The Ultimate Step-by-Step Guide For Investing In Cryptocurrencies

Imagine, taking your hard earned money and putting it in a digital assets with no rhow toeal intrinsic value. You would have to be mad. But mad or not,  you would be in good company. Everyday, people collectively take millions and invest in cryptocurrency. This is reflected in the total market cap, which continues to fluctuate but has stabilised from the vinolatility of 2017..

I personally think we will see 1 trillion USD in cryptocurrencies before the end of 2018. The astronomical gains in 2017 will be x10 – x20 in 2018. There are sovereign nations like Russia and Japan will release their own cryptocurrencies, billions will be poured into ICOs, and we will end up with a digital market worth more than the GDP of all but the 15 largest world economies.

Bitcoin is well and truly in the public sphere. The average person you speak to on the street has never heard of an altcoin, and I would be more surprised if they are aware of the long term potential of the blockchain. Knowing about cryptocurrencies this early puts you at a massive advantage. Buying Ethereum, IOTA, Ripple, Power Ledger, or Civic now, is as good, if not better, an opportunity as buying Bitcoin in 2011 – 2013. Heck, buying Bitcoin now is a better opportunity than buying it back then was too.

Investing In Cryptocurrency is Investing in the Blockchain

The cryptocurrency markets might support and breath live into the blockchain but they also distract from just how monumental this technology is. Assign a fixed amount of gas to ensure determinist contracts don’t get stuck in an infinite loop, doesn’t have the same ring to it as buy Bitcoin and hold.

What Is the Blockchain

A blockchain facilitates secure online transactions. A blockchain is a decentralized and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network.” Wikipedia

  • Decentralized
  • Trustless
  • Digital Ledger
  • Cannot be altered (see Spawncamp attack)

We have built an entire subculture around the money and narrowed people’s perspective of the blockchain. There are hundreds, thousands, and one day millions of cryptocurrencies each with their own unique use case for the blockchain.

But hey you just want to make money and invest in cryptocurrencies why should you care about the blockchain?

You need to understand how it all fits together. I will meet the ignorant investor halfway. It is Fomo (fear of missing out) and hype that pumps coins, but people hold and trust the coins that they see value in.

The value is created by the relationship between the technology, the people, and the institutions. What does this crypto do? how is it used? who is going to use it?  

The Importance of Research When Investing In Crypto, and I Hope You Bought Bitcoin.

There are all kinds of determinants that influence the value of cryptocurrencies. This is why you need to extensively research every coin that you invest in. Bitcoin’s latests explosion seems to be a result of mainstream adoption and the pending release of the Lightning network. If you are actively learning and researching crypto, you would have had a greater chance of buying Bitcoins before the breakout.  

Innovation or News about Innovation Increases the Price of Cryptocurrency

A major shortcoming of Bitcoin’s blockchain is the time it takes to complete transfers. The blockchain is very congested and this inhibits its adoption because people are waiting hours and sometimes days to receive their coins.

Imagine all of the Bitcoins that weren’t bought, all the trades that were never sent, and all the opportunities missed because of these slow transaction time. It isn’t that big a jump to say improving the technology will increase that value. Something you need to understand, is that the protocol hasn’t been released yet.

So why did the price increase?

It is an unspoken mutual agreement and general consensus among traders that everyone will buy cryptocurrency and hold before a big release that pushes the price up. People bought, because they knew that other people knew other people were going to buy.

Put saddles on those sheep and ride them to greener pastures.

Investing In Cryptocurrency isn’t Just about Buying Bitcoin

Earlier this week when Cardano released their updated roadmap the coin surged 400%. In light of Bitcoin’s downturn from a 17k high there is a lot of green on the board. All those profits if you only buy Bitcoins you submit the opportunity to get in on the next Bitcoin.

Cardano Cryptocurrency Chart

I am 100% convinced that there are 10 – 15 altcoins currently being traded. And a few hundred that don’t yet exist that will be a better investment than Bitcoin within 10 years. Now is a GREAT TIME to invest in cryptocurrency.

Mining Scarcity and Circulation

Everything I have spoken about so far focuses on what affects the demand and what makes traders buy, but traders are only half of the equation.

The price of a cryptocurrency, is also affected by the supply?

