2020 Beginners Guide for Cryptocurrency Investing
Times are changing. It is impossible to say what the global economy will look like in 5 years or even 5 months from now. As global powers continue to vie for dominance, the traditional currencies and economic systems that underpinned a world we once knew are coming to an end. Cryptocurrency, as we know it today, arrived with the publication of Bitcoin’s technical white paper in 2009. Since Bitcoin surfaced, thousands upon thousands of other cryptocurrencies have surfaced with it. It can get confusing. There are a few things you should know before investing.
In this 2020 Beginners Guide for Cryptocurrency Investing, we’ll discuss:
- A Brief History of Cryptocurrency
- Benefits of Using Cryptocurrency
- How Bitcoin is Made and the Mining Process
- How to Buy Cryptocurrency
- Types of Storage for Cryptocurrency
A Brief History of Cryptocurrency
The 2008 financial crisis spawned the creation of Bitcoin. A bailout was given to some of the world’s largest banks then– a moment that set the pace for the preceding decade. People around the world demanded more transparency and change to financial systems. For the first time in modern history, masses of people began questioning the true value of currency printed by central banks. Over the preceding decade, rampant hyperinflation surfaced in places like Zimbabwe and Venezuela causing people to scramble in search of a more consistent alternative for everyday purchases. Now a decade later, cryptocurrency has risen as an alternative payment system to cash.
While it isn’t directly accepted everywhere yet, and it isn’t perfect, or exactly consistent, cryptocurrency has gotten to the point where you can put your crypto balance on a card, and use that card wherever you use an ATM, credit, or debit card. Mainstream crypto adoption is coming if it isn’t already here. In places like South America with Dash, or Bitcoin in South Korea, we are seeing a transformation in the global economy. The world is seeing the unraveling of a new system of money.
In the last decade, public perception of Bitcoin has come a long way. Bitcoin’s initial misassociation with fraudulent fundraising developed the use of initial coin offerings (ICO), rampant in 2017 through 2019. Silk Road gave Bitcoin its publicity problem before that.
Due to lack of global government oversight, which varied greatly by country, companies seemingly popped up overnight with a white paper and asked for millions of dollars. Some took the money and ran. Others were not so lucky (see Bitconnect). Many of Bitcoin’s second wave of adopters who onboarded circa 2017-2018 were burned not only by these ICOs, but by Bitcoin’s dramatic price ascension, and its equally-as-fast fall. However, cryptocurrency is slowly distancing itself from that broken image and becoming the new face of the financial world.
Benefits of Using Cryptocurrency
- Fast and Borderless
- Staking & Interest
- Types of Cryptocurrency
Fast and Borderless
The world is becoming increasingly globalized. The need for cross-border transactions has grown astronomically over the past decade. When sending money from one country to another, depending on how you’re sending it, there are a number of barriers you have to jump through. These barriers take time away from you getting your money. Bitcoin and other cryptocurrencies are near-instant and don’t require you to have a bank account in order to send or receive payments. It doesn’t require the burracuries of an Automated Clearing House (ACH). All that you need is a digital wallet.
In 2020, there is a growing need for contactless payments due to health concerns. Populations around the world are increasingly vulnerable to infectious diseases. With that said, exchanging cash, debit cards, or loose change back and forth can spread the disease even further. Some organizations are going so far as to ban cash payments. Analysts tend to be bullish on digital money in a world that increasingly disallows paper money. Cryptocurrency is fully digital. While there are other modern, contactless payment options (e.g., smart watches) none are beyond the grasp of a central banking system in the way that Bitcoin and other cryptocurrencies are.
Cryptocurrency has suffered from a publicity and public perception problem pretty much since the advent of Bitcoin. Yes, digital currencies are often associated with clandestine activity- such as terrorism, money laundering, and drug payment. There is no doubt that those things happen with the use of cryptocurrency. However, we often neglect to notice that those clandestine activities are carried out with currency that the rest of the world uses too- such as the US Dollar, Euro, or Yuan.
Furthermore, the most transparent part about Bitcoin is the central ledger. All Bitcoin transactions are all uploaded on to a single ledger. You can use this ledger to go back to the first Bitcoin transaction. This public ledger eliminates the double-spend problem that is rampant in our banking system.
International governments (e.g., China) are using similar technology to transition government-backed national currencies.
Banks figured out something a long time ago that the average person did not– if you have enough money, your money can work for you. This is how interest works. The world’s largest banks create loans by the thousands on any given day. The average person has been traditionally left out of this system for centuries. However, cryptocurrency allows the everyday person to gain interest, too. Lending platforms like Celcius and Nexo are changing the game for the average person’s ability to create capital.
The money you put up basically pays for the blockchain network to operate. As is the case with most staking, it means simply leaving the crypto in a wallet. You are then rewarded for your contribution. As you leave a balance of crypto in your wallet, you accumulate a stake in that crypto.
Arbitraging is the process of capitalizing on price imbalance across different crypto exchanges. For example, if Algogrand is trading at one price on Swytx, then another price on a second exchange, the smart arbitrager would take advantage of the opportunity to increase their position. When Swyftx launched it soon became very sought after compared to competitors because of the massive price differences it offered.
There are two things to keep in mind when arbitraging include:
- Prices can change even as you complete a transaction especially during times of highly volatile prices;
- Take the fees you will pay into account against the potential profit.
Types of Cryptocurrency
Just when you thought of cryptocurrency as complicated to understand, you found out that there are actually different types of cryptocurrency. The main categories include utility tokens, stable coins, security tokens.
