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How to Safely Invest in Crypto: A Step-by-Step Guide

We have a new asset class on the block and it's changing everything we know about money and wealth. The block is blockchain technology, and the new asset is the exciting yet volatile world of cryptocurrency.
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We have a new asset class on the block and it’s changing everything we know about money and wealth. The block is blockchain technology, and the new asset is the exciting yet volatile world of cryptocurrency (Crypto for short).

We already live in a digital world where ordinary fiat currency is transacted and traded in a virtual setting. However, Crypto is changing our conception of money, how we trust and providing equitable access to wealth creation like never before.; Hence, everybody is taking on crypto as an investment strategy to bolster their portfolios. Yet, is crypto a safe investment in the long term? 

We’ll discuss: 

  • What Are Cryptocurrencies and How Do They Work? 
  • Ways to Smartly Invest in Cryptocurrencies    
  • Are cryptocurrencies a good investment?
  • What do experts say about this kind of investment?
  • What’s the safest way to purchase Crypto?

So, with that said, let’s dive in and first look at what Crypto is all about.

What Are Cryptocurrencies and How Do They Work?

Cryptocurrency is digital money that exists as encrypted code run on Blockchain technology. Blockchain is a data system that encodes, verifies, and stores information in a series of blocks. A peer-to-peer network verifies these blocks and is connected to others in the system to form a chain.

Crypto uses blockchain as a distributed ledger, which allows it to run decentralized with no control by central finance authority. This means there is no middleman like a bank for processing transactions; because of the secure, decentralized technology underpinning Crypto, there are many benefits compared to fiat currencies. Such benefits include:

  • Easy transactions which are transparent and secure
  • Cheaper fees due to the lack of a middleman
  • The system runs 24hrs a day, and transactions can happen anywhere there is an internet connection
  • Crypto users have anonymity, and their privacy is protected

Some of the most popular and valuable cryptocurrencies include the first Crypto Bitcoin, which debuted in 2009. Bitcoin’s current value has exceeded over $55,000 at the time of this article. Other cryptocurrencies include Ether, based on Ethereum blockchain, Binance coin, and Cardano (ADA).



Ways to Smartly Invest in Cryptocurrencies

After figuring out how Crypto works, let’s look at steps on how to invest wisely. As with any financial advice, seek guidance from a Crypto professional or financial advisor. 

Step 1: Do your research

There are thousands of cryptocurrencies on the market, and each has its specific features. Research, talk to experts and compare prices to see which suits your needs.

Step 2: Check out the risks

Price swings move continuously, and this can be risky to new investors. Remember that investing in Crypto is not like the stock market, as you earn no interest or dividends. 

Step 3: Make an allocation

Once you have decided what Crypto you want to hold, allocate no more than 5% of your portfolio. Start small and increase your holdings over time. 

Step 4: Choose a platform to purchase and transact

To purchase Cryptocurrencies, you need to open an account with an exchange. They provide a marketplace to trade, store your coins (or tokens) and offer support. There are many exchanges to choose from, including:

Step 5: Where to store your Crypto

Once you have bought your Crypto, you will need to store your coins securely in a digital wallet. There are three options: 

First, cold wallets are physical devices like an external storage device where you can keep your Crypto.
Then, hot wallets exist via exchanges which store your coins in a cloud-based server. 
Lastly, the hybrid approach is storing your coins one both hot and cold wallets. 

Are Cryptocurrencies a Good Investment?

Investing in Cryptocurrencies, like all investments have their pros and cons. With Crypto being a very new asset class, there is a lot of skepticism and speculation.  

The Pros: 

  • Accessibility: Crypto exchanges are open 24hrs a day, every day, so you can transact whenever you want

  • Control: Crypto gives users control over their funds and the transactions taking place

  • Security: The distributed ledger verifies all transactions. Data cannot be altered or manipulated

  • Limited supply: Unlike fiat money, cryptocurrencies like Bitcoin have a total of 21 million coins that can be created or mined.

The Cons:

  • High Volatility: Bitcoin’s annual month-to-month volatility is around 90%, compared to gold which is around 13.4%. Depending on where you buy in, this can either have a positive, or very negative effect on your portfolio. 

  • Access is still limited: Even with the surge in popularity, access remains limited. 

  • Unregulated sector: Cryptocurrencies are an unregulated sector at risk of illegal activity and money laundering.

What Do Experts Say About This Kind of Investment?

Over several years, many high-ranking asset managers and investors have changed their outlook on cryptocurrencies. In the past, asset managers rejected the likes of Bitcoin and Dogecoin. However, today even heavy-weight investors such as Ray Dalio and Bill Miller have diversified their portfolios into Crypto.  

Asset managers Dan Herron of Elemental Wealth and Ryan Sterling of Future You Wealth are among many managers bullish on Crypto. However, they all state to start at only a 1% to 3% portfolio allocation due to the high price fluctuations. 

Leading Investment Bank JP Morgan has stated that Bitcoin “is appearing to be a better hedge against inflation than gold.” 

What’s the Safest Way to Purchase Crypto?

For those still uncertain about the potential of Crypto, there is a safer way to get exposure. Many crypto exchanges and online-based equity investment platforms offer products to suit the wary investor. 

One of the safety strategies to investing in Crypto is to invest in a crypto Exchange Trade Fund (EFT). ETFs operate like any other ETF but track a cryptocurrency preselected by experts. Some ETFs track one Crypto, such as a Bitcoin ETF, or track a bundle of Crypto assets through an exchange. 

Here you get exposure to the value of Crypto without directly owning any coins or tokens. 

To Wrap Up 

Cryptocurrencies are here to stay. Despite the volatility and lack of regulation, Crypto proves to be a viable asset class for investors. There are many crypto exchanges for trading and loads of advice you can research from top investors. Even though there are risks, being informed and making calculated choices can ensure you get a return on your investment.

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