Miners, mine blocks, and they are rewarded with coins. The amount of computing power, and the hashrate determine how how difficult it is to mine a block.

What is a block on the Bitcoin blockchain

  • New blocks are added to the ledger by miners
  • A block is part of the chain (block-chain)
  • blocks contain the transactions, and they update the ledger according to computational difficulty
  • Miners solve blocks via a proof of work protocol
  • Blocks are getting harder to mine

It is getting exponentially harder to mine Bitcoin and create new blocks. Has it clicked yet? As Bitcoin is more widely adopted and demand increases, supply will gradually decrease. That’s the perfect storm for bullish behaviour, and it is also how the thing that doesn’t really exist creates scarcity and gives itself value.

How to Invest in Cryptocurrency?

To invest in Cryptocurrency you first need a place to buy cryptocurrency. There are a number of ways to do this. Cryptocurrency exchanges like Etoro, Bittrex, LocalBitcoins, and Coinbase are popular exchanges where you can buy cryptocurrencies and cash out into local currency.

Another great option for fiat purchases is Luno.com an emerging Coinbase alternative serving important regions in Europe, Asia, and Africa. Luno sells Bitcoin and Ethereum. They have a great web platform and mobile app, both with full functionality. Even in nations like the US where the service is not available, the Luno wallet is still offered. For more details, read here our guide or learn from Luno.com.

Luno Exchange made easy

There are also cryptocurrency brokerage firms or CFDs that charge commissions and make money through all kinds of business models. Etoro, which I mentioned before is a good example of a cryptocurrency brokerage firm / social exchange that exists in the space between centralized exchange and a fully fledged broker.

Prominent traders with a proven track record of success can join their platform, and you can follow and copy their trades, which I equate to a lower risk method of trading cryptocurrencies and almost passive income.

Or in their own words “Join the Social Trading revolution! Connect with other traders, discuss trading strategies, and use our patented CopyTrader™ technology to automatically copy their trading portfolio performance.”

Verification

Depending on the exchange and the rules and regulations for whatever country you live in, you might need to verify your identity before you can trade on an exchange. This can take anywhere between a few hours to a couple of days. Read and understands the verification process before committing to an exchange. Some will ask you to upload ID, like a drivers license, and others will even have their customer support call you before removing your transaction limits.

Payment Methods

Another important consideration when buying cryptocurrency is if the cryptocurrency exchange will accept your prefered payment method. It is notoriously easy to initiate a chargeback for credit card payments, so exchanges are reluctant to let you buy cryptocurrency with them.

If you are using an obscure payment method, you always have the option of local trades, or Localbitcoins.com. You can buy cryptocurrency on the exchange platform from other traders, and this means you can buy Bitcoins with everything from direct bank deposits to Amazon gift vouchers.  

LocalBitcoin Cryptocurrency Exchange


You can also buy cryptocurrencies using PayPal with
Etoro. We wrote a guide that shows you how to do it, and I think it is the best way to invest in Bitcoin using the popular payment method.

How To Hold Cryptocurrencies in a Wallet

Once you have found an exchange, and you all verified, you need a wallet to store the coins. A wallet is a piece of software used to send and receive transactions. You have a wallet address and this is what you give to the exchange when you want to send your coins. Likewise, you need someone else’s wallet address if you want to send them coins.

A lot of exchanges have hot wallets on the actual site. You can keep your coins in these wallets, and if you’re day trading and want to quickly convert altcoins to follow the pumps it’s a good way to go. The trade off is exchanges are targeted by hackers and your exchange wallet is always connect to the internet.  

Hot vs Cold Crypto Wallets

 

Then you have exchanges like Coinspot that has wallets on the exchange, but they store coins offline in their own cold wallets.  

How to Build a Profitable Cryptocurrency Portfolio  

Maybe you have just started trading, or you might be slowly building up your portfolio putting aside a little from your weekly payslip.

I am going to give you some helpful tips to build what I think is a solid portfolio. But first, disclaimer: I am not a licensed financial advisor. The views expressed here are my own. I don’t have a single trading qualification or an academic background in finance, investing, or cryptography.

I do have a snazzy portfolio and some real world experience. I wouldn’t have written this if I didn’t think it could help someone.  

