If you’re one of the 20% of crypto-curious Americans who want to buy their first cryptocurrencies, you might feel a little overwhelmed at first. Not only is there a vast number of coins (over 13,000 of them according to CoinMarketCap), but the logistics of opening a cryptocurrency account and depositing money can also be daunting. With that in mind, let’s take a look at some advice to get you started, as well as three cryptos that could be your steppings stones into the market.
Minimize the risks
I don’t want to scare you by starting with the risks that are part and parcel of cryptocurrency investing, but it’s better to be prepared. So before we get to the best cryptos for your starter portfolio, let’s touch on some of the ways to protect yourself.
- Only invest money you can afford to lose. Cryptocurrencies are extremely volatile, so your assets could easily gain or lose 20% or more in a single week. Not only that, but many coins will fail. If you only invest money you can cope without, you won’t be so affected if the market crashes.
- Top up your emergency fund and retirement savings first. It’s easy to get caught up in the hype around cryptocurrency investments and feel like you’ll miss the boat if you don’t invest now. But your emergency savings and retirement account have to take priority. They are what will sustain you, either in your old age or in any financial crisis you face before that.
- Limit your crypto investments to 5% of your overall portfolio. Another common mistake is to go all in on crypto. Instead, ensure your digital assets are a small part of a more balanced portfolio, so you won’t be overexposed to fluctuations in the crypto market.
- Use a good cryptocurrency app or exchange. Look for a cryptocurrency platform that will keep your investment safe by storing assets offline in what’s called cold storage. It’s a bonus if it also has third party insurance to give additional protection against hacking.
- Never stop researching. You don’t have to become a blockchain expert, but you do need to know the basics. Otherwise, how can you pick out the worthwhile investments from the sea of pretenders? It’s crucial you do due diligence on any crypto before you invest.
- Invest for the long term. Rather than looking for quick gains, a long-term investment approach will help you avoid panic buying or selling. It makes it easier to ride out the volatility and focus on cryptos with real-world utility that are likely to perform well over time.
- Understand the tax implications. You need to keep track of all crypto transactions, as you’ll need to pay capital gains tax on any profits. Crypto taxes can be complicated, so make sure you know what you need to report.
How To Invest in Cryptocurrencies: A Short Guide
Investing in cryptocurrency looks complicated from the outside, but parts of it are quite simple. There are two tasks.
First, you do some research and determine what is the best cryptocurrency to invest in. That’s the hard part. You’ll analyze price histories, study the currency’s white paper so you can evaluate its niche in the market, and you’ll try to account for events like government regulations and celebrity endorsements. Some investors look for cryptos with a long track record of returning value, while others prefer newcomers to the market because their value could explode quite quickly. Deciding which crypto to invest in is both an art and a science. There’s a reason that even the most experienced professionals lose money on some investments.
Once you’ve decided to invest in cryptocurrency and identified which coins and tokens deserve your cryptocurrency investment, it’s time to build your portfolio. Luckily, you’re at Kriptomat, where buying and selling crypto is as easy as buying clothing or booking a trip online.
Should I Invest in Altcoins?
Grayscale Investments, one of the world’s most prominent institutional investors in the blockchain arena, has a portfolio containing many cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Stellar, and XRP, among others. Its digital assets portfolio is primarily occupied by Bitcoin, which accounts for over $6 billion of the $7.3 billion total AUM, but owning a mix of BTC and other altcoins is a solid place to start. There are far more people investing large amounts into the world’s first cryptocurrency than altcoins like Litecoin and XRP. When an altcoin crashes, gains from Bitcoin or other altcoins may save your portfolio’s worth. In fact, many altcoin investors move funds into Bitcoin once it starts to rally, pushing Bitcoin even further up while altcoins fall in value.
How Risky Is It To Invest in Cryptocurrencies?
The crypto market is infamously unpredictable and creates millionaires just as often as it bankrupts. There’s no objectively risk-free way to invest in anything, and only intuition and experience will help you walk away victorious. How much you should invest depends on how much you’re willing to lose, and that should give you a fair idea about the level of risk involved in entering the cryptocurrency space. Unlike the traditional stock market, there are no centralized entities to hold responsible here. This makes the blockchain industry perfect for running scams, and it’s crucial to only invest in projects that you think are genuinely valuable. Just because an asset rises in value doesn’t necessarily mean it’s worth anything.
From fraudulent ICOs to blatant pump-and-dump schemes, there’s a lot to learn to understand crypto markets better. You can’t capitalize on a project if you can’t identify its value.
How do you earn a yield on DeFi?
To earn a yield, you must stake or borrow cryptocurrencies or tokens to the DeFi platform and, in return, receive rewards in the shape of interest or transaction fees. There are 4 basic ways to accomplish this, and they are described in the text above.
How much money do you need for DeFi?
We did not come across the exact figure during the research of this topic, but everyone agrees that the more you invest in DeFi, the more you will earn.
What is the best way to invest in DeFi?
The best way would be the one with the least risk of loss, but those who do not take risks will not profit. Depending on your capabilities, choose whether it will be lending and borrowing, staking, yield farming, or becoming a liquidity provider.
How much money can you make in DeFi?
There is no universal answer to this question because the level of interest rates, fees, and APY are not the same for all investment methods. But your additional passive income can inevitably be significant.