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Cryptocurrency Investing For Beginners

by Sandip Das from
Cryptocurrency Investing For Beginners

If you are looking for alternative assets to diversify your investment portfolio, read this detailed post ‘Cryptocurrency Investing for Beginners’. Crypto is a new-age asset class that has great investing potential (if we know how to manage the risks well). In little more than a decade, crypto has grown to become an asset class with a valuation of over $1.75 trillion (as of 31st Dec 2023). This has drawn the attention of not only new traders and investors, but also many institutional players towards cryptocurrency investing. As crypto gains more credibility with increasing mainstream adoption and interest from mainstream players, we are likely to see a rapid rise in crypto’s valuation.

If we look at returns from different asset classes in the last decade, Bitcoin has outperformed all other assets. However, crypto’s journey in all these years was not at all smooth. It experienced soaring bull markets and severe bear markets along the way. Crypto investing involves much greater volatility compared to traditional assets like stocks. Moreover, heavy speculation makes crypto more prone to developing investing bubbles. So, while crypto can be an important alternative asset, one needs to follow strict risk management rules to protect capital while investing in crypto.

In this crypto investing for beginners guide, we are going to discuss the key points you need to know before putting your money in crypto. Let’s first look at how to start investing in cryptocurrency.

1. Getting started with crypto investing

Investing in any asset is a matter of knowing the basics, getting started, and then sticking to the game's rules. Crypto is no exception.

1.1 Acquiring basic cryptocurrency investing knowledge

If you have made up your mind to invest in crypto, the first thing you need to do is acquire basic crypto investing knowledge. Knowing what cryptocurrency is all about, how blockchains work, and why low energy cryptocurrencies are in demand can give you an added advantage over other investors. Yes, knowledge is power!

1.2 Finding a crypto exchange

Once you know the basics of crypto investing, the next step is to find a reputed crypto exchange to begin your crypto investing journey. Your choice of crypto exchange is going to play a critical role in your overall crypto investing experience. So, consider factors like ease of use, trading costs, reputation, technological efficiency of the platform, and customer support before registering with an exchange. Our simplified crypto exchange guide can help you find the best crypto exchanges in 2024 to suit your needs.

1.3 Selecting your crypto portfolio

Once you have your platform ready, you need to zero in on a list of top cryptos to invest in 2024. Remember that there are more than 9,000 active cryptocurrencies. So, knowing about them all is a Herculean task. Also, you don’t need to do that. A more practical approach is to stick to a small set of reputed cryptos that have excellent technology, promising use cases, and a strong price momentum. You can find more on how to choose the right cryptocurrency for your portfolio in our dedicated article.

1.4 Following basic investing rules

Once you have started putting your money into a selected list of crypto coins, the next important thing is to maintain discipline, manage risk, and stick to fundamental crypto investing rules. Remember that crypto is not a game of lottery to get rich fast. Therefore, patience and discipline are crucial to maximize your returns. Let’s now look at how to invest in cryptocurrency in 2024.

2. How to pick a cryptocurrency to invest in 2024

Crypto investing success heavily depends on the types of crypto assets you pick. Not all crypto platforms have the same goals, technological innovation, or use cases. For instance, Bitcoin mainly serves as a mode of payment and a store of value - but, crypto coins like Ethereum or Cardano (ADA) are designed to support a universe of blockchain-based applications (plus, you can also use them for making payments). Then there are cryptos like memecoins (For instance Dogecoin) which have been created just for the sake of fun.

So, while selecting a cryptocurrency, you need to check for factors like the underlying technology, potential use cases, cases of adoption, tokenomics (the demand and supply dynamics of the crypto), price history, institutional interest, and price momentum. The most potential cryptocurrencies are the ones with a solid technological base, strong use cases, a vibrant community of developers and users, and soaring demand.

Lately, in the crypto world, there is no dearth of scams and dubious crypto projects to dupe investors. Conduct your due diligence from official sources and reputed websites to avoid crypto scams and fishy crypto projects. Also, when it comes to cryptocurrency investing for beginners, we suggest avoiding unsolicited crypto investing advice from social media. Follow through the link to our main page to learn what are the most important steps to take when investing in crypto.

3. Top cryptos to invest in 2024

We think the top cryptos to invest in 2024 are the market leaders Bitcoin and Ethereum. As of December 2023, Bitcoin controls about 48% of the total crypto market value, whereas Ethereum controls about 17%. So, together, these two crypto giants account for about two-thirds of the total crypto market valuation. We think these two cryptos would continue to dominate the crypto market while fetching cool returns to investors. So, why are Bitcoin and Ethereum the top crypto to consider as a beginner investor? Let’s explore.

3.1 Bitcoin (BTC)

Bitcoin (BTC) is the first and most prominent cryptocurrency. It is also the most recognized and used crypto asset. We think Bitcoin’s solid technology, vast range of use cases, reputation, and wide popularity make it the most attractive crypto asset to invest in 2024. Another reason we are optimistic about Bitcoin is the Bitcoin halving event which is expected to take place in April 2024. Historically, Bitcoin halving (in which Bitcoin block rewards are halved roughly every 4 years) has proven to be a bullish factor not only for BTC but for the entire crypto market.