Why You Should Backup Your Portfolio and Invest in Bitcoin or Ethereum – Aim for 40% – 50%

A Diverse Portfolio Investing In Cryptocurrencies

Satoshi Pie Portfolio Example

A Diverse Portfolio Investing In Cryptocurrencies

Highly regarded Redditor’s Portfolio

A Diverse Portfolio Investing In Cryptocurrencies

The Token Fund’s Investment Strategy

What Do all of These Portfolios Have in Common?

They all have between 29% – 50% Bitcoin, and with the way the market is at the moment, this just makes sense. I highly recommend that you do the same.

You might think IOTA is a good cryptocurrency buy. Go for it Invest in all the ICOs and altcoins that you want but Bitcoin and Ethereum are the Gold and Oil of the cryptoworld.

The Top 10 Cryptocurrencies by Volume

After the boom in 2017, cryptocurrency volatility has decreased however this has caused a more stable market and hence brought more people to the fold. The volumes are stable as well, with the top 3 cryptocurrencies not really changing from Bitcoin, Ethereum and Ripple but there is still a fight for the top 10.

The best place to get a regular update is on Coinmarketcap, otherwise eToro is great for showing you the price of some of the largest coins.

It settled down about four hours ago, and it’s fluctuating around $14,000, but as you can see it sucked all the money out of the alts.

It was a bloody and red day for everyone who neglected to include Bitcoin in their portfolio.

Bitcoin peaking out at 17k
Bitcoin peaking out at 17k

Bitcoin is the most well known cryptocurrency. It has the highest market cap and is valued the highest of all the cryptocurrencies. Its recent mainstream success and the confirmation of the Bitcoin Lightning Network have pushed the coin well past its all time high and made it a little bit invincible.

What is Bitcoin Used For?

Bitcoin is a cryptocurrency in the purest sense of the word. It is used to send money, pay for goods and services, buy pizzas, and provide an alternative to the banking infrastructure.

Bitcoin has the highest fees of all common cryptocurrencies, the congested blockchain can take hours to confirm a transaction, and it isn’t as anonymous as other coins.

Average fees for common Cryptocurrencies
Average fees for common Cryptocurrencies

Which Begs The Question Why is Bitcoin Worth So Much?

I believe it is being treated as more of a digital commodity than a circulating coin at the moment. It has become the gold standard. When there is doubt in the market people buy Bitcoins.

For example, today I tried to send $100 on the blockchain. The fee for doing so was almost a quarter of what I was going to send. I choose to send Ethereum instead, but it just goes to show, Bitcoin isn’t valuable because the coin is superior. Like stocks and shares, crypto gets most of its value from hype and fomo (fear of missing out)

What Other Cryptocurrencies Should You Invest In

Let’s bring that chart back for a second.

A Diverse Portfolio Investing In Cryptocurrencies

The Next most Hodled (held) Cryptocurrency in Your Typical Portfolio is Ethereum.

Etheruem vs Bitcoin

If you follow any of the expert traders on Etoro or crawl Reddit for hour after hour, you will learn that ether is also a very stable coin. Everyone who is anyone predicts that this coin is going places, and while it isn’t as mainstream as Bitcoin, it has phenomenal technology behind it.

Why You Should Invest in Ethereum?

Two reasons, smart contracts and the ERC20 tokens.

The goal of Ethereum was to build decentralised applications on a blockchain. It’s a pretty complicated idea, and it is every trader’s decision to know as much or as little about it as the want, but when Vitalik Buterin, AKA Crypto Jesus, originally proposed the idea of Ethereum in 2013, he started something.

Vitalik Buterin

Bitcoin will make you rich, but it isn’t going to change the world; Ethereum just might.

Ethereum has two types of accounts. The first are just normal accounts held by people. They have an address and can send and accept ether.

The second type of account contains a contract. It still has an address, and Ethereum treats it the same as the first type of account, but it contains code. An Ethereum style if/else statement that can send ether to other address and perform computer like functions. The real potential of the blockchain is decentralised computing and information, and Ethereum helped humanity realise that goal.

What about Ethereum’s ERC20 Tokens?

The ERC20 tokens power dapps (decentralized apps) on the Ethereum blockchain. Tokens like Golem and Power Ledger use these tokens for all kinds of applications. It is a formalized standard that governs how applications are launched on the blockchain, and they are used to do cool things like track electricity and distribute information to internet of things devices.