Here are some of the major characteristics that separate each one:
- Stable Coins: These coins are typically pegged to a reserve asset and offer relative stability. Examples of Stable coins include USDC and Tether. USDC has a value that is pegged to USD.
- Security Tokens: These digital currencies are digital representations of any asset, digital or physical. Unlike paper representations of securities, security tokens offer instant liquidity on assets like yachts and houses.
How Bitcoin is Made and the Mining Process
One of the most popular questions for those who are new to cryptocurrency is how is new cryptocurrency like Bitcoin made? The genesis of cryptocurrency varies greatly from one coin to the next, however, the common thread is that cryptocurrency is often mined. As is the case with Bitcoin, there are miners spread throughout the world (with the largest concentration in China). These miners and their computers verify that any new Bitcoin transaction aligns with previous Bitcoin transactions. When the miner successfully verifies or proves the validity of a block, they are given a reward in Bitcoin. Boom. New Bitcoin is created.
What is Margin Trading?
If you’ve ever read the book or watched the film “The Big Short,” you already know the tale of the investment firm that “shorted” the S and P 500. Similarly, you might have heard the phrase “options trading” when your Bitcoin-inclined cousin spoke at the holiday dinner table about his investment follies. Regardless, margin trading is not for the beginner cryptocurrency investor. As opposed to submitting regular buy orders on an exchange through a strategy like cost-averaging (e.g., buy Bitcoin and hope for it to go up over time), margin trading, or options trading is like taking out a loan.
In margin trading, users take out a loan by using their current position on an exchange as collateral. With that “leveraged” collateral position, users are then able to increase their buying power. The increased buying power typically works on a fixed ratio (e.g., some exchanges allow 4:1, meaning that you can margin trade with $4 for every $1 you put in).
How to Buy Cryptocurrency
Cryptocurrencies are most often bought and sold on exchanges, or simply businesses where customers trade digital currency for other assets (e.g., Ethereum can be traded for AUS on Swyftx). In addition to the upward boom of cryptocurrencies, there has been a boom in the number of cryptocurrency exchanges. In fact, for the super crypto nerd, there are now businesses that will even help you create your own exchange on WordPress. It’s important that you decide on a trustworthy exchange in which you have done your own research on.
What to look for in an exchange? Exchanges have generally become more transparent over the years, however, some exchanges still lack basic features. Swyftx offers an array of benefits to not only the cryptocurrency beginner, but to anyone that trades crypto.
There are several factors you should look at while considering which exchange to use:
- Customer Service Channels: If you have a question about your account, it could be impossible to speak with support. It can take days or even weeks to get an email response. Swyftx’s customer support staff averages a 3-minute response time within Australian business hours.
- Public Reviews: There is a lack of objective, public opinion about crypto exchanges. Reviews that you come across on the internet are either paid for, outdated, or written by the exchanges themselves. You should find an exchange that has reviews that are publicly available and seem real.
- Fees: Exchanges like Coinbase charge astronomical fees for crypto transactions. That’s one of the biggest mistakes that new users make, paying astronomical fees because they want to use an exchange that everyone talks about. The more prudent decision would be to identify a trustworthy exchange with low fees. Swyftx offers no-cost deposits and withdrawals with a daily limit of up to $100,000 AUD. They also offer an industry-low 0.6% on trading fees.
- Spreads: Spread is the price difference between the buy and sell prices of a tradable asset, in most cases it’s the advertised “trade fee.” Australian banks charge up to 11% spreads when converting AUD to foreign currency, yet still advertise zero currency conversion fees. Swyftx offers an industry-low 0.8% spread compared to the average of 5.2% seen with some other platforms.
- Practice Accounts: Your first few cryptocurrency transactions can be scary. That is pretty common with new experiences. One of the best ways to quell your fear when trying something new is to practice before you do it. Practice Mode on Swyftx allows you to do that. With the click of your mouse or keypad, enter into Demo mode and practice with approximately $15,000 AUD.
- Coin Offerings: Swyftx supports over 100 different cryptocurrencies, including under-the-radar cryptos like Algorand.
- The Market Rate: There is a lot of variance in the fees that different exchanges charge for certain actions. The consistently high fees found in Australia is one of the primary reasons that Swyftx launched– to combat the inflated fee cost of buying and trading cryptocurrencies.
Ways to Invest in Crypto
The world’s payment methods are evolving constantly. You need to find an exchange that meets your unique needs. Swyftx allows user deposits via Bank Transfer, as well as instant deposits with any of the following: PayID, BPAY, and POLi.
Where to Store Cryptocurrency
Cryptocurrency wallets allow you to send and receive cryptocurrency, as well as monitor your balance. The main differentiator in wallets is whether they are hot or cold. Hot wallets include any internet-connected wallet, such as exchanges, as well as any software or mobile wallet (e.g., the TRON wallet app for iOS). Cold wallets include offline wallets, USB-based wallets, and paper wallets. Arguably the most trusted of all the wallet types is the hardware wallet.
Hardware wallets are another integral part of the cryptocurrency storage ecosystem. As pictured above, the Ledger Nano S and X models are two of the most popular options for cryptocurrency storage. On the ledger Nano S, there are up to 20 wallet apps you can use at once– the number goes up to 100 with the Ledger Nano X. These secure wallets plug into your computer or laptop via USB. When you’re out of the house again, you can take it. Read more about the wallets right here.
Cryptocurrencies have changed cross-border transactions over the last decade through speed and accountability. As the world demands more electronic, contactless remittance that isn’t corrupted by a central bank, the world will continue to embrace digital currency. As governments embrace and understand this technology more, the next generation will see an entire overhaul of the global financial system. Don’t miss out.