Beginners guide for investing in Cryptocurrencies
With cryptocurrencies hitting all-time highs, it is hard to know whether to invest or not for those not in the know. Seeing others report how much profit they make is an incentive to get started on your own crypto journey.
The big question is how?
How to get started on what may turn out to be the most exciting journey of your life. This is a guide for those who are new to the world of investing in cryptocurrencies to help you get started.
It was inevitable with the rate technology changes that crypto would earn acceptance and a real dollar value. Once it did, it took off with bitcoin exceeding $10,000 and more than $3.8 billion raised in initial coin offerings to raise capital. At the time of writing this, one bitcoin is worth $AU14,138. Headlines around the world talk about its huge surge in value.
Cryptocurrencies are making worldwide headlines and new millionaires.
As a digital alternative to government issued currencies, you can use it to buy goods and services in online markets anywhere in the world.
People who were sceptical of this digital currency system are changing their point of view.
Cryptocurrency market players
Bitcoin software and mining was first made available to the public in 2009. Mining is the process of creating and recording bitcoin transactions to verify them. This is what becomes known as the blockchain. Bitcoin dominated the crypto space until several others launched in competition 2011. New players include Total Bitcoin, Namecoin, and Litecoin hit the market. Then came Dash and Monero in 2014, and Ethereum Classic in 2015, and Ethereum, Zcash and Zcoin in 2016.
The number of currencies has grown from there so no longer does bitcoin dominate the market as large as it did. Cryptocurrencies are gaining traction in the market with rapid growth and wild fluctuations in value.
Difference between fiat and cryptocurrencies
Currencies such as the Euro, Australian and US dollar are what the cryptocurrency community refer to as fiat currencies. Although currency is in the name of cryptocurrencies, this is a little confusing. You are not buying currency as in bank notes or coins. You are buying tech stock that gives you part of the blockchain and a chunk of the network.
Exchanges are essentially places you are able to buy and sell cryptocurrencies. Unfortunately with recent crackdowns worldwide it is increasingly difficult to sell back into local currencies especially AUD. There have been many exchanges that have recently stopped allowing the selling back into AUD. In saying that currently BTCMarkets & CoinSpot are both allowing this – but commonly have intermitted outages with withdrawals and equally with depositing AUD to Bitcoin.
When comparing Exchanges there are a few factors you should look to before considering utilising them:
- The coins that the exchange will allow you to trade. Some exchanges only support one or two types of coins that you can buy into with such as only BTC or only LTC. However, in most cases it is common practice to buy BTC and then transfer them to an exchange that supports the coin your looking to invest or trade in.
- The Fees that they charge. There is currently a lot of variance in the fees that different exchanges charge on certain actions. Commonly 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.
To get started you need to know where to go, and exchanges are websites where you can buy and sell crypto using fiat. Which exchange you use depends on your needs, and level of confidence and experience in the cryptocurrency. Things to look for to help you judge an exchange, and its reliability and quality include:
- its liquidity
- limits for purchases and withdrawals
- trading volume
- level of security
- how easy it is to use
- level of insurance offered.
If you are new to the game, look for an exchange that is easy to use and offers a high level of crypto insurance. A good exchange makes it simple to buy and sell cryptocurrencies with a few clicks of your mouse from the dashboard. Once you feel more comfortable, you can trade and widen your investment portfolio to include other coins. Some exchanges even allow you to pay your bills straight from your account.
Make sure when you sign up to provide any documents required to verify your account as soon as possible. You do not want to miss out on a great trading opportunity because of a hold up verifying who you are.
When using fiat currency other than American dollars, check the exchange accepts it. Also, check there are no problems with withdrawing in that fiat currency when you want to. You do not want the exchange you use to have the fiat withdrawal problems Bitfinex
had at the end of 2017.
What about Wallets?
When you buy cryptocurrency through an exchange, they have their own wallets. After what happened with the Mt Gox hack, you may want to move your crypto off the platform. Depending on what suits you best, it is easy to transfer your bitcoins via USB to a hard drive wallet offline. These are a good option as they allow you to store many types of cryptocurrency in the one place. It is also easy to print out your own tamper-proof bitcoin wallet to keep safe.
A more secure method is to use your own wallet on your own device. Two extremely popular wallets that support multi currency are Jax (IOS) and Coinomi (Android). It is important to remember that even those these methods of storing your cryptocurrency are more secure – they can still vulnerable to attacks. T
he most secure method of storing your Cryptocurrency is currently a offline hardware wallet. These are most commonly an encrypted USB with pre-loaded software that support multiple currencies that once unplugged from a computer have no way of being tampered with, altered or hacked. In some cases they also have PIN protection. Two hardware wallets that are currently recommended are Trezzor
and Ledger Nano
. Both have been widely tested and utilised and have on-going support at the time of the last edit of this publication.