Ethereum is The Most Functional Cryptocurrency 

Ethereum processes more transactions than Bitcoin and every other digital currency combined and with an ever increasing number of ICOs launching on the main Ethereum network thanks to their contracts and ERC20 tokens, this will probably continue to be the case. So you see, Ethereum is a pretty sound investment.

Transactions on the Ethereum Blockchain in 24 hours

What about IOTA?

IOTA graph

IOTA is an exciting project trying to establish itself as a transaction method between internet of things (IOTs) devices. The IOTs is a security nightmare.

Computers and networks are hacked through computers, webcams, and routers. It is an expensive problem that IOTA hopes to solve; preferably before we have smart fridges and self driving cars.

What Makes IOTA Unique is Its Use of DAG technology or as IOTA likes to call it Tangle.

Tangle is like the blockchains distance cousin. It hasn’t been proven, but there is an impressive team working on it, and they are making some impressive claims.

It is marketed as the third generation cryptocurrency, but what is tangle?

A visual representation of Tangle of DAG

Tangle is similar to the blockchain but there are no miners, fees, or blocks. It does use cryptography, distributed consensus for proof of work, and it’s still a decentralized network of nodes.

The tangle is correctly called a DAG or Directed Acyclic Graph. If it does what they claim, then it basically solves the three biggest limitations of blockchain technology. It’s like hitting two birds with a network of millions of decentralized nodes (cringe)  

Blockchains three biggest problems according to IOTA

  1. Scaleability
  2. Transaction Times
  3. Fees and Microtransactions

Top 15 Cryptocurrencies to Invest in

  • Power Ledger
  • Civic
  • Monero
  • NEO
  • Cardano
  • Ripple
  • Waves
  • BitBay
  • Game
  • SiaCoin
  • Decred
  • MaidSafeCoin
  • OmiseGO
  • ARK
  • Modem

Disclaimer

In my opinion these are all a good cryptocurrency buy. If you are investing in cryptocurrencies, remember that ICOs and altcoins like the ones mentioned about can carry more risk, but higher risk can lead to higher return. Getting in on that untested coin is a vital part of cryptocurrency investing, but if you are going to adopt high risk strategies and invest in cryptocurrency before the masses arrive, you must be strategic with your cryptocurrency buy.

My Two Philosophies to Not Lose all Your Money When Investing in Cryptocurrencies

1)Buy Cryptocurrencies low and sell them high

Warren Buffett famously said that “The stock market is a device for transferring money from the impatient to the patient.” The same is true with crypto.

When you first start trading you’re in the honeymoon period. It is only natural to take your money out of this and put it into that annnddd itts gone. Day trading is great for short term gains, but you need to really know what you are doing.

If you want to make money with cryptocurrencies, you need to give it time. Invest in coins with good teams, solid technology, and a decent amount of hype behind them and just walk away. Store them on a paper wallet, put that in a briefcase, and bury that in the garden. Pablo Escobar style.

The total market cap of crypto is exploding and everything good is going up. If you are patient, you will be rewarded.

2) Learn Everything You Can

Sir Issac Newton said that “If I have seen further it is by standing on the shoulders of giants.” Follow influencers on twitter, chase the hype on Reddit, read everything that you can get your hands on, and tap into crypto’s main vain.

Etoro is a great resource and social exchange for following expert traders. But seriously who knows where you crypto journey will lead. You might launch your own ICO, one day, or get the latest ASICs rig and generate passive income while you sleep. We live in fantastic times, and all the information you need is literally at your fingertips.

Some Final Thoughts on Cryptocurrency investing

So you have decided to invest cryptocurrency?  You have read our how to buy cryptocurrency guides, and it’s time to take the plunge. That first time you crypto invest you are now part of  something bigger than yourself. You will inevitably have to convince all your friends to buy cryptocurrency too, but I promise you it is intoxicating. It doesn’t matter if you choose to invest cryptocurrency like it’s a retirement fund, or you want to day trade, it will be many a month before the first thing you do in the morning is something other than check the charts to see where the market is at. Remember, pay attention to the charts, get involved in the community. From the moment you learn how to buy cryptocurrency, until you sell them all and move to the moon, you never stop learning.

FAQs

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