By now, most people have probably heard the term cryptocurrency but don’t know much about it. Bitcoin, the most popular cryptocurrency, garnered global media coverage a few years ago. A single Bitcoin is now worth over $1,500.00 after essentially being created from thin air. Of course, thousands of words could be devoted to explaining cryptocurrencies like Bitcoin, their origins, and how they’re mined. Cryptocurrencies, in simple terms, are decentralized digital currencies generated through an encryption process.
Plenty of Money in Digital Currencies
Bitcoin leads the cryptocurrency market as it stands today. However, a half-dozen other digital currencies are quite popular as well. Ethereum and Litecoin both feature a market capitalization over $1 billion right now. Even small currencies worth fractions of a penny can fetch notable market capitalization figures. In the past few years, individuals from across the globe have poured billions of dollars into Bitcoin and other cryptocurrencies. Cumulative investment in these currencies is expected to grow moving forward.
What’s the draw with cryptocurrencies?
Digital currencies continue to gain steam because no central bank or government controls a given currency. Cryptocurrencies are untethered from traditional banking institutions, yet they’re worth money and fully tradeable. In fact, Japan recently recognized Bitcoin as legal tender for transactions. These digital currencies are wildly popular due to their independent nature. They can be used to buy and sell goods or services, but users can remain anonymous throughout the entire process.
An Investment Opportunity For Some
Then again, cryptocurrencies are popular for another reason: investing. Thousands of people have made small fortunes from Bitcoin, Litecoin, and other digital currencies. A given currency can start out trading at a thousandth of a penny but can easily grow over time. For savvy investors, buying in low can lead to explosive earnings. An individual that bought 1,000 Bitcoin in 2009 would have spent less than $20. That same 1,000 Bitcoin is worth nearly $2 million today.
Words of Warning, First and Foremost
Obviously, today’s investors probably won’t see such tremendous gains. Bitcoin’s value continues on an upward trend, and the same could be said for other digital currencies as well. No potential investor should start trading cryptocurrencies with the idea of making a fortune. Sure, small to medium-sized gains are more than possible, but digital currencies are even riskier than stock market investing. Technically speaking, Bitcoin or another currency could plummet to $0 tomorrow under the right circumstances.
Volatility, Volatility, Volatility
Even as prices for cryptocurrencies inch higher and higher, tons of volatility remains. Prices on larger currencies can fluctuate wildly throughout the day, and sudden hikes or plummets are frequent. While volatility means that good timing can lead to earnings, it also means that a mistimed transaction could result in lost money. Once again, volatility helps explain the popularity of trading and investing in cryptocurrencies. Potential investors need to exercise caution and realize how severe volatility can be here.
Getting Started In Cryptocurrencies
A potential investor can take various paths into the world of trading Bitcoin, Litecoin, and other currencies. It’s possible to trade currencies independently of an exchange, but beginners shouldn’t try that route. At this point, cryptocurrency exchanges are the best entry point for the absolute beginner. Coinbase, Poloniex, and a couple other exchanges are reputable among investors today. An investor should never sign up with an unknown exchange because the risk for fraud is fairly high.
When a person signs up with an exchange, they’ll have to provide basic personal and financial information. They’re then assigned a wallet associated with a particular currency. For each cryptocurrency, investors will have a dedicated digital wallet to move currency in and out of. Most exchanges allow users to buy and sell currency at will, within certain transaction amount limitations. Every exchange charges fees, typically for buy and sell orders, so investors should keep this in mind.
Unlike traditional stock markets, cryptocurrency exchanges never close down. Trading occurs each and every minute of the day, and prices for a given digital currency change even more often. Each investor needs to pay close attention to prices in order to avoid sudden surprises. With cryptocurrencies, a sit and wait approach isn’t recommended as active traders will benefit the most from price volatility. Proper timing can lead to some quick gains while minimizing losses.
A Few Tips and Guidelines On Investing
The absolute beginner shouldn’t put a ton of money into digital currency right away. Fortunately, these currencies can be purchased in fractional amounts, meaning it’s possible to own 0.10 (a tenth) Bitcoin or 0.50 (a half) Litecoin. A good recommendation for beginners is to throw $25 to $100 in the mix and play around with digital currencies. It’s smart to stick with one or two currencies at first, though veteran investors move money between multiple currencies in order to maximize profits.
When figuring out how ahead or behind one is, investors should always remember the transaction fees they pay. If the buy and sell order fees aren’t factored into the equation, then investors could end up losing money without realizing as much. Fees are unavoidable while using the exchanges, but luckily most fees are fairly reasonable. Still, too many beginning investors forget to include fees in calculating their break-even and profit points. Don’t make that same mistake!
Speak again on volatility, investors shouldn’t hit the panic button when a given digital currency drops in price. The giant cryptocurrencies (Bitcoin, Litecoin, Etherium, etc.) can gain or lose 15% or more in a short timeframe. As long as devastating news or developments haven’t hit a given currency, then it’s usually safe to ride out the daily or weekly lows for a particular currency. Those looking to make profit wherever possible may want to sell a little currency when the price hits a new high, though.
Are you interested in cryptocurrency investments?
Anyone can invest in cryptocurrencies and digital currencies today. The market is wide open for new investors, and the potential for profits is always present. In the end, reputable exchanges are the best route for today’s beginners as they’re more secure than the independent route. It’s vital that investors start small with cryptocurrency and then build their way up. Some investors may choose to stick with the exchanges, while others may move onto independent trading through more advanced means.
One Final Note
Please, remember that cryptocurrencies are extremely volatile and always will be extremely volatile. The digital currency market as a whole is on an upward trend, but there are mixed feelings as to whether a cryptocurrency bubble exists. Long-term prospects for Bitcoin and similar currencies are high, but that doesn’t mean we won’t see bumps in the road along the way. As with stocks, no investor should dump every penny they have into digital currencies in the hopes of making a small fortune. The chances of losing everything are higher than the chances of being the next millionaire.