Whether you’re a modern money guru or not, everyone is talking about cryptocurrency right now. The digital money movement is on the up with everyday folks, from your mum to your mates, investing their hard-earned cash in it.
But can you really make money by investing in crypto, and what are the risks you need to look out for? We caught up with crypto expert Mena Theodorou, co-founder of Australian cryptocurrency platform Coinstash which aims to make crypto investments work harder for everyday Aussies, to answer all of your burning questions.
What Are The Benefits Of Investing In Cryptocurrency?
1. Increased Independence
Because of its decentralised nature (not being governed by one central organisation) cryptoassets offer a level of independence impossible with other means. When you keep your money in a bank or financial institution, you are often at the mercy of other people or organisations. With cryptoassets, especially those stored in hardware wallets, your investment is usually non-managed by other firms. Cryptoassets are also independent to fiat currencies (like USD, pound sterling or yen, for example) and most are not tethered to gold, so they're not subjected to the same economic volatility.
2. High Liquidity
Cryptoassets have high liquidity, which means it is easy to purchase or sell at a price close to market rate. Liquidity is important because it brings about better pricing, faster transaction times (depending on the blockchain that supports the token) and increased accuracy for technical analysis.
3. Easy To Get Started
Getting started in the crypto market is easy, especially compared to the stock market. You can simply create an account, get a digital wallet and track all your assets from your phone. Look for platforms that offer multiple layers of security and compliance such as identity verification (KYC), 2FA and are registered with ASIC.
4. Long Market Hours
The crypto market is available to trade 24 hours a day, seven days a week because there is no centralised governance of the market.
What's The Best Way To Start Investing In Cryptocurrency?
Find a local and regulated platform or exchange that offers 24-hour support and has local licences. In the case something goes south, you want to make sure your investments are protected by local laws, and you have adequate around-the-clock support from local customer support teams.
You also need to work out your risk appetite and how much you can afford to spend on cryptoassets. Remember, cryptoassets should generally be part of a diversified investment portfolio. It’s important to understand that cryptoassets work differently to stock market investments. In addition to being a store of value, they have more utility than assets like stocks or bonds and are widely seen as an alternative to sovereign or fiat currencies.
Choose your crypto wisely! Although you're likely familiar with the big names, there are over 4,000 cryptoassets currently in existence. Don’t just buy into the hype: make sure you do your research, read their whitepapers, and understand the trends and technology before making your decision.
Can You Really Make Money From Cryptocurrency?
Yes, you can earn a significant profit. One of the most common ways is to stake your cryptoassets. Staking refers to the process of investing or locking up your funds in a cryptoasset and earning new cryptoassets in the form of interest.
Another way to make some cash off cryptoassets is to buy and HODL (hold on for dear life). Most investors buy coins and just wait until their value rises. Once their market prices increase, they sell at a profit. However, it’s important to keep in mind though that due to the volatile price of most cryptoassets, the returns may not make up for the initial investment.
Some assets even have their own earning mechanism built into them. Look out for smaller projects you can buy at a low price that offer unique ways to reward you for loyalty and utilising their token.
Is There A Minimum Amount To Invest In Cryptocurrency?
No, there is no minimum or maximum amount you need to start investing. Start with an amount that you are comfortable experimenting with and grow from there. You may want to adopt a dollar-cost-averaging strategy where every month, you allocate a certain percentage of your salary to making investment.
How Do You Keep Your Cryptocurrency Safe?
Store your cryptoassets in a safe, secure place such as a crypto wallet. Don’t leave your crypto on the platform you buy it from, unless it’s specifically connected to a highly secure wallet. In the past we’ve seen major platforms, from MtGox to Binance hacked—so it’s important once you buy, you store safely. A digital wallet is a highly encrypted software platform that stores the private and public keys that connect you to the blockchain where your cryptoassets exist.
