Cryptocurrencies have surpassed almost every asset class this year, prompting many investors to consider whether to include Bitcoin, Etherium or other coins in their portfolios.
What is a crypto loan?
Crypto users can use their assets to secure loans or earn interest.
While there are differing views on Bitcoin and other cryptocurrencies , this asset has gained popularity and is gaining widespread demand from both private and institutional investors.
Bitcoin is trading at an all-time high, reaching 68,000 on November 10, and bullish sentiment is far from easy. Ethereum, the second largest cryptocurrency, also has record levels. As the two largest cryptocurrencies cross the line, the market capitalization of the crypto market continues to grow, now exceeding $ 3 trillion.
If one thing is certain, cryptocurrency is not going away. As more businesses adopt cryptocurrency and blockchain technology that simplifies its operations, you will inevitably learn the dynamics of the crypto world and even consider investing in it.
Here's what you need to know about this asset class:
What is cryptocurrency?
How to invest in cryptocurrency.
What to consider before investing in cryptocurrency.
How to make money with cryptocurrency.
What is cryptocurrency?
Cryptocurrency is a digital currency secured through cryptography or secure communication, used as a medium of exchange that allows peer-to-peer transactions.
Bitcoin , the first blockchain cryptocurrency, is a form of digital currency that was invented in 2009 by an anonymous founder using the pseudonym Satoshi Nakamoto. Crypto is not operated by a bank or government agency. Instead, transactions in cryptocurrency tokens are usually recorded on a public blockchain - containing digital information stored in a database.
Blockchain technology is used to keep an online ledger of all transactions and it provides a data structure for the ledger that is considered secure.
In contrast to fiat money অর্থাৎ that is, government-issued currencies যা which are regulated by central banks, cryptocurrencies do not require banks to verify transactions and are independent of a central banking authority.
There are thousands of cryptocurrencies, each with its own security standards and price proposals, but Bitcoin is the most well-known. At the time of writing, its value in 2021 is over 130%. Other popular cryptocurrencies include Ethereum , Litecoin and Cardano.
Although cryptocurrency is a new phenomenon, it can revolutionize the financial system and how we think about money.
"Cryptocurrency is a new asset class that is the foundation of cryptoeconomy - a whole new set of financial services, trade and global payments that will be built on this new technology," said Max Bransberg, vice president of Coinbase products. Global Inc. (Ticker: COIN ), a leading crypto exchange.
James Putra, senior director of trading station Crypto's product strategy, said cryptocurrency would make retail investors "in a world of global capital, as opposed to what they could access through the US market."
How to invest
There are many cryptocurrencies in the cryptocurrency market that have basic values. Investors should recognize that a cryptocurrency can stay here one day and leave the next, which can make your investment worthless. This is why it is important to have a strategy for investing in cryptocurrencies and to know how to manage your risk.
Cryptocurrency trading newcomers may want to consider issues such as transaction fees, the type of cryptocurrency available on the platform, resources for learning, and special features such as other features aligned with your interests and goals.
There are many cryptocurrency exchanges to choose from. TradeStation, Coinbase, eToro and Gemini, among others, offer a simple, accessible and secure platform for Bitcoin ownership and transactions.
When investing in cryptocurrency, consider what role it will play in your portfolio .
Experts say it is best to take a balanced approach to investing in cryptocurrencies. Putra says a small portion, between about 2% and 5%, can be safely allocated to crypto in your investment portfolio because the volatility of these assets can change its value dramatically.
For investors who want to use cryptocurrency as a way to diversify their portfolio, Son says, cryptocurrency is one of the least closely related assets in stocks and bonds, which means they can be an effective hedge against those other asset classes.
Investors can also choose cryptocurrency as an inflation hedge. Putra says that since bond yields do not keep pace with inflation, you can turn to some cryptocurrencies as an alternative to bonds.
"Due to lower interest rates across bonds, capital switches to a macro level outside bonds and other assets that are more inflation-protected," explains the son.
Some cryptocurrencies such as Bitcoin or Etherium can provide some stability to your portfolio, he said. "Although they have some volatility, they are inflation-protected."
What to consider before doing
Investing in Cryptocurrency Investing in cryptocurrency is very speculative.
Despite investors having stories of making millions, investing at an inopportune time can result in quick and extreme losses.
Although the opportunity to enrich it by investing in crypto is tempting, it is important to understand the features of cryptocurrency. First and foremost, this market is highly volatile. An asset that can grow so fast has an equally deadly tendency to fall.
Another risk: Unlike other markets, the future of cryptocurrency regulation is uncertain. Some of the countries that allow more or less free use of Bitcoin are the United States, Canada and Australia, to name a few. El Salvador has even accepted Bitcoin as a legal tender. But other countries, such as South Korea, are imposing restrictions on cryptocurrencies, where China has essentially banned cryptocurrencies. Even in the United States, the new law targets crypto investments for tax purposes.
Cryptocurrencies are thought of as a unit of exchange, but today, there are only a handful of businesses that accept crypto as a form of payment. Crypto advocates support its usefulness for broader economic use, but this adoption may take time because regulators around the world are critical of digital assets.
Calculating the intrinsic value of a cryptocurrency can be more difficult than with a publicly traded company, but learning about assets and how it works can help keep you from investing at the top.
By incorporating industry knowledge and developing an understanding of the digital currency market, you will become a more educated cryptocurrency investor.
How To Make Money With Cryptocurrency
There are various ways that investors can increase the value of their assets and secure profits when investing in cryptocurrencies.
"You can get more out of your money through cryptocurrency than any other traditional asset," says Bransberg.
The first method he pointed out was stacking . Stacking allows you to earn money with your crypto by participating in a wealth network. When you place your crypto bets, you make the underlying blockchain of that asset more secure and more efficient. And in return, you'll be rewarded with more resources from the network, just like you would from a savings account.
Some cryptocurrencies that offer stacking rewards include Cardano, Ethereum 2.0, Tezos and Algorand.
Another opportunity, Branzburg noted, is to lend your crypto assets to yield.
"You can lend assets in your portfolio to decentralized funds or DeFi, yield generating protocols," explains Bronzberg.
Lending through Defy, Branzberg says, allows users to "tap into a global liquidity pool." By lending your crypto assets to a decentralized money market, other users have access to lend your assets, allowing you to generate returns.
Takeaway
Cryptocurrency is a new and exciting way to think about money. But experts say the first and most important step is to educate yourself about these emerging digital currencies and the technologies they use so that you understand the risks and rewards.