have resold your digital assets for a state currency (dollar, euro, etc.)
Here are the key things to remember about taxing crypto investments by an individual:
. all capital gains on crypto-assets realized on an occasional basis are taxed at the single flat tax of 30%
. capital gain on a sale = sale price — [total purchase price x (sale price / total value of the portfolio)
. the Cerfa-2086 appendix must contain details of the capital gains calculations
. your accounts opened with brokers based abroad must also be declared
In conclusion on cryptocurrency investment
You are now ready to understand how crypto-assets can boost your wealth. Although some experts are still skeptical, it is undeniable that blockchain technology and its many uses will be part of our future.
To go further on your understanding of cryptocurrency investing, check out our various guides presented in this article. Just click on the internal links.
As a reminder
This guide from Steven. van der Tap is not investment advice. Despite my enthusiasm for cryptocurrencies, I want to remind you to do your own research before deciding to invest your wealth in a crypto project. Every investment involves risk. Get in touch with an expert wealth management advisor for a comprehensive analysis of your wealth and goals.
Disclosure: Some external links in the post are affiliate links.
Sources
Cryptocurrency prices — Coinmarketcap.com
Thesis on cryptocurrency in 2022 — Messari.io
