Investing in cryptocurrency is no longer considered exotic and has become commonplace for many people. The article will help to understand how to invest in cryptocurrency, what are the pros and cons of cryptocurrency assets, what to pay attention to when choosing a currency.
A trader makes money from speculating with cryptocurrency and its derivatives, such as CFDs (Contracts for Difference). Unlike long-term investments, with trading one does not need to invest for a long period of time, but rather to make short- or medium-term transactions on a regular basis.
Minus of trading is necessity to spend some time for analysis of current market situation and carrying out of trading operations. Time expenditures can be reduced (as well as risks during transactions) by placing special orders – stop-loss and take-profit. They will close the deal automatically when the predetermined price threshold is reached.
The advantages of trading include:
- No need to “freeze” money for a long period of time. The trader makes short-term investments, so at any time he can go into cash without losing a lot of money, even with an unfavorable rate reversal.
- It is possible to earn without having a considerable initial capital. Even an amount of one thousand rubles will already allow them to start trading on the cryptocurrency exchange.
The ability to receive income not only when the crypto is growing, but also when the value of the decentralized currency is falling. The trader only needs to make a correct prediction on the rise or fall.
- Fast results. If an investor has to wait years to see if his strategy works, a trader receives feedback almost immediately. This allows him to react more flexibly and change his trading strategies more successfully.
- Potential profit maximization. In trading one earns both on short-term and medium-term market movements, both on bearish and bullish trends. That’s why an experienced trader has an opportunity to get just a huge income in a short time, what a long-term investor can’t boast of.
2. Long-Term Investments
Another option is to buy bitcoins or other decentralized digital currencies and wait for them to rise in value significantly. The fact that cryptocurrencies will grow over a long period of time is not doubted by most experts. Therefore, such a strategy is very likely to turn out to be a winning one and in a few years or decades will actually bring the investor an excellent profit. This method is similar to trading, only instead of trading cryptocurrencies day in and day out, the investor keeps his assets for a long period of time.
However, it is worth understanding that in the case of long-term investments, the money cannot be withdrawn at any point in time. And over a long period of time, crypto can fall seriously from time to time. In addition, you should keep in mind that even if the asset will show steady growth, the amount of earnings on it will depend on the amount of invested capital. That’s why for long-term investments large initial investments are desirable, otherwise the profit will be insignificant.
Mining is the mining of cryptocurrency money using computing power. Cryptocurrency is made up of blocks or chains of blocks, called blockchains. To get digital currency, you have to decipher the correctness of the blockchain. It is impossible to do this manually because the mathematical calculations prove to be very difficult for humans. Therefore, miners must use powerful computer equipment.
The main advantages of mining are:
- no time commitment – computers decode blockchains without the user’s supervision;
- complete anonymity – all the coins earned by the miner are not visible to the regulatory authorities.
But there is a very significant disadvantage of mining – it is impossible to make good money on an ordinary computer. To get more or less normal income you need to first buy expensive equipment, and then to upgrade it regularly. It turns out that a miner has to make a solid initial investment. It is good, if the rate of currency will go up, and the user can recoup the costs and get additional income. But if the crypto falls in value, the miner will be left with serious losses.
4. Getting cryptocurrency for completing tasks
You can earn bitcoins and other independent currency if you register and start performing tasks at one of the sites, working on the principle of PTC – Paid To Click, which translates into Russian as “pay per click”. These sites reward users with cryptocurrency for viewing ads or for clicking on links given by advertisers.
But since this activity does not require any skills, the payment is very low. Most often the user can earn only a few hundred or even tens of satoshi in an hour. (Satoshi is a minimum transferable value in BTC payment system. It is one hundred millionth part (10-8) of bitcoin).
That’s why this way will suit users who have a lot of free time and don’t know what to do with it. But for most of them it is better to use other variants.
5. Indirect Investments
Another way to invest in crypto is to invest indirectly without buying coins. Indirect investments in cryptocurrency assets can be:
- Buying ETFs that use bitcoin or some other liquid crypto as the underlying asset.
- Buying units of funds that are partially invested in cryptocurrency.
- Buying securities that are invested in industries related to crypto in one way or another. For example, it could be shares in a company that manufactures mining equipment. Or shares of a particular cryptocurrency exchange.
But it should be understood that with such investments, a significant part of the profit will go to intermediaries, and if the loss is fixed, the investor will not receive even the minimum compensation. For example, a bitcoin-ETF management company will take its remuneration for the work in case of growth or decline in the value of its units.
And a company that produces mining equipment can pay bonuses to its employees at any time, which will reduce the company’s capitalization. There is also a risk that the firm will simply begin to develop another line of business, and the shareholder’s investment will not even be indirectly related to crypto.