Crypto wallets can take many forms such as a desktop wallet (installed locally and available offline on your computer,) online wallets (which are on the cloud), mobile wallets as apps on your smart device, and hardware wallets which are stored on a hardware device such as a USB.
Some even have the ability to allow you to earn interest on your investments, access loans and make payments, so your investment does more than collect dust.
How Can You Be Savvy With Your Crypto Investment?
Never give someone access to your wallet
Regardless of the situation, NEVER provide the information to your crypto wallet to a third party. Think about this like the password to your bank account. An exchange or tech devs behind the cryptoasset will never ask you for this information proactively. If they do, that’s a massive red flag for a scam. In the same vein, never send crypto to strangers on the internet promising deals. If it sounds too good to be true, it probably is.
Don’t get overconfident
You don’t want to become another example of a crypto investor that got overly confident and lost everything. While the crypto market is one that invokes a lot of passion, it’s important to keep your emotions at bay and take a calculated approach when investing. Nobody is a Wall Street mogul when it comes to crypto.
Don’t buy into the hype
The fear of missing out (FOMO) has led many investors down the dark and gloomy road to disaster. You don’t want to peg all of your life savings on an obscure project because of something you read on Facebook. It might seem tempting to jump into a cryptoasset that’s skyrocketing and imagine the huge profits that you could possibly rake in. However, it’s important to not act on impulse and buy into the hype, as you will end up with more pain down the track than profits.
What Are Some Of The Best Companies To Invest In?
Bitcoin (BTC)
Bitcoin is considered the original cryptoasset, and its launch in 2009 is what started the whole cryptoasset movement. Bitcoin—and the blockchain technology on which it operates—was invented by an individual or group of individuals operating under the pseudonym Satoshi Nakamoto. Bitcoin was put forward as an alternative to the fiat monetary system.
Bitcoin Cash (BCH)
Bitcoin Cash is the fourth largest cryptoasset in terms of market capitalisation. This is partly due to its connection to the original BTC. Bitcoin Cash was designed to address the slow transaction speeds of Bitcoin. It allows larger blocks, ensuring improved scalability and faster transactions. As long as Bitcoin remains a market leader in the crypto world, Bitcoin Cash will continue to grow in popularity.
Ethereum (ETH)
Ethereum is historically the second-most popular cryptoasset, however it is very different from Bitcoin. Ethereum is actually the name of the blockchain platform and Ether is the name of the cryptoasset. Ethereum is the blockchain platform for ‘smart contracts’, and it's typically preferred by HODL investors.
Litecoin (LTC)
Litecoin's creators hope Litecoin will eventually be used to pay for everyday goods and services. Litecoin has positioned itself as a more practical and technologically superior alternative to Bitcoin. Litecoin transactions can be confirmed by the P2P network significantly quicker than Bitcoin transactions.
Tezos (XTZ)
Much like Ethereum, Tezos is a decentralised cloud-computing network. Yet, Tezos has distinguished itself as one of the industry’s top altcoins, by offering alternative methods of network consensus and governance.
How Can People Look Out For Scams?
The best way to enter the cryptocurrency space and avoid scams is to invest with platforms that are regulated. There is no better way to avoid scams. Do your due diligence on the platform and make sure it has all the necessary licences to operate in the country where you live.
Any Other Hot Tips Or Advice When It Comes To Crypto Investing?
When investing in cryptoassets, it’s important to choose a platform or exchange that provides you with opportunities to put your digital assets to work. Speculating on performance and watching the coin’s price fluctuate is not investing. If you’re not actively trading during the week and participating in the market regularly, chances are, your coins are sitting idly in a wallet.
Instead, you should pick secure wallets or platforms that allow you to put your cryptoasset investments to work. At Coinstash, we’re developing an ASIC-regulated platform that allows you to earn interest on your cryptoassets, access loans and actually pay for things in your real life.
Next up, check out our beginner's guide to investing in 2023.
Image Credit: Urban List