Investing in cryptocurrency has changed drastically in the past five years. While cryptocurrency used to be extremely volatile, it is now gaining stabilization and allowing for investors to start investing in digital currencies.
If you want to know how to invest in cryptocurrency, you first need to understand what cryptocurrency is and how it works.
What is Cryptocurrency?
Cryptocurrency is a form of digital currency, and when most people talk about this currency, they’re talking about Bitcoin or Ethereum. These are digital currencies, kept inside of digital wallets, that allow you to exchange your currency for goods or services.
What are Crypto Backed Loans?
Crypto backed loans concept is pretty straightforward – customers are able to use their cryptocurrency as collateral to obtain fiat loans. The service has become very popular in the past few years as crypto holders tend to see their digital assets as the long-term investment rather than the immediate spending capital looking for ways to increase the productivity of their digital assets. Before crypto holders options were limited to either hold or trade. Crypto backed loans allow consumers to gain access to fiat liquidity while still keeping their digital currency.
When looking for the best loan terms keep in mind that the loan interest rate will depend on the LTV (loan to value which indicates how much cash you will get against your crypto pledge) ratio of the loan. Higher LTV would generally command higher interest rate but would provide more cash available. For example, with a 60% LTV a customer might see interest rates between 6% and 8%, but would only get 60% value of the pledged collateral given as cash, while with an 80% LTV the interest rates would be higher (up to 14%) but a customer would secure much more cash against the provided crypto pledge. With the average term of 12 months the higher LTV loans are usually more popular but a bit more difficult to find due to higher risk factors to lenders providing such loans.
If you pay off your loan in its entirety, you’ll receive your crypto back in return.
What is Blockchain?
Blockchain, started by Bitcoin, is one of the most fundamental reasons for digital currencies becoming a good investment in recent years. These technologies use distributed ledger technology that allows for a decentralized currency.
Everyone has access to the distribution chain at the same time, so modifications to the ledger occur in real-time, making all of the transactions transparent.
The goal of a blockchain is so that people that participate with cryptocurrency can share data in a secure, tamperproof way. Blockchain is one of the most important parts of investing in cryptocurrency. This block allows for digital pieces of information to be put together, and this information includes:
- Date, time and amount of the transaction
- Information about who is participating in a transaction using a digital signature
- Unique codes called hashes that allow for a way to validate transactions
While everyone can see the contents of a blockchain, the information is private. The way this works is that everyone who has access to the blockchain network will have their own copy of the blockchain. There are millions of different copies of the blockchain for Bitcoin, and this information is spread across millions of different computers and is updated in real-time.
This allows for an almost impossible means of manipulating the data because a hacker would have to manipulate it across the entire network. The network acts as a way to check and balance transactions, but the user information is kept private thanks to digital wallets.
What is Cryptocurrency Investing?
How to Invest in Cryptocurrency
Cryptocurrency investing is much like a fiat currency that is traded. There are a variety of ways to engage in a crypto investment. You can invest with a simple buy and sell order, which allows for a medium-term to long-term investment, or you can invest in other ways, such as loans.
You don’t want to confuse this with crypto trading, where you trade one currency for another to gain interest or ROI. There are a variety of ways to invest, but many people will start with:
- Opening a digital wallet
- Connecting a bank account
- Signing up for an exchange
- Placing an order for currency
- Build a diverse portfolio
- Automate a long-term-portfolio strategy
- Create an index with Shrimpy
Why Invest in Cryptocurrency?
Investing is a long-term game, and with cryptocurrency, it could also be volatile. The good news is that cryptocurrency is starting to stabilize and provides many benefits compared to mainstream financial investing, which makes it a good choice for the savvy investor.
When you invest in cryptocurrency, you’re choosing:
- Portfolio diversification that allows you to maintain multiple different assets so that if the markets fluctuate, your investments are safer. Cryptocurrency allows for you to invest in an asset that performs particularly well when the dollar or the stock market is not.
- Security in knowing that your asset is not tied to a bank or a large business. Cryptocurrency is decentralized, so you don’t have to worry about the large bank going under and losing all your money.
- An asset that can increase drastically in just a few months’ time. Bitcoin, for example, suffered an intense selling off when the COVID-19 pandemic hit, but the price of the cryptocurrency rose almost 150% in a matter of months.
The Risks of Cryptocurrency Investment
You may be wondering: why invest in cryptocurrency if there are risks? But there are always risks with any investments. Cryptocurrency today is a lot more stable than it was years ago, but that doesn’t mean that there are not risks.
When you invest in any type of digital currency, you going to face risks, such as:
- Volatile pricing swings that can rise or fall in your favor
- Exchanges that go off the market, which can cause significant loss
- Risk of being scammed out of your cryptocurrency when choosing an untested and unverified investment
You should always research the regulations in the market, which may have an impact on your crypto investments. There is a push from many governments around the world to put some sort of regulations in place that impact digital currencies.
But we’re seeing more countries accept cryptocurrency and even engage in new ways of using cryptocurrency across the world. Major retailers are also pushing cryptocurrencies into the spotlight by allowing consumers to pay using digital currency.
What is the Difference Between Cryptocurrency Investing and Trading?
Investing and trading are often linked together. Many new investors are confused and think that these are the same type of investment. But there is a major difference between investing in a cryptocurrency and trading it.
Traders are going to engage in short-term investments that provides short-term gains. These investors may trade Bitcoin for a few percentage increase, and continue trading on and off again in the hopes of gaining a profit.
Investing in a currency is different because the individual will hold onto a large portion of their cryptocurrency at the end of every day. Investors consider their crypto to be long-term investments that they want to hold onto in the hopes that it will rise with the markets.
You can think of a trader as someone who invests in a penny stock, and you could think of an investor as someone who invests in the Google. One is going for short term gains, while the other is going for long term gains based on the performance of the cryptocurrency.
Conclusion: How to Invest in Cryptocurrencies in 2023
Cryptocurrency investing today is very similar to in the past. You can purchase, mine or trade crypto, and you can begin trading today. You will want to sign up for a platform that allows you to trade different cryptocurrencies. These platforms will also allow you to trade your standard currency for a digital currency.
Today, however, you have added options to make some extra cash with your crypto investment. You can take a cash loan out backed by your crypto as collateral.
Nebeus, for example, offers up to 80% cash loans on your crypto pledge. You can also put your crypto into a savings account and earn fiat cash interest on it. Nebeus offers up to 8.25% annual interest on your crypto savings account paid out monthly into your Nebeus EUR account.
All you need to do is open up a digital wallet, sign up on trading platforms and you can begin investing in cryptocurrency in 2023.
You will want to make sure that you research any trading platforms that you’re considering so that you can be sure that your investment is a safe one. Over time, if you are diligent and allow for your investment to build value, you can make a lot of money by investing in crypto currencies in 2023.