Cryptocurrency is gradually establishing itself as an investment opportunity to consider. Although it works best for long-term investment, you can equally invest in cryptocurrency in the short-term.
A part of your decision to invest in this area involves deciding the cryptos to put your money in. Making such a decision is not a straightforward matter. It has to be made after a detailed consideration of critical factors.
The essence of this guide is to look into various investment opportunities to consider. The guide also advises on the factors to consider as you invest in cryptocurrencies. Read to the end to get all the essential information before deciding.
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Things to know when investing in cryptocurrency
As you step into the crypto world, it is paramount that you have a well-defined game plan. Failure to do so is a recipe for massive losses.
Every investor must keep in mind these key factors when investing in cryptocurrency.
1. Market capitalization
When Bitcoin laid down the baseline for cryptocurrencies more than ten decades ago, thousands of others gradually emerged. Today, the market has over 1600 growing number of cryptocurrencies. For some, this fact may come as a surprise because the media is fond of focusing on just a few leading cryptos.
Market capitalization entails how large a company is. To determine this, one takes the asset price multiplied by the company’s total shares.
The critical information that you can get from this metric is the risk level of your investment. It goes without saying that you need to be skeptical of assets with high risks.
Always go for tokens that record the most significant circulating supply with higher market capitalization. Such cryptos face a minimized threat regarding volatility and manipulation. On the contrary, smaller tokens rapidly incur various shifts in value at the slightest negative news.
2. Cryptos are technically not a currency.
The tax-man across the world, including the IRS, is yet to classify cryptocurrencies as a currency. In the case of the U.S., cryptos are classified as property. That goes on to say your investment in the area will be treated in a similar manner as your investment in other assets monitored by the IRS.
The IRS has maintained a keen eye on cryptocurrency usage. One essential requirement is detailed record-keeping. Failure to do so incurs harsh penalties.
For this reason, only execute transactions in taxable accounts when it is worth it to undergo the record-keeping measures.
Current legislation discussions are undergoing with respect to the Virtual Currency Tax Fairness Act of 2020. Implementation of this Act would be a good thing for cryptocurrencies as usage would increase. Under the proposals, the digital currency would only be liable to taxation if the value gain is more than $200.
A key thing to also note in this regard is that putting away your cryptos in retirement accounts exempt them from taxation, just as it happens with other assets held here.
3. The safety of your cryptos is mandatory.
By the fact that you are investing in cryptos, there will always be times when the cryptos need storage for a given period. Even if your investment is in the short-term, you still require storage.
There are different storage options to consider for your cryptos. They include:
- Hardware wallets
- Paper wallets
- Desktop wallets
- Mobile wallets
Hardware wallets and paper wallets are the safest of all. A hardware wallet is a USB-like device that has an OLED display and scroll buttons on the side. Such wallets have never been connected to any servers before, making them secure.
Paper wallets involve printing the public address and private keys on a piece of paper that is securely stored away. Operating such a crypto wallet requires a certain level of technicality and should only be used when you are fully aware of its mode of operation.
Desktop wallets and mobile wallets operate in a similar fashion, except that one is meant for the PC and the other for smartphones. Exercise general internet security when using either of these since they connect to the Internet.
4. The asset’s trading volume
As you choose a digital asset, be sure to conduct a thorough investigation of its trading volume. Typically, this is not a problem when dealing with the top 10 cryptos on exchanges. However, any transaction that lies beyond the top 10 list should be treated with caution.
An asset’s trading volume determines your ability to buy and sell it. Low volume is usually an indication of an issue with its liquidity. You are more likely to find it hard to buy and sell on a regular basis.
You will be taking a bad risk if you decide to invest in a cryptocurrency with low trading volume. In some cases, this may be a sign of a dead project. Even more intriguing is the fact that leading exchange platforms have started to delist any asset that has questionable trading volume.
What you need to invest in a crypto
If you aspire to invest in the crypto world, there are a couple of things that you must have:
- Secure Internet connection
- Identification documents
- Payment method
- Digital wallet
The personal identification documents are a necessary part of government regulation. Not all exchanges will require you to verify your identity, but most will.
Some of the documents that you are likely to be asked are:
- Utility Bill
- National ID
- Bank Statement
If an exchange asks you for verification, take the time to understand what its data privacy policy is.
With these factors in mind, you are ready to make your first investment in cryptocurrencies.
Here are the top crypto coins that you might find worthwhile investing in.
#1: Bitcoin
Bitcoin is the number one cryptocurrency that you are sure to want to invest in. Created in 2009 by one Satoshi Nakamoto, the crypto has gained value mainly because of the user’s faith in it. Its lower cost of transaction compared to regular fiat currency has been a significant drive in usage. Also, increasing scarcity in recent times continues to drive the value up.
When compared to real-world events, Bitcoin can be gauged as the gold of cryptocurrencies. As such, an investment in the crypto could be termed as a smart move.
Bitcoin creators set it to undergo what they called halving events. These are periodic reduction in the number of cryptos awarded to miners for verification role. The amount reduces by half every four years. The overall limit for available coins is capped at 21 million.
The more bitcoins reduce, the more valuable the crypto becomes. The trend does not necessarily imply an increase in prices. However, it suggests that Bitcoin is on the right path towards retaining its number one position.
#2: Ethereum
Ethereum presents itself as a viable alternative to BTC. If Bitcoin is gold, then Ethereum is a diamond. Another crypto that comes close to competing against BTC this much is Litecoin. As opposed to this, Ethereum has had a widespread adoption amongst companies and startups as a means of completing transactions.
Considering the increased popularity of Ethereum, many are often curious to try it out. The curiosity is mainly driven by the need to find out how different it is from BTC.
Well, Ethereum is technically not money as it is. On the contrary, it is a platform on which developers and programmers are able to execute their applications. The blockchain technology is not straightaway money. Instead, it allows for the creation of applications that are run in the cloud.
The token that powers operation in the Ethereum network is called Ether. Owing to the unique features that Ethereum portrays, almost all sectors have developed an interest in it. Popular interests have been registered from:
- Hardware manufacturers
- Real estate
- Finance
- Software developers
- General investors
The trading volume of Ethereum may be lower than Bitcoin, but it still is a worthy consideration.
#3: Litecoin
Litecoin, initialized as LTC, was officially released to the public in 2011 by its creator – Charlie Lee. Lee’s motivation for this creation was to minimize Bitcoin’s massive blockchain in order to foster faster transactions. The creation of this crypto also meant that transactions would be cheaper.
Litecoin was a fork of BTC. Other cryptos that are a fork of Bitcoin include Bitcoin Cash, Bitcoin Unlimited, and Bitcoin Classic.
One of the most significant advantages of investing in Litecoin is the fact that beginners can quickly get started with it. The crypto can be seamlessly bought using fiat currency like EUR, USD, GBP, among others. That way, you could simply use payment methods such as:
- Debit card
- Credit card
- Bank transfer
- E-money transfer
You can invest in Litecoin both in the long-term and short-term. Best results are obtained from long-term investment. Remember, the overall essence of cryptocurrencies is to function as value holders.
Conclusion
The decision to invest in cryptocurrency is not a light one. With most of these tokens recording high volatility rates, an investor could feel stuck on the best choice to make. By considering the list we just shared above, you might find it easy to proceed.
