Cryptocurrency, or digital assets secured by cryptography, is a rapidly growing market. But it also carries unique risks that may not be present in traditional securities markets, including high volatility and the potential for dishonest practices and theft. By avoiding short-term speculation, investing only what you can afford to lose, dollar-cost averaging into positions, focusing on projects with solid fundamentals and using cold storage for your investments, you can better navigate this choppy market.
While the most famous cryptocurrency is Bitcoin, many other coins have been created in recent years. Unlike currencies like the US dollar, cryptocurrencies are designed to be decentralized and operate according to rules programmed into computer software. This allows them to be sent across borders instantly and without the need for middlemen, cutting processing fees significantly. It also lets them be used by anyone with Internet access, regardless of their bank accounts or country of residence.
For example, the Bitcoin blockchain records and verifies transactions in minutes or seconds, rather than the three to four days that it takes for stock trades to settle and clear in the US. This has the potential to slash trading costs and make financial services more efficient and accessible.
However, this new technology still has plenty of kinks to work out. Some of the most obvious are that cryptos are very volatile and can gain or lose significant value in a day, and that the regulatory environment is uncertain. These factors have led some investors to avoid them, but others have found success in the space.
The first step to investing in crypto is opening an account through a broker, exchange or P2P platform. This usually requires a form of identification and may involve some waiting while the account is set up and funded. Most people will then store their cryptos in a wallet, a secure digital file that keeps track of their balances and keys. A variety of wallets are available, some more secure than others. Investopedia’s guide to cryptocurrency wallets can help you choose the right one for your needs.
The next step is to stay informed. Monitor legal cases and regulatory developments in both the US and abroad, as these can affect prices and adoption. Keep an eye on governance changes at blockchain projects, as these can alter staking yields, development funding and other dynamics. Finally, be sure to follow industry trends and think long-term rather than chasing fleeting gains. The market will continue maturing, and those who remain objective and disciplined will find success.