With the record growth in Bitcoin and other cryptocurrency prices at the turn of 2020-2021, interest in investing in this industry has multiplied. Interest in digital assets increased even more after the end of the “crypto winter” and the market’s recovery, attracting even major financial market players. For instance, BlackRock, the world’s largest investment company, has already received approval from the US SEC to create cryptocurrency ETFs and has attracted substantial amounts to these funds. Naturally, private investors, including beginners, should also consider exploring cryptocurrency investment.
Benefits of Cryptocurrency Investing
Investing in cryptocurrency assets can be attractive for both beginners and experienced investors, whether they have small or large capital, for several reasons:
- Low entry barrier. Many tokens are priced under a dollar, and even for coins with four- or five-figure prices, fractional purchases are possible.
- High liquidity. Tens of thousands of new users join the cryptocurrency market daily, ensuring that buying or selling popular crypto assets can be done within seconds.
- Profitability. Bitcoin, for example, has shown a staggering return of 6,300,000% over 10 years, continuing to rise despite occasional setbacks.
- Minimal costs. Transactions occur online, eliminating the need for extensive infrastructure and numerous intermediaries, resulting in very low fees.
However, these advantages come with notable drawbacks:
- High volatility. Daily price swings of several percent are common.
- Regulatory uncertainty. Many countries have yet to establish a comprehensive legal framework for cryptocurrencies, posing significant risks for investors.
How to Invest in Cryptocurrency
Today, with the growing popularity of major tokens, there are numerous options for investing in crypto assets.
Buy & Hold
This strategy, familiar to stock market participants, involves buying assets for long-term growth. Despite skepticism from some well-known investors like Warren Buffett, the cryptocurrency market continues to grow, making such investments justifiable. There are plenty of avenues for purchasing tokens:
- Cryptocurrency exchanges. Offering secure wallet services.
- Online services. Providing multi-cryptocurrency wallets with instant exchange options.
- Electronic payment systems. Enabling instant coin purchases; VISA and MasterCard have announced plans to allow direct crypto asset purchases.
Important note. Although investments can start with small amounts, most investors will aim to increase their investments. For larger amounts, a secure wallet is essential. Online wallets, including exchange wallets, often lack adequate security. It’s advisable to set up a local crypto wallet or purchase a hardware (cold) wallet, which offers higher security. The former requires a capable PC for blockchain data storage and network synchronization, while the latter can be costly.
Cryptocurrency investment tips recommend beginners consider investing in ETFs that handle cryptocurrencies. This approach eliminates the need to manage crypto exchanges directly and places the funds under the management of professionals who are adept at risk mitigation.
Mining
Mining refers to the process where a participant in the blockchain network receives a reward for finding (calculating on user equipment) a valid cryptoblock. This is possible for cryptocurrencies that use the Proof-of-Work (PoW) technology, such as Bitcoin and its direct forks.
With the rise in cryptocurrency prices, so-called “home mining” has become profitable again. This involves using relatively low-power equipment in terms of energy consumption and performance.
Investment options include:
- Assembling or purchasing a mini mining farm based on several graphics cards.
- Acquiring several ASIC miners, which are specialized devices designed specifically for solving cryptoblock calculations.
Today, a mining farm with 6-12 graphics cards will cost between $2,000 and $8,000. Considering electricity costs and current cryptocurrency rates, the payback period is approximately 6-12 months.
ASIC equipment is more expensive and less energy-efficient. However, it offers higher performance and, with the right approach, can achieve payback within the same period.
Note. The indicated payback periods are valid at current cryptocurrency prices, with Bitcoin trading at around $60,000 to $65,000. Naturally, if the price increases, the break-even point will be reached sooner, and future profits will increase. However, there is also the risk of further price declines, which could make “home mining” unprofitable again.
Such equipment can be freely purchased today. However, mining regulations can vary significantly between countries. For example, in some provinces in China, cryptocurrency mining is completely banned. Although, currently, Chinese authorities have eased many of these restrictions.
Staking
For some cryptocurrencies, mining is fundamentally impossible. Their blockchain networks use the Proof-of-Stake (PoS) technology. In such ecosystems, one can earn by independently or jointly owning network nodes (referred to as nodes by crypto enthusiasts). This requires a corresponding amount of tokens.
An investor buys coins directly from the project platform, a cryptocurrency exchange, or any other method, becoming the sole owner of a node or joining a pool. By validating other users’ transactions, the investor earns a commission from the system (passive income).
Investors face no difficulties in investing in cryptocurrency this way. Buying tokens is straightforward (as previously mentioned), and there are plenty of projects using PoS. Any crypto investing guide will describe staking as a low-risk investment if the right cryptocurrency is chosen. For example, investors in Ethereum are unlikely to lose, although they may not achieve high returns.
Note. Ethereum 2.0 has completed the transition from the PoW protocol to PoS. Now, only Ethereum Classic can be mined — a coin from the network supported by users who refused the transition.
Cloud Mining
Cloud mining operates similarly to traditional mining but is conducted on rented equipment from cloud project owners rather than the user’s own hardware. Typically, contracts are for a fixed term. Depending on the investment amount, users receive a portion of the computational power (measured in GH or TH per second), which determines the reward size. The payback period for investments is usually 8-9 months.
The primary risk is the reliability of the provider. Currently, many scam projects operate under the guise of cloud mining. It is recommended to invest only in reliable and well-known teams such as HashFlare or Genesis Mining. These projects accept users from almost all countries, and payments and rewards can be made in cryptocurrencies or through online payment systems, including bank cards.
Trading on Cryptocurrency Exchanges
For experienced investors, this method is most familiar — cryptocurrency exchanges are quite similar to stock exchanges. The main difference is the listing of assets — tokens are traded here. Spot trading, margin trading, and derivatives (futures and options) are available.
To minimize risks, it is better to open an account on large, reputable platforms like Binance or Coinbase. Most such projects freely accept registrations from traders worldwide, and verification is easy. Transactions can be conducted in many currencies on most platforms. However, countries under sanctions might face issues, though they can easily find platforms that do not comply with these restrictions.
Another advantage of these investments is the availability of educational materials. It’s easy to find a beginner’s guide to crypto, descriptions of the best investment strategies, and publications on more complex topics like cryptocurrency market analysis, money management, and risk management.
Other Investment Options
Crypto investors have access to other interesting investment options such as:
- Tokenized securities. Essentially, these are stocks and bonds transformed into digital tokens. When purchased, holders receive the full rights of ordinary shareholders. These investments are safer than cryptocurrencies because the volatility of tokenized securities is closer to that of the traditional stock market. Such tokens can be bought on cryptocurrency exchanges like Binance.
- Investing in crypto art with NFT tokens. In this case, blockchain records confirm ownership of a digitized artwork (paintings, music, unique photos, etc.). NFT artworks can be purchased on Nifty Gateway, Rarible, SuperRare, Foundation NFT Showroom, and dozens of other platforms and marketplaces. These investments can yield colossal returns in a short period.
Interesting fact. The most famous NFT transaction was the sale of the digital collage “Everydays: The First 5000 Days.” The transaction amount at Christie’s auction was $69.3 million.
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