If you are reading this, I will take a wild guess that someone just introduced you to cryptocurrency and told you that this is a great time to invest. If that is the case, I completely agree with that person, but keep in mind that the cryptocurrency market is extremely volatile and still very young. It is hard to tell which project is worth investing in and who is trying to scam you for your money. This guide should help you understand the risks of investing in cryptocurrency and where to start.
What to invest in?
Before we start, I just want to point out one thing. If you are the type of person who is looking for “the next Bitcoin” you will probably be disappointed. All those stories that you read online where people became millionaires by investing $100 in Bitcoin 5 or 6 years ago are based on simple math. The number of people who made that much money with Bitcoin is probably a single digit so don’t be too optimistic.
Now that we are over with that part, let’s see where you should start. If you have no initial idea what coin you want to invest in, then it would probably be best to take a look at coinmarketcap. This website will give you all the info you will need. Pick a coin or token and start by looking at their website. Read their whitepaper and take a look at the roadmap. If everything looks good, do a quick check on the team behind the coin. Most of them will be listed on the website and will have LinkedIn profiles. Checking their portfolio will give you more information than you think.
This should be the very first part of your research. If you like what you see and their idea sounds good to you then move on to social media. If they are serious about their project, they will have active social media profiles and should be open to answering questions. Look at what other investors are saying about them and join discussions on Diskord and Reddit, follow their Telegram updates and make your own decision.
How to buy?
Once you decide on your coin, you will have to buy some. This is done on exchanges, but not every exchange will have what you want to buy. This is where coinmarketcap will come in handy once again. On the coin page, click on exchanges and see what exchange offers trading for your coin. Before you go with the first one on the list, check if they accept FIAT currency. A lot of them only offer trades with popular cryptocurrencies like Bitcoin, Ethereum, Litecoin… If no exchange accepts FIAT, do some research on exchanges that you can access from your region. Some will have high deposit fees, some will have high transfer fees, and some will have long verification times. I know that this sounds like a lot, but it will save you a lot of money in the long run. If you can’t buy your desired coin with FIAT, there will be a three-step process that can eat up a lot of money if you aren’t careful.
First, you will need to buy BTC (or any other tradable currency), transfer that to the exchange that has your coin, exchange BTC for your desired coin and then transfer everything to your wallet. This is why you should always keep an eye on the exchange and transfer fees. Robinhood, for example, offers trades with no fees but it isn’t available in every country right now. Other reliable exchanges that accept FIAT are:
More can be found here in the sidebar.
Where to store?
Every cryptocurrency has a supported wallet. If you check the website of your desired currency, there should be a list of wallets that support it with download links. Download it and transfer funds from the exchange to your wallet. Under no circumstances should you keep your cryptocurrency on an exchange. More often than not these get hacked, and you can lose everything. You are your own banker here, and you are responsible for the safety of your coins. The best practice is to store everything in an offline wallet known as [cold storage](http://en.bitcoin.it/wiki/Cold_storage).
How to sell?
If everything went according to plan and you made a profit on your investment, it is now time to sell it for cash and enjoy your earnings. This is easier than you think. If you bought your coin on an exchange that accepts FIAT, you should be able to sell it there as well. The only thing you should keep in mind is withdrawal fees. Make sure to choose an exchange that has the lowest fees for your withdrawal option. For example, some will have higher withdrawal fees for direct bank transfers than others but will have lower fees for other options. Be sure to read everything carefully before you make a withdrawal request. Also, keep in mind that every FIAT withdrawal will require an ID confirmation. This is standard procedure when moving money online. Usually, you will need a picture of your passport, ID card or driver’s license with any other document that confirms your residential address. These checks may vary from exchange to exchange, but you won’t be able to cash out without them.
The time between buying some cryptocurrency and making a profit can sometimes be very long. It is best if you make a long-term investment and don’t expect too much too quickly. Right now there are more people invested in cryptocurrency because they believe in the technology and the long-term effect than people who want to make a quick buck and cash out. If you are in it for the long term, you should be up to date with news on your cryptocurrency but don’t overdo it. Almost every cryptocurrency has a subreddit on Reddit; this is a great place to talk with other community members and get news updates when they come out. Telegram groups are also great sources of information. All of this info should be available on the cryptocurrency’s official website. Check the info once a day and continue with your daily activities. You don’t want to spend too much time on price checking and long discussions. It will lead nowhere, and you may end up spending your whole day talking about cryptocurrencies, which won’t make the price rise or fall.
Invest only what you are willing to lose
I will have to mention that the market is very volatile one more time. Investing more than you can afford to lose can leave you broke or drive you crazy. When you make a huge investment, you will be emotionally affected by every price fluctuation. Long-term price surges will raise your expectations, and sudden drops will have a really bad effect on your mood and daily life. Just remember that cryptocurrency is young and you are an early adopter. You may be witnessing history so just sit back, relax and enjoy the ride. When you think you’ve had enough, cash out and don’t look back.
Never panic sell
Huge price drops are very common right now. This is because almost every coin is still very dependant on Bitcoin and every Bitcoin price drop will cause the whole market to go down. When this happens, remember why you bought your coins in the first place. Panic selling won’t solve anything. You will probably end up with a 50% loss, and in a month everything will be back to normal. If you only invested what you can afford to lose there is nothing to worry about and remember, you are only locking in a loss if you sell.
When interacting with any cryptocurrency community, you will run into some terms that you won’t have seen before. Here are the most common ones:
FUD – Fear, uncertainty, and doubt. This is a very popular word when the prices start going down and the “I told you so” people get their 5 minutes of fame.
HODL – Hold on for dear life
FOMO – Fear of missing out. When a price starts going up, it has to come down at some point. On the way up if you get a feeling that you have to buy or you will miss the boat, you are getting affected by FOMO.
Moon or Mooning – huge price surges that will bring in big gains for investors.
ATH – All time high. When looking at the price chart, this would be the highest price a currency reached in its lifetime.
Bag holder – This is an investor or a trader who has been holding for too long on a particular cryptocurrency and now has to face the consequences of that decision.
Knowing the potential of a cryptocurrency
If you think that every single cryptocurrency can reach prices of $10k per coin you need to redo your math. There are a few key things to keep in mind when looking at the potential price ranges for a particular cryptocurrency; circulating supply, max supply, and market cap.
The circulating supply determines how many coins are being traded right now. If a coin has a low circulating supply the price is probably higher due to high demand and low supply. If you are looking at a coin’s long-term potential then max supply is what you should be interested in. If a coin has only 1000 units in circulation right now and will release another million units into the market in the future this would cause a huge drop in price due to huge supply and low demand. The market cap is simple math. Coin value times the circulating supply gives you the total market cap. So a coin can reach a market cap of Bitcoin but have a 10 times lower price because it has a circulating supply that is 10 times bigger than Bitcoin’s circulating supply.
Be careful who you trust
While you will mostly find a lot of useful information on the internet you are bound to run into scams. Don’t believe everything you hear or see, especially on Youtube. The cryptocurrency expansion brought in a lot of “experts” that are usually young and very rich. They will make you believe that they made all their money by investing into cryptocurrency but the story is often very different. The latest scam that left a lot of people without their life savings was the Bitconnect scandal. This platform was offering about 1% daily returns on investment but was actually a Ponzi scheme that had to fall apart eventually. It was mostly promoted by these Youtube “experts” who were making money on referrals. If something sounds too good to be true it is probably a scam.
That’s it for now. If you have some knowledge of your own that you would want to share be sure to leave it in the comments. Stay safe and always do your research before investing!