How to invest in cryptocurrency

Now that you have enough cryptocurrency information, it’s time to invest. But, investing in cryptocurrency is not easy. It requires practice, the right knowledge, and you need to know how the market functions, among other things. However, here’s a simple, step by step process for you to follow:

Choosing the best crypto to invest

The first step is to find the best cryptocurrency you want to invest in. Now, this step is important as not every crypto available out there is not the best. Some are more volatile; some have poor liquidity, while some are not just popular yet. So, spend some time finding the right crypto to invest in.

You can shortlist some cryptocurrencies and observe them for a week. But, first, you need to ask the following questions:

  • How the crypto currencies perform when the market jumps or drops
  • Are there enough buyers
  • Are the cryptocurrencies you choose too volatile
  • How popular they’re in the market and what’s the community like

Many experts consider Bitcoin as the best crypto to invest in 2021. It may be true, but to some extent, there are other reliable options such as Cardano, Ethereum Litecoin, etc. It’s also recommended that you don’t take someone else’s advice, especially Google.

You must put in your analysis and then decide what works the best. For example, in this article, you can check this section, “Which is the best crypto to invest in 2021?” for deeper insights.

Choosing the right cryptocurrency exchange

Now that you have decided which cryptocurrency to buy, you need to find a reliable exchange to buy it. Basically, there are two types of exchanges CeFi or centralized exchange and DeFi or decentralized exchange.

How can you purchase a cryptocurrency from a centralized exchange CeFi?

Basically, a centralized exchange is controlled by the people managing the exchange. Here’s a step-by-step process for purchasing cryptocurrency from a centralized exchange:

  1. Look for a reliable CeFi crypto exchange platform that accepts your currency—for example, Coin Base, Binance, etc.
  • Create your profile and upload the necessary documents for KYC.
  • Wait for a few days to get your profile approved.
  • Add some money via bank transfer, credit card, or as the platform pleases.
  • Finally, purchase crypto.

Now, the availability of cryptocurrency depends on different exchanges. So, when looking for a crypto exchange, look for the one that supports your desired cryptocurrency. Then, depending upon the platform, you can use US dollars, Canadian dollars, pounds, etc., for purchasing crypto.

Now, many of you may wonder what’s the reason behind this lengthy process. Well, this is done to prevent any money laundering from taking place. The exchange platforms work in accordance with AML and KYC to ensure 100% safety. However, if you want an easy way to invest, you can look at the Defi option below.

How can you purchase a cryptocurrency from a decentralized exchange or DeFi?

  1. You first need to find and create an account on a centralized exchange, as mentioned above.
  • Once you create your wallet, store your private key safely and write it down on paper.
  • Now, transfer the crypto you bought using the CeFi system into the wallet you created.
  • Find the blockchain tech you want. Common options are Binance Smart Chain, Ethereum, polygon, etc.
  • Find a Defi exchange like Bisq that supports the assets you want to deal with and offers liquidity.
  • Now, BUY cryptocurrency.

Important Note: When you’re a rookie or operating individually, you must start small. Do not invest your entire fortune into crypto at once. Start small, learn along the way and then, gradually increase the investments. It’s because cryptocurrency involves a risk that should be taken care of.

What is a good time to buy or sell crypto? 

There is no such particular time when you can buy or sell crypto. You may find crypto similar to stocks, bonds, or mutual funds. But it’s not true. Crypto operates in a different manner. You need to consider several points/factors before making the buying or selling decision.

For example, in normal stock exchanges, big investors focus on buying whenever a stock dip. And when the price rises, short-term ones sell, but the long-term ones hold as much as they can. This is not what you would want to do in cryptocurrency. 

If you’re observing a sharp dip in crypto, maybe it’s not the right time to invest. It’s because what you think as a dip may be a trap. And when you buy, the price may further dip. So, it’s recommended to observe the pattern of how the asset performs. Then, once you think it’s stable enough, you can make the purchase.

Also, never sell too quickly. This can make you predictable and can also affect your ROI. The ultimate advice would be to learn from the experts and keep the emotions out of the picture. This way, you can reduce/minimize losses and maximize profits.

Where should you store cryptocurrency?

When it comes to storing cryptocurrency, you can opt for centralized wallets such as Coinbase and Binance. However, most investors opt for CeFi systems because of the