In the year 2020, cryptocurrencies have been extremely popular. It should be noted that bitcoin has generated a return of more than 100 percent so far this year.
However, it is important to note the significant risks associated with cryptocurrency. For instance, there are frequently significant shifts in valuations. In addition, there is always the risk that the underlying system could be hacked, which would result in the user losing access to bitcoin. The most well-known instance of this was when Mt. Gox collapsed, leading to the loss of 850 thousand bitcoins.
Consequently, what are some strategies that can be utilised to mitigate the dangers inherent with cryptocurrency investments? When it comes to investing in cryptocurrencies, there are a number of different strategies you may use to reduce the amount of risk you take on. Let's have a look!
How to Invest in Crypto
Before we get into the ways one can invest with minimal risks, lets strip back down to the basics and talk about the simple steps you must take when looking at how to invest in cryptocurrency uk safely and efficiently.
To begin, you will need to select a cryptocurrency app or site that you will use to store all of your cryptocurrency in. After you have completed this step, you will be able to open an account and enter all of your information into the website or app.
After that, you will be able to start depositing funds using the specific system of the app that you have chosen. It's possible that different apps will require a different minimum deposit from you or provide you access to a different set of payment methods.
You are now able to make a selection of the quantity of crypto of your choice and then complete the transaction within the app. The only thing left for you to do is relax and watch as your investment grows until you make the decision to cash it out.
All about the Fundamentals
It is not at all simple to comprehend what cryptocurrencies are. There are intricate technologies operating in the background. In addition, the market is continuously evolving. So to minimise risks of investing in the wrong crypto, one must know the fundamentals.
Therefore, prior to making any investments, it is a smart idea to educate oneself further on the facts. The encouraging news is the fact that a large number of free resources are available to assist you.
According to Kaitie Zhee, CEO and founder of Spacemade X, Binance is indeed the largest crypto exchange on the planet and they have really taken their leading role seriously. They do something called Binance Academy, which is a free education and information pertaining to cryptocurrency trading and trading in general.
They have, in my opinion, done an excellent job of making the content easy to navigate, especially separating the information that is intended for novices from the content that is intended for more expert users.
Do your Research
Remember that you have over 2,000 different cryptocurrencies to choose from. That is to say, once it comes to evaluating alternatives, you will generally only have the opportunity to commit to a limited number of available choices due to the limited amount of time you have available.
However, when carrying out your research, it is essential to narrow your attention to those digital currencies that have solid support behind them and viable expansion plans. Strong volume is another essential component. If you intend to sell your stake without causing a dent in your returns, you need to have access to a liquid market.
Diversification is among the best methods to help lessen the risks associated with cryptocurrency investments. To put it another way, if you diversify your holdings throughout a wide range of asset classes within your portfolio, like stocks, treasuries, commodities, property investment, and so on, you will reduce some of the risk associated with the overall volatility.
In addition, when it relates to cryptocurrency, it is not necessary to have significant stakes in order to be successful. The rationale for this is that the possible profits might be rather substantial.
In addition, the utilisation of stop losses is a useful approach. This indicates that your stake will be sold off automatically if it drops by a specific level, say 15 to 20 percent or such. When you do this, you have a much better chance of avoiding catastrophic losses.
Because it is a technology platform, you need to be aware of how to protect your bitcoin using the appropriate methods. The following are just a few suggestions on how to do this:
● Whenever you use any bitcoin exchange, you should always configure two-factor authentication. If you can't use Google Authenticator, the two-factor authentication on your phone is the next best alternative.
● Your "private keys" should be written down by hand and kept in a secure location in your home, such as a safe. Imagine if this is the one and therefore only golden key that unlocks the door to your cryptocurrency and grants you access. Avoid storing this in a digital format in the event that either your phone or computer is hacked.
● Never give anyone else access to your private keys. Ever. One notable exception: If you want a family member to be able to access your cryptocurrencies after you pass away, make sure your living will include the rights to your private keys.
● You should never leave your cryptocurrency holdings on an exchange, particularly a decentralised one.
● Put your bitcoin into what's known as a "cold storage" wallet, unless you trade it on a daily basis. After that, place that inside your safe.
Investing in ETFs
ETFs, or exchange-traded funds, are a type of share that can be purchased on an exchange such as the NYSE or the Nasdaq. They provide you the ability to own a collection of stocks or even other assets, the majority of which are included in an index.
This indicates that it will not be difficult for you to obtain diversity in a certain segment of the market. The costs are typically very reasonable as well. But what about exchange-traded funds (ETFs) for digital currencies?
Due to regulatory concerns, there are currently none that can be purchased on the market in the United States. Despite this, there remains a means to increase one's visibility. This can be done by purchasing an exchange-traded fund (ETF) that invests in blockchain stocks.