Worth over a billion dollars, the world of all cryptocurrencies is one of the most influential markets in the world.
However, many people struggle to understand the technology that makes digital currency work, and how it works as an investment. Although it has its complexities and the amount of information seems overwhelming, there are several ways to delve into this universe.
In theory, all cryptocurrency is, is a virtual currency that is held and issued online, but in practice it is a digital asset that can go up or down in value, similar to stocks and bonds.
Unlike standard currencies, however, there is no central authority to manage it. Cash currencies consist of paper money and metal coins, while all cryptocurrencies use virtual «coins» or «virtual units.»
You can buy tokens, coins, or units from any company that facilitates cryptocurrency transactions, and you can trade, buy, and sell with other people who also own these digital assets.
Do All Cryptocurrencies Work the Same Way and Which Ones Should You Invest In?
While the value of most assets is determined by market factors, one of the main characteristics that differentiates the cryptocurrency market from other markets is that its value is based on consumer interest in buying cryptocurrency.
If a lot of people buy cryptocurrencies, the value increases, and if people stop buying virtual currencies, the value decreases. For this reason, while the idea of cryptocurrencies can be overwhelming for beginners, there aren’t many requirements to get started.
If you want to learn how to invest in cryptocurrencies, all you need is:
– An Identification document.
– Bank account information.
– Secure internet connection.
Tips for First-time Cryptocurrency Investors
If you decide you want to get into cryptocurrency, here are some tips to keep in mind as you get started:
– Research the market
This step may seem simple, but for those who want to enter this world, it is one of the most important stages, since it involves researching the currency in which you want to invest and the types of cryptocurrencies available.
For example, beginners are recommended to invest in stablecoins, which are less volatile digital currencies than other cryptocurrencies like Bitcoin or Ethereum.
– Choose a cryptocurrency exchange
While Coinbase and Binance are the main cryptocurrency trading platforms, there are other options like Kraken, Gemini, or Bitfinex. They behave the same as when you choose a broker for your shares; that is, they act like an exchange.
– Store all cryptocurrencies in a digital «wallet»
Once you have purchased your first cryptocurrency, it will be added to your «wallet», the virtual wallet you receive when you open your trading account. This wallet will contain the codes of all cryptocurrencies.
What is the Most Popular Virtual Wallet?
Just as there are different types of cryptocurrencies or different exchanges, there are also different types of digital wallets. Here are some of the best options you should consider:
Exodus: This digital software wallet is perfect for those new to the world of cryptocurrencies. The wallet will be safe on your computer or mobile device and supports over 100 of all cryptocurrencies.
Trezor: A digital hardware wallet that is like a small external hard drive that you plug into your computer or smartphone when you want to add or remove cryptocurrency from your wallet. It is available in different models and supports more than a thousand cryptocurrencies.
Electrum: This wallet is one of the most famous Bitcoin wallets in the world. While it can be very functional for advanced users, it is not an ideal wallet for beginners.
Trust Wallet: A virtual wallet that can only be used on mobile devices. Once you download the app, you can buy bitcoins with your card in less than 5 minutes and continue trading easily through the app.
From Cryptocurrencies to Crypto assets: All Cryptocurrencies in the Crosshairs
After all, the case for cryptocurrencies has been made official. According to the American media, most of all cryptocurrencies will soon be defined as classic financial instruments. We will no longer speak of «cryptocurrencies» but of «crypto actives» (as defined by the CNMV).
Currently, it is the US Securities and Exchange Commission (SEC) that deals with this issue. The US exchange authorities seem willing to move cryptocurrencies in the direction of clear regulation.
The SEC is expected to announce soon that in the future most cryptocurrencies will be treated as traditional financial instruments and will have to comply with precise regulations. Any company launching a cryptocurrency must submit full documentation to US regulators.
If the SEC values crypto favorably, it should be traded on a transparent and regulated market. Note that today there are no markets that allow the trading of «crypto assets» except for the two Chicago markets where Bitcoin futures are listed and traded.
Do All Cryptocurrencies Become Crypto Assets?
Fully decentralized cryptocurrencies should be an exception. We are talking about cryptocurrencies that no entity can control, cryptocurrencies that are not backed by companies, or cryptocurrencies that allow companies to raise capital in the cryptocurrency market.
A priori, these are some examples of cryptocurrencies that will not become crypto assets: Bitcoin, Litecoin, Monero, Dash.
Instead, the following known cryptocurrencies will be converted into crypto assets: Ether Fang, Ripple, NEO, Cardano, Iota.
In short, all cryptocurrencies generated by the ICO (Initial Coin Offering) will become crypto assets.
Cryptocurrency Trading Risk
Year after year, cryptocurrency trading attracts more and more people who believe that with a few manipulations they can make millions of dollars in profit. However, greed can blind traders and cause them to make mistakes that put their capital at risk. When investing money, there is always the possibility of losing it.
– Cryptocurrencies are immaterial. Buying cryptocurrencies means buying blockchain-backed coins or investment items. If the blockchain breaks or the project never comes to fruition, then the cryptocurrency has no market value.
– Cryptocurrencies operate on decentralized markets. Anyone who says «decentralized» says there is no control. It is no coincidence that there are many scams in cryptocurrencies.
– Transferring Errors: Make a quick mistake and transfer to the wrong wallet address, or transfer to another cryptocurrency wallet and all these funds are lost. Be careful when managing your cryptocurrency wallet.
– The volatility of cryptocurrencies. The cryptocurrency market is very volatile. It is not uncommon to see a cryptocurrency double or triple in an hour, but it is also not uncommon to see a cryptocurrency lose -90% in less than an hour. Volatility is a risk you should be aware of.
– Cryptocurrency storage: It is highly recommended not to leave cryptocurrencies in exchange houses that allow you to buy them. Why? Because these institutions also lack regulation. It will not be surprising that some businesses will close their doors soon and withdraw all cryptocurrency purchases from customers. It is recommended to keep cryptocurrencies in private wallets.
At the end of the day, there are still risks when storing cryptocurrencies on private wallets or NANO S devices. Private keys can be stolen and NANO S devices can be lost.
Emotion as an Enemy and Risk Management
Emotionality during trading is also a failure. Some traders may invest more with their hearts than their heads and stick with losing strategies because they don’t realize that their predictions were wrong.
Likewise, the cryptocurrency market has experienced periods of excessive speculation and greed by traders. If traders do not trade their funds fairly and objectively, the chance of losing money increases. Without relying on the conclusions of prior technical or fundamental analysis, predicting asset price increases is like gambling in a casino. For this reason, one of the most dangerous risks in trading in general, is the traders themselves and their unrealistic predictions.
Risk management is a discipline intended to reduce the probability of potential monetary losses. This is an approach that can be used in various trading areas, such as cryptocurrency trading, as it helps to plan actions in advance to protect the trader’s capital and prevent losses from getting out of control. Although risk management is one of the most important elements of safe trading, many traders neglect it due to a lack of knowledge. But mastering these concepts can be the key between placing a bet and making a smart investment. A trader can make a decent profit in a few weeks, but if you don’t have a strategy that allows you to make a profit and minimize your losses, you can lose all your money in one trade.
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