Crypto Investing
Crypto Investing - What Is It?
What does it mean to invest in cryptocurrency? Is it the same as investing in the stock market? Are cryptocurrencies a good investment? All good questions… but without easy answers.
Cryptocurrency was created primarily as a means of conducting financial transactions without institutional oversight. It quickly became evident that the cryptography had potential uses far beyond a fancy new payment method. Blockchain technology is already being used to support other decentralized applications, smart contracts, and personal finance tools. It’s also inspired related innovations too numerous to get into here.
There’s one thing cryptocurrency has been used for far more than anything else - at least so far. Investing in crypto has become the primary activity associated with digital currency. Knowledgeable users may decide to buy in early to altcoins or other new crypto they find particularly promising. Experienced investors monitor the crypto market for past performance and hints of future developments. And yes, a handful of people have done quite well - some have made millions by gambling on the right crypto at the right time.
Many investors, however, continue buying cryptocurrency with little understanding of what it is and no intention to use it for anything other than investing. They buy cryptocurrencies because they expect the value to go up as other people buy cryptocurrencies as well. These investors handle crypto investing the same way they’d purchase stocks in a company they’ve never worked for or purchased from, but which they hear is doing well.
Is Cryptocurrency A Good Investment?
That depends. How lucky do you feel? Whether or not investing in cryptocurrency makes sense for you depends on several factors.
What are your short and long-term goals?
How much money do you have set aside for investment?
How well do you understand the world of digital currency and cryptocurrency exchanges?
Generally speaking, any investment strategy should balance your risks. Long-term planning means prioritizing reliable, low-risk investments like retirement accounts, money market mutual funds, CDs, and index funds. These aren’t exciting, but they tend to remain dependable over time. A smaller percentage of your resources can go towards medium risk options like corporate bonds or high dividend stocks.
If these areas are covered and the numbers say you’ve done everything reasonably possible to provide for your future, a small percentage of your capital can then be applied towards high risk investments. Things like penny stocks, options, or - one of the riskiest of all - cryptocurrency.
It’s worth repeating the obvious: higher risk means higher possible returns, but also higher possible losses. In the movies, it’s fun to watch a character stake everything they have left on a single roll of the dice or spin of the wheel. In real life, that’s rarely (if ever) the best approach.
The total value of crypto like Bitcoin (for all practical purposes the original cryptocurrency) has increased dramatically over the years, but there have been substantial decreases along the way as well. With the constant influx of altcoin (crypto other than Bitcoin) and the potential for new government regulations, even the future of Bitcoin is impossible to predict.
Crypto investing is high risk. The total value of any crypto’s market capitalization is volatile and unpredictable, even when compared to other high-risk investments. Cryptocurrencies are only good investments if you’re willing to devote time and attention to the subject and can afford to lose whatever you pour into them without undercutting your long-term financial security.
Which Cryptocurrency Should I Buy?
If you’ve decided to devote a small portion of your resources to investing in crypto, this is the next big question you have to address. Like most investments, it all comes down to educating yourself and weighing risks. Also like most investments, there’s no single right answer - and what’s right for someone else might not be best for you.
“Established” cryptocurrencies like Bitcoin or Ethereum are generally considered more reliable than crypto newcomers. (Keep in mind that “reliable” is a very relative term!) On the other hand, buying cryptocurrency which is already well-known means prices are already high. Yes, you can buy fractions of a single Bitcoin or other cryptocurrency, but just as with traditional stock, you only profit if the price goes up from where it is at the time of your purchase. In other words, you’re not simply betting on Ethereum (for example) to hold its current value - you’re counting on it to go even higher than it is now. You’re not just putting your money on USD Coin (another example) to stick around while similar stablecoins fall away - you’re basing your financial future on whether or not it gains substantial value as others fail.
Then again, that’s the whole idea, right?
How To Invest In Cryptocurrencies
For the average investor, there’s really only one way to get into the cryptocurrency market. Crypto exchanges are organizations that allow you to buy, sell, or convert a wide range of cryptocurrencies. Some deal primarily in the most popular variations - Bitcoin, Etherium, Tether, etc. Others manage transactions in dozens or even hundreds of different cryptocurrencies. Let’s review some basic steps you need to go through when investing in crypto.
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This is something you'll see us at Goalry reinforcing on every page. Don't go into crypto investing (or any kind of investing) before getting to know the basics. You don't have to be an expert right away, but you need to know what you're getting into, basic terminology, rules and regulations, tools to help you and best practices. You can find all of this info on Goalry and all over the internet, so make sure you go through it all before committing.
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This is the point at which things quickly get serious. There are a number of reliable, legitimate cryptocurrency exchanges available. As the popularity of investing in crypto explodes, however, there are even more with questionable reliability - and others blatantly looking to scam unwitting newcomers. (We can help you find legitimate crypto exchanges should you decide that’s what you wish to do.) You’ll have to provide some basic personal information and connect your cryptocurrency exchange account to a bank account in your name.
