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High volatility is a common and well-known characteristic of cryptocurrencies. Despite their volatility, they have offered some really exciting opportunities. Because any investment carries the possibility of both gains and losses, any decision to invest in cryptocurrencies should also be based on thorough research.
Methods of Investing in Crypto
Buying and Holding (HODL): The simplest and most common crypto investing method. This method is a play on the misspelling of the word ‘hold,’ also known as “hold on for dear life” among investors. With this method, you purchase cryptocurrencies through a crypto exchange and simply keep them in your digital wallet. This is all in the hope that their value will increase over time.
Staking: Some cryptocurrencies allow staking to earn rewards. The rewards come from participating in the validation process of the network. It’s essential to remember that not all cryptocurrencies can be staked. Available options to stake include Tezos, Ethereum, Solana and Cosmos, among others. That’s why finding the list of the best staking coins with a cryptocurrency exchange is essential.
Staking supports the network’s operations by securing the blockchain and validating transactions. It involves participating in the proof-of-stake (PoS), a consensus mechanism. This is also considered an alternative to the proof-of-work (PoW) used by the Bitcoin network.
Mining: Joining a mining pool or mining Bitcoin yourself is another well-known method of earning some returns on investing in cryptocurrency. Bitcoin is a common method of proof-of-work cryptocurrency, versus proof-of-stake currencies.
Value Out of Nowhere: A Perceived Problem
Although their volatility has made them unappealing to many investors, one of the most significant issues of cryptocurrencies is that they aren’t backed by precious metals. This means that cryptocurrencies have no abstract quality, considering their nature. However, making cryptocurrencies more like fiat currencies would be defeating their primary purpose. Still, leading investment firms and some of the largest companies in the world, like Blackrock, are acknowledging that Bitcoin is essentially digital gold and a scarce asset.
Investing in crypto has also been likened to forex trading or foreign exchange trading. The only difference between forex markets and cryptocurrency is that the forex market is regulated. Also, considering how long the forex market has been around, it’s larger than crypto.
Tips for Investing in Crypto
- Diversify your portfolio. You could consider consulting a financial advisor who could assist in creating an investment plan. You can also spread out your investment in different digital currencies. With thousands to choose from, this isn’t such a complex task.
- Manage risk associated with cryptocurrency investment. Do this by limiting the amount you invest in a particular coin. Don’t be tempted to invest more than you’ve budgeted.
- Learn how to recognize a scam. The crypto investment market saw multiple scams rise as scammers generated thousands on behalf of others in just hours. If an offer sounds too good to be true, it probably is. Avoid exaggerated returns with underplayed risks.
Should You Invest?
When investing in cryptocurrency, always weigh any potential gains against your risk tolerance. The cryptocurrency market is highly unpredictable, and if you want to build wealth over a long period, it is important to do your research on which are the best for long-term investing.
Crypto has proven it’s here to stay. Always consider the following:
- Your risk tolerance
- The amount you’re willing to lose
- Whether you‘re using a credible cryptocurrency exchange
