As far as financial market investments are concerned, 2017 turned out to the year of the cryptocurrencies. Cryptocurrencies outstripped all other asset classes in terms of price appreciation and market returns. The good thing about this is that there is a market entry point for everyone, whether experienced or a complete green horn. In this article, we discuss the 3 ways that exist for cryptocurrency investments. You should be able to find yourself in any one of these classes.
Why Should You Invest in Cryptocurrencies ?
There are reasons why people invest in the financial markets. The overriding interest is to make money. However, it is not very easy to make money in the financial markets, especially if you are an outsider or you have no guidance. So any form of investing, especially when dealing with new assets such as cryptocurrencies, has to be clearly defined. Some assets perform better than others, and some require a higher degree of skill to engage in than others. There are some asset classes that require such technical skill that only a select group of trained professionals can do. Luckily, cryptocurrencies are amenable to investments by everyone.
So here are the reasons why you should invest in cryptocurrencies.
a) Return rate
The performance of Bitcoin, Litecoin, Ripple, IOTA, Neo and several other cryptocurrencies have shown that they are capable of producing very stellar rates of return. Some assets produce better returns than others, and cryptocurrencies are up there in terms of return rates. IOTA grew 800% in a few days after the company behind this crypto coin signed partnership deals with Cisco, Volkswagen, Fujitsu, Bosch, Accenture, Deutsch Bank and Microsoft. Bitcoin grew more than 1,700% in 2017. Litecoin grew more than 2,000% in 2017. Compare these figures with even the high-flying Dow Jones which only brought in an average of 285 returns in 2017.
b) Anyone Can Do It
Anyone can invest in cryptocurrencies. It is not the exclusive preserve of investment bankers and professional traders.
c) Growth Potential
The cryptocurrency market is not saturated. There is room for growth and more cryptocurrencies with growth potential are being created almost on a monthly basis.
d) Low Entry Barrier
Entry barriers into the cryptocurrency trading business are not high, unlike what currently exists in some markets where at least $25,000 is needed to open a trading account. With a few hundred dollars, you can get started in cryptocurrency trading business.
The 3 Ways to Invest in Cryptocurrencies
There are three ways to invest in cryptocurrencies. These are:
- Exchange-Based Crypto Trading
- Crypto CFD Trading
- Entry-level Investment
1) Exchange-Based Cryptocurrency Trading
Here, traders buy and sell cryptocurrencies on an exchange basis. You can profit from rising prices by buying and from falling prices by selling. Exchange-based trading involves the transfer of real cryptocurrencies from one trader’s wallet to another trader’s wallet. Some knowledge of technical analysis is required, so as to detect the best times to buy or sell to make profit.
There are several exchanges that have opened over the years to offer exchange-based trading. However, there is a major drawback with exchange-based trading; there is always the danger that cryptocurrencies stored in the traders’ wallets can be hacked. The most notable example was the hack of Mt.Gox in 2014. Several high profile hacks have also occurred on exchanges in South Korea, South Africa, etc. So traders must take precautions to safeguard their cryptocurrencies when trading on exchanges. Any exchange chosen must have high-calibre cyber security protection.
2) CFD Trading
Cryptocurrencies can also be traded on online platforms of forex brokers as Contracts-for-Difference (CFD) instruments. Traders can also profit from rising prices by buying low/selling high, or can profit from falling prices by short-selling. The difference between CFD cryptocurrency trading and exchange-based trading is that no actual cryptocurrencies are exchanged when trading them as CFDs. The advantage is that the danger of hacking and theft of cryptocurrencies is also eliminated.
3) Entry-Level Investing
This is a medium-long term mode of investing in cryptocurrencies and the safest form of crypto investing for beginners. This involves identifying new or relatively new cryptocurrencies which are offering pre-ICO and ICO investment cycles. This format of investing closely resembles the private placements and Initial Public Offers (IPOs) seen in the stock markets.
Related Article : What is Initial Coin Offering (ICO) and How Does it Work ?
Under this form of crypto investing, the trader looks for newly created cryptocurrencies which have been developed to solve a problem within an ecosystem. Many of these cryptocurrencies are cheaply priced; less than 50 cents a coin. You can buy into these opportunities either at entry level (i.e. pre-ICO or before the Initial Coin Offering), or at the ICO price. The key is to identify new cryptos with high growth possibility, and give them time to grow. Many websites have published their lists of high-potential cryptos for 2018. Read these articles, find out why the selected cryptos where chosen in the first place, and buy into them.
Many people still want to buy into Bitcoin and some of the other cryptos that have shown high growth in 2017. However, some of these cryptocurrencies are due for correction and may not show the kinds of growth they showcased in 2017. Where this is the case, it is better to trade such cryptos on exchanges or as CFDs, where small price changes to either direction can be traded. But if you are looking for high growth in 2018, stick to low-priced cryptos which are fresh and show potential for adoption in solving problems within ecosystems.
You should also remember that the institutional investors have not yet gotten into the cryptocurrency markets due to regulatory restrictions. When they do, the markets will expand and we will see a lot of growth in the prices of many cryptocurrencies. Therefore, this is the time to get into the cryptocurrency market using any of the three vehicles mentioned above.