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Cryptocurrency may be purely digital, but purchasing it requires “real” money - what many users refer to as “fiat currencies” (money backed up by a government body which guarantees its reliability and value). Naturally this means transaction fees and other initial expenses. These vary widely from crypto exchange to crypto exchange, so do your homework before deciding which one to choose.
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Now you have to decide where to “keep” your crypto assets. Most exchanges offer free “wallets” online, but these carry the same risk as anything stored online. Hackers can and do periodically break into these online wallets and claim everything there as their own. Because these are digital assets in purely digital form, that usually means altering the underlying code to mark the coins as their own. The same independence and anonymity that makes cryptocurrency so popular with many users makes it virtually impossible to trace or recover stolen crypto - it’s simply gone. There’s no government “insurance” like the sort automatically covering deposits in your local bank or credit union. Most users choose to store their cryptocurrency in their own “wallets.” These can be “hot wallets” managed entirely online through third parties who promise varying levels of cryptographic security or “cold wallets” which encrypt your information on a physical device you can take with you and use as needed when buying, selling, or converting your crypto.
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once you purchase your first crypto, you're just getting started. There is a lot more to learn and you're need to be in the center of everything constantly. This is the only way to make the right decisions about your next steps. Keep reading, keep learning. Track changes in the market, read expert insights, see what people on crypto forums are talking about.
In short, the details are a little different than other financial products you may utilize or investing in stocks and bonds. It’s not overly difficult to get started, however. The question isn’t whether or not you can do it; the question is whether or not investing in crypto is right for you and the future you desire.
Things To Consider Before Investing In Crypto
Before investing in any of the newer digital currencies, whether based on blockchain technology or an alternative method for maintaining a secure, collective online ledger, you should ask yourself why you believe this particular cryptocurrency will succeed while literally thousands of others will not. You can find any number of cryptocurrencies available at a minimal investment and the potential for profit is substantial - IF the crypto you’ve selected is tomorrow’s Ethereum, or Dogecoin, or Native Coin, or Stellar… you get the idea.
On the other hand, there are those more popular cryptocurrencies, like Bitcoin, whose market capitalization might already be in the hundreds of millions of dollars, you should ask yourself how much higher they’re realistically likely to go - especially since so much of their current value is based on other investors just like yourself betting that someone else will pay more tomorrow than they are today.
That doesn’t mean that all cryptocurrencies will fail, or that it will be anytime soon if they do. It means that bubbles usually eventually pop, and to many experts, investing in crypto looks a whole lot like bubbles of the recent past.
The other major concern is the potential of government regulation. Whatever your opinions about politics or Congress or economics in general, there’s a very real chance the federal government will sooner or later (probably sooner) pass some sort of regulatory legislation and set up yet another bureaucracy to oversee cryptocurrency - at least when it’s being used within the United States.
This isn’t necessarily a bad thing. While there are many legitimate cryptocurrency exchanges and brokerage services, fraud and consumer exploitation have been rampant in recent years. Many investors have been misled, taken advantage of, or simply cheated by dishonest players in the game. Obviously, there are widely differing opinions about what should be done about this - if anything - but the sheer trading volume of crypto in this decade suggests Congress won’t be able to resist the urge to step in and make some effort to tame the “Wild West” environment for American investors. Several other countries have already taken similar steps, and more will surely follow.
Whatever the results, government oversight will almost certainly impact the future value of cryptocurrency. The difficulty is in predicting exactly how.
The Goalry Mall - One place for all your finances
At Goalry, we believe in unified finance. That means that we’re all about simplifying the many different areas of our lives in which we’re expected to make decisions involving our money - earning it, spending it, and investing it. We believe in the power of knowledge, opportunity, and connections to resources. The actual decisions are up to you. That’s why it’s called “personal finance” - it’s personal. We’ll inform, encourage, and offer insights, but your money is your money.
If you’re interested in learning more about the stock market, the best way to manage your student loans, or how to choose better credit cards, we’re here to support you all the way. If you decide to invest in cryptocurrency, we’ll support that effort as well. Investing in digital currencies comes with its own quirks and challenges, but the underlying principles of personal finance still apply. Sure, it can all get a little overwhelming at times, but you can do this. Don’t stop learning. Don’t give up. You’re probably doing better than you think already. You can definitely do even better tomorrow. We’ve seen it happen too many times to believe otherwise.
Hopefully, you’re already taking advantage of Goalry’s personal financial tools which make it easy to track and categorize your spending, monitor account activity, keep up with payments, and access virtually any information necessary to make the best possible financial decisions - when and where you need it.
We’ll soon add features which make it easier to organize, track, and trade your Bitcoin or other cryptocurrencies. In the meantime, let’s look at practical ways to strengthen your credit score and improve your financial position for the future - no matter what happens in the crypto marketplace.