As of May 2018, the price of a single Bitcoin is around $8,000 mark. Millions of people now regret not buying Bitcoin years ago. You’re probably one of them. Did you miss the boat? Is it too late to start investing in cryptocurrencies. The price has been fluctuating over the past few months but the general consensus is bullish.
The bad news is you missed out on your chance to become an easy millionaire through Bitcoin. But the good news is that it is not too late to begin investing in cryptocurrencies. In this guide, we will show you how to invest in cryptocurrency, namely Bitcoin, and how to profit from it.
Why Invest in Cryptocurrencies?
Hype and fast money is what is drawing a lot of cryptocurrency investment today. This is not a good investment strategy at all, and is like gambling. The early adopters of Bitcoin (and those who have thus profited the most from its meteoric rise in price) were true believers. They believed that Bitcoin would become the first hard world currency that could not be manipulated by governments or central banks. In their ideal future, Bitcoin would eventually replace fiat currencies such as the dollar or the yuan.
Because of these beliefs, these early adopters were like long term investors. They did not use Bitcoin with the intent of a quick exit or fast profit. Hence, they did not worry about the inherent volatility in its value. If you wish to invest in cryptocurrencies, you should do your best to follow their mindset.
The Cryptocurrency Trading Analogy – Volatile Commodities
Cryptocurrencies may be currencies, but their trading patterns are more like volatile commodities. The central bank can and does print more fiat money to support its monetary policies (hence the continuously increasing money supply). But there is a hard limit on the number of cryptocurrency coins in circulation
For instance, the hard limit on Bitcoin is 21 million coins. How many bitcoins are left, you wonder? Well, according to Coinmarketcap, at present, there are 16.7 million Bitcoins in circulation. This means that there is only 4.3 million Bitcoins left to be mined.
Hence, because of the limited supply, volatility is naturally higher compared to fiat currencies. Volatility is further increased because the total value of cryptocurrencies is still relatively small. Coinmarketcap shows that the total value of all cryptocurrencies (over 1,300 of them) is $382.5 billion. That’s less than the market cap of Apple, Amazon, or even JP Morgan Chase.
How to Invest In Cryptocurrency
The procedures for investing in cryptocurrencies can seem daunting to a newbie. The jargon itself is unfamiliar. But it is much simpler than you might think. Here, we have broken the process down to three basic steps.
Step 1: Choose a Cryptocurrency and its Relevant Exchange
There are over 1,300 cryptocurrencies in existence today. You will probably choose to invest in the more popular cryptocurrencies, such as Bitcoin, Ether, and Litecoin. Most of the major exchanges will offer these top cryptocurrencies. However, you will have to seek out specific exchanges for the more obscure ones.
Coinmarketcap currently lists 174 exchanges. The list shows you the size of each exchange (defined as traded volume, currently Bithumb is in first place), the currency pairs (the fiat currency you can use to buy a certain cryptocurrency), and the price.
What set the exchanges apart are usually user interfaces and fees. Depending on where you live, geographical restrictions may also come into play. Keep in mind that once you’ve chosen your exchange, you will need to verify your account. There are no anonymous sign ups here; you will be expected to provide proper identification documents. Fraud is a huge concern for exchanges since blockchain transactions cannot be cancelled or refunded. Further, remember that although the cryptocurrency is decentralized, the fiat currency you use to buy it is not.
Step 2: Decide How You’re Going to Store Your Cryptocurrency
Security is a huge issue in the cryptocurrency community. No doubt you’ve read about the many hacks that have occurred in the preceding years, with hundreds of millions of dollars in value stolen. Hence, it is important that you decide how you intend to store your cryptocurrency.
Before we proceed, you should understand that all transactions on the blockchain are public, viewable in the form of public keys. Private keys show ownership of a linked public key, and these private keys are what cryptocurrency wallets store. If someone gets access to your private key, they will be able to access your cryptocurrency.
There are two types of storage options: hot and cold. Depending on your own situation, you can use either option or a combination of both.
Hot Storage is when you keep your cryptocurrency on a wallet that is connected to the Internet. If you intend to use and access your cryptocurrencies often, then you need a hot wallet. This can range from wallets offered by your exchange to both desktop and mobile clients. While more convenient, hot storage leaves you more vulnerable to hacking. Another benefit of hot wallets is that they are often free. Coinbase and Jaxx are two free and popular hot wallets.
Cold Storage is when you store your cryptocurrency on a non-internet connected device. These are also known as hardware wallets and are designed for the sole purpose of keeping your private keys safe. Unless the hardware wallet itself (which can be further protected by a PIN code) gets stolen, your cryptocurrencies are safe. The drawback is that hardware wallets are not free (averaging around $100), and are not the most convenient option for daily use.
Think of them like your own steel safe. If you have a significant amount of cryptocurrencies, or are more of a ‘cryptocurrency investor’ as opposed to a ‘cryptocurrency user’, we strongly recommend investing in one. Two popular hardware wallets are the Nano Ledger S and Trezor.
Step 3: Begin Buying / Selling Cryptocurrencies
That’s it, you’re pretty much all set up! Just remember that every blockchain transaction from your wallet will cost you a nominal transaction fee. If you wish to transfer your cryptocurrency out of a particular exchange, just enter your wallet’s public key into their website.
How to Make Money from Bitcoin in 2018?
To close off this mini-guide, we have to address this question. Despite what the cryptocurrency idealists say, the truth is that many people are still looking at cryptocurrency, and in particular, Bitcoin, as a pure profit enterprise. Well, as of 2018, here are the three primary strategies for making money with Bitcoin explained.
Strategy 1: Buy and Hold
Self-explanatory. With how the price of Bitcoin has only trended upwards last year, this might be the best strategy at the moment. Minimal time and effort required.
Strategy 2: Trading
A more complex strategy that requires a significant investment of both time and effort. Not recommended for cryptocurrency beginners. If you wish to start trading cryptocurrencies, we recommend starting with crypto/fiat currency pairs. Trading crypto/crypto pairs is far more complex and risky. Finally, do not fall into the ‘margin trading’ trap unless you absolutely know what you are doing; this is a good way to lose all your money in an instant.
Strategy 3: Mining
Before the meteoric rise in the price of Bitcoin, mining was the most common way to make money from Bitcoin. But in 2018, competition is intense. Individual miners face stiff competition from huge mining farms run by foreign competitors. While you can still make money from Bitcoin mining as an individual, you have to be realistic. Try this online tool to get an estimate of your mining profit based on your computer’s hashing power. Don’t forget to take your electricity costs into account.