Cryptocurrency has become so popular that not only experienced investors buy crypto, but regular people do too. It would be a waste of potential not to consider cryptocurrency, considering potential high returns due to price swings. However, some people are still hesitant.

Crypto is accessible, and anyone can choose a safe crypto exchange and purchase a chosen digital token. So, what holds these people back? The lack of knowledge and fear of volatility are two common factors that deter people from investing in cryptocurrencies. 

This article aims to explain some of the most crucial factors when investing in crypto that should help you understand the process better. 

Types Of Cryptos

The first and most crucial decision you must make is the currency you choose to invest in. You must first conduct your own research (more on that further in the article) to determine the finest cryptocurrency in which to invest. Here are some of the typos of cryptos that you may encounter on crypto exchanges:

• Bitcoin and established altcoins. Bitcoin was the first and most popular cryptocurrency (and still remains the most famous one), paving the way for the development of future digital coins and tokens. Ripple and Litecoin are other well-known cryptocurrencies. These coins are more stable and have a larger user base, making them a safer investment.
• Platform-based cryptos. Coins produced on top of existing blockchain technologies are known as platform-based cryptocurrencies. Ethereum, for example, allows developers to use smart contracts to create decentralized applications (dApps). Platform-based cryptocurrencies, such as EOS, TRON, and Cardano, have the potential to offer solutions to real-world problems, making them a good investment.
• Privacy-focused cryptocurrencies. Privacy-focused cryptocurrencies, such as Monero, Zcash, and Dash, prioritize transaction privacy and anonymity. They obscure transaction details using powerful encryption techniques, making them appealing to individuals who value privacy.

There are also stablecoins that are backed by real-world assets, such as fiat currencies, precious materials, oil, etc. Thus, you have a huge list of options to choose from on top crypto exchanges.  If you still find yourself unsure about where to invest, invezz.com can provide valuable insights to help you make an informed decision. With a vast list of options to choose from on top crypto exchanges, gaining insights from Invezz could prove instrumental in navigating this exciting investment landscape and building confidence in your choices. With Invezz’s valuable advice, you can make informed decisions with confidence.

Do Your Research

One of the most critical aspects when investing in something is doing research. One must understand how cryptocurrency and blockchain work, what are different types of digital tokens are, consensus mechanisms, and so on. Here’s what you should pay attention to:

• Research the crypto coin or token you want to invest in. Start with the basics of cryptocurrency if you need to, and proceed by investigating everything about the chosen cryptocurrency. Examine the coin’s history, its purpose and use case, and any associated news or developments. These aspects can be easily found in the white paper. Pay attention to the coin’s community.
• Consider regulatory compliance. Because cryptocurrency regulations are changing, it’s critical to assess the regulatory compliance of the coin you’re considering investing in. 
• Check the market capitalization. Examine the market capitalization of the cryptocurrency you want to invest in. A high market capitalization indicates that the coin is popular and has a sizable following and potentially high liquidity on the biggest crypto exchanges.
• Check crypto’s trading volume. The amount of coin (or token) traded on exchanges is referred to as trading volume. High trading volume indicates that the coin has a lot of interest and is actively traded.
• Check whether the coin/token is on top crypto exchange lists. It’s risky to invest in obscure cryptos that aren’t even listed on the biggest exchanges. Buying such a coin means you may not be able to sell it if its price starts plummeting. 
• Learn about technical analysis. Examining the coin’s price movements and charts to discover trends and potential price movements is what technical analysis is all about. If you’ve never done the technical analysis, check out video tutorials and articles: there are plenty of free materials that help users educate themselves on trading. 
• Learn about the risks. Finally, be aware of the risks associated with the crypto investment. Cryptocurrency is a risky and speculative asset with dramatically fluctuating prices. In addition, there is the possibility of fraud, hacking, and regulatory changes.

Investing blindly in cryptocurrency based on someone’s belief that it will increase in value is the worst trading strategy. Do your research to understand how the market and crypto work. 

White Paper’s Importance

The study of a white paper is related to the “do your research” part, but let’s see its importance in detail. Typically, experienced investors seek obscure yet promising crypto assets, and the white paper offers them insight into the project. Studying the white paper is crucial if you’re planning to invest in an unknown currency.

Here is what the white paper offers you:

• Understanding the technology. The white paper delves deeply into cryptocurrency’s fundamental technologies. It describes how the coin/token works, the problem it attempts to solve, and the technical aspects of its implementation.
• Evaluation of the project’s viability. The white paper can assist investors in evaluating the cryptocurrency’s use case. It includes information about the problem that the coin is attempting to solve as well as the possible market impact.
• Understanding of the project’s viability. The white paper helps investors determine the feasibility of the cryptocurrency project. It can reveal the expertise of the development team, the possible market for the coin, and the chance of success. You may also learn the names of project developers and find out about their history and other projects to ensure your money is in good hands. 
• Transparency. A well-written white paper indicates transparency and the commitment of the development team to the project. It can aid in the development of trust and confidence in the coin/token, which is important when investing in a volatile and speculative market.
• Comparison to other cryptocurrencies. The white paper might assist investors in comparing the crypto to similar ones. The document often includes information on the coin’s/token’s distinctive features and advancements.

It’s possible to overlook the white paper when investing in a well-known currency (although it’s still recommended to read the document). However, when investing in less popular coins or tokens, white paper is the key to understanding the project, its potential, and whether the investment can bring gains. 

Volatility

Even those who never traded or owned cryptocurrency know that digital currencies are extremely volatile. This volatility can lead to disastrous losses, but it could also be a blessing in disguise.

The simplest example is Bitcoin. It used to be worth less than a dollar, but then its value increased, reaching an all-time high of over $65,000. However, almost two years later, Bitcoin’s price dropped to under $16,000. You should be ready for such price swings by using various risk management tools and keeping an eye on the crypto market. 

Risk Management

Given the volatility and price swings of cryptocurrency trading, it’s best to think of a risk management strategy. While there can be a lot of potential, keep in mind that the negative effects can be abrupt and severe. Also, cryptocurrency has a stronger possibility of crashing to zero than many other assets.

Due to its volatility, crypto may not be a viable vehicle for diversifying your portfolio or saving for a specific goal (especially a short-term objective). That’s why you should diversify your assets. 

If you want to manage the risks, ensure to invest in stable assets alongside crypto. Moreover, use such tools as stop-loss orders that sell crypto if it reaches the cost you can’t handle. 

Crypto Exchange

When exchanging crypto, it’s crucial to choose the best platform. It should have a big list of cryptocurrencies and a high level of liquidity. The exchange must be secure and use such protection measures as SSL encryption, KYC methods, etc. Moreover, the best exchanges keep most of their assets in cold wallets to ensure the funds’ safety. You can consider such exchanges as WhiteBIT, Coinbase, or Binance. 

Security

One of the biggest concerns related to cryptocurrency is cybersecurity. Hackers keep targeting cryptocurrencies and big exchanges, trying to (and often succeeding) steal millions of dollars worth of cryptocurrency. It’s worth noting that once you lose crypto from your wallet, it’s impossible to restore funds.

Experts recommend investing in secure crypto wallets to avoid losses. Some of the safest wallets are cold wallets. A cold or hardware wallet is a piece of hardware that looks like a flash drive and has to be plugged into a computer or laptop to get access to crypto funds. It’s the safest option since, compared to hot wallets, cold ones aren’t connected to the web, leaving zero chances for hackers to steal crypto funds. 

Taxes

Many overlook this aspect when investing in crypto. On the surface, cryptocurrency is now taxed similarly to equities. Holdings sold for a profit are subject to capital gains tax, whilst those sold for a loss may be eligible for deductions.

However, countries have different regulations and it’s your task to learn whether your gains are subject to taxation. Not filing tax returns may lead you to trouble. Moreover, the industry is new, so regulations keep changing. Thus, you should keep an eye on changes in the tax system.