3.2 Ethereum

So what is Ethereum used for? Ethereum (ETH) is our second choice because of its smart contract functionalities. Ethereum powers a range of decentralized applications (dApps), decentralized finance (DeFi) platforms, NFTs, and Decentralized Autonomous Organizations (DAOs). Ethereum's shift to the Proof of Stake (PoS) consensus mechanism in 2022 makes it one of the most energy-efficient crypto coins. Moreover, Ethereum has a clear map to incorporate a range of scaling solutions to improve scalability and efficiency while lowering transaction fees.

3.3 Top altcoins

While we think 80-90% of your crypto investing capital should go into BTC and ETH, you can explore some altcoins (all cryptos except Bitcoin are called altcoins) for the remaining 10-20%. In the altcoin space, some of our leading choices are Chainlink (LINK), Avalanche (AVAX), Solana (SOL), and Cardano (ADA). They offer innovative technologies, wide use cases, and unique scaling solutions.

4. Why invest in cryptocurrency?

While crypto assets involve high risks, they can be extremely rewarding too if your bet is right. The primary reason behind investing in crypto is asymmetric return. In asymmetric return, the upside potential is much higher than the downside risks. For instance, in the 2020-21 bull run, many crypto assets gave a whopping return of 50-100x within a few months. So, let’s say you invested $100 in a crypto that gave you 50x return. In that case, the final value of your investment would be $50,000 (Which is an excellent gain of $49,900). However, on the downside, all you could lose is only $100. This means if you invest a small capital, it can potentially fetch a much higher return if the market move is favorable. Crypto is one of the few assets where asymmetric return is still feasible.

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However, one important aspect of participating in an asymmetric bet is to bet small. This means your total crypto investment should be much smaller (probably 10-15%) compared to your total investible funds. So, one important rule of thumb for making money by investing in crypto is never to bet all your money in crypto.

5. What to consider when investing in crypto

If you are tempted to invest in crypto thinking only about earning some easy money, we have some words of caution. Beginners crypto investing is a different ball game altogether. Crypto is highly volatile, susceptible to speculative bubbles, and possesses certain security challenges. Let’s look at the key actors you need to consider before investing in crypto.

5.1 Volatility

The price of any crypto asset tends to fluctuate by a large margin in a short period. It’s common for a crypto coin’s price to move up or down by 10% or even 20% in a matter of hours. High volatility is one of the factors many beginners lose money in crypto investing. To know more about crypto volatility and how to manage it, read our detailed post. To learn more about volatility, check out our article on volatility in crypto by following the link to it.

5.2 Risk management when investing in crypto

High volatility, speculative demand, and rapidly shifting market sentiments (for instance, a Tweet by Elon Musk can cause a big ripple in the crypto market) add to crypto's investment risks. Therefore, risk management is crucial to not only maximize your returns, but also to save your capital. Certain basic risk management rules in crypto investing include diversifying your portfolio, avoiding averaging down, putting strict stop loss, and having a clear exit strategy.

5.3 Security

Cryptocurrencies don't involve any intermediaries like banks or government agencies. When someone steals money from your bank account, you can complain to your bank. But when someone steals your crypto, you don't have anyone to fall back on. Therefore, in crypto investing, it’s crucial to use a secure crypto wallet, protect your private keys, and use only genuine and reputed platforms. Of course, we always recommend learning as much as possible about how to safely store cryptocurrency if you want to start investing in crypto.

6. Pros and cons of investing in crypto

Crypto is one of the most exciting new asset classes that promises high returns. Since crypto is still at a nascent stage, it has a high growth potential. However, crypto investing has higher risks because of its complex technology, high volatility, and speculations. Let’s look at the advantages of investing in cryptocurrencies and the drawbacks of crypto investing.

Pros of investing in cryptocurrency Cons of investing in cryptocurrency
Potential for high returns in a short period Enter Crypto investing involves high volatility
Asymmetric investing opportunity The crypto market tends to have speculative bubbles
A large number of crypto coins to pick from Crypto investing involves risks of scams, dubious crypto projects, and Ponzi schemes
Capital requirement is low - you can start your crypto investing journey even with $5. The lack of intermediaries lowers the level of consumer protection
Offers an effective hedge against inflation Crypto has a complex underlying technology which can confuse common investors
Crypto helps you have better control over your money

Before embarking on your crypto investing journey, you must assess the pros and cons well. Moreover, remember that all fundamental investing principles (like - ‘don't put all your eggs in one basket’) apply to crypto investing as well. For more beginners crypto trading strategies visit the article prepared by our team of experts at JohnnyBitcoin.

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7. Cryptocurrency Investing For Beginners - FAQs

7.1 ❓ How much money do I need to start investing in cryptocurrency?

You can start your crypto investing journey even with a very small capital - like $5 or $10.

7.2 ❓ What is volatility in crypto?

Volatility refers to the tendency of a cryptocurrency’s price to make frequent and wide price movements in a short period. Volatility makes crypto investing tricky for beginners.

7.3 ❓ Is crypto a good investment?

Crypto is a new-age asset that can fetch cool returns. However, you need to follow effective risk management rules and strictly maintain discipline. This post ‘Cryptocurrency Investing For Beginners’ discusses many dos and don'ts of crypto investing.

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