How much to buy
No doubt you have heard the incredible ‘get rich’ stories of people investing in crypto and turning into millionaires. It is exactly its volatility that makes it unpredictable. While crypto has gone up by huge amounts in value in a short time, it can drop in value again overnight.
So, how much should you invest in cryptocurrency? The first thing to remember is to never invest what you cannot afford to lose. This is the same for anything, even investing in stocks. If you can live through the torment of a wild ride then, the rewards are life changing.
So how much should you invest along with your traditional investments? As a general rule to follow, it depends on your age and other financial commitments. When you are young with few financial commitments you may want to mix 30% crypto in with traditional investments. As you get older, you may reduce that amount in line with family commitments and a mortgage. It depends on your needs and how the market is performing.
With so many different cryptocurrencies on the market, how do you pick a winner? Keep in mind as much as there are huge rewards investing crypto, the risks are also big. While crypto is currently booming, the bubble can easily burst like the dot com boom did in 2000.
Here are some things to ask yourself before investing your hard-earned cash in cryptocurrency:
- Is the company safe to invest in? You need to check out the company behind the crypto you want to invest in. You do not want to lose your capital investment. Have the company founders been part of scams in the past? What about their criminal record? Make sure to check them out and if you see any signs of this, run a mile. While there is a good chance there is money to make, you do not want to get mixed up with people with a questionable past.
- What is the company’s long-term strategy? Make sure to read all about the company and its strategy to make you rich. Take a look at what they are trying to achieve, and whether they have the ability to achieve this. What sort of milestones and timelines do they have?
- Is it all a marketing strategy with no substance? A lot of initial coin offerings are just a website in cyberspace. They look good, sound good, but can they deliver what they promise?
- Plan timelines to get out. Do I need an exit plan? Some coins you will want to keep for longer than others. Others you will want to turnover for short-term gains. Make sure you set an exit price or timeframe for trading.
- Do these coins have real value? Supply and demand can influence the value of crypto coins. This is unlikely sustainable. For crypto to have a long-term value, you need to be able to use them in the real world. Remember the old saying “if it looks to good to be true, it probably is”. Watch out for scams and get quick rich schemes.
Margin trading over the short term
When you become comfortable with buying and selling crypto, you may want to trade it on the short-term market to increase your capital investment. If you are new to trading make sure you do your research on how this works. For those already familiar with trading on the forex, you will understand this. For those new to trading, margin trading is when your stockbroker lends you the money over the short-term to buy more stock than you can afford.
Short term trading is a way to make easy money. There may be a new coin due for release, and you may want to buy in to see how it goes. The key to short-term trading is to act fast and to take risks.
Mining for cryptocurrencies
Maybe speculating with cryptocurrency and its volatility is not for you. Crypto mining may be the solution. It is predictable and can be lucrative. All you need to crypto mine is a computer system that has GPUs or CPUs and a lot of electricity. It is not easy to set up but, once you are, it can be a great way to make a passive income as long as you do the work to get the results.
What is Proof of stake mining?
Proof of stake mining means that a person can only mine for bitcoins or validate the blockchain based on how many coins they own. So, the more crypto coins you own the more mining power you have.
Arbitraging crypto opportunities
Arbitraging is the process of taking advantage of price differences across difference crypto exchanges. When Swyftx is launched we will be a perfect place to arbitrage your coins against our competitors due to the massive price difference we’ll be offering. It is about buying at a low price and selling when the price goes up. 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.
If you plan to start your arbitrage adventures through other websites keep note that there are now sites that can send you an instant alert when arbitraging opportunities come up.
The Mt Gox Issue?
Mt Gox was a Japanese bitcoin exchange launched in July 2010 in Tokyo. By the start of 2014 it was dealing with 70% of the world’s bitcoin transactions as the world’s leading bitcoin exchange. It suspended trading in February 2014, and filed for bankruptcy in April of the same year. What happened?
Around 850,000 of customer’s bitcoins went missing at a value of more than $450 million. Originally it was not clear how they went missing and 200,000 were found. But in April 2015 a Tokyo security company concluded that most of the coins were stolen directly from Mt Gox hot wallets from 2011.
With a bit of starter knowledge and a bit of history – these are a few things to get you started understanding the crypto process ready to begin your own crypto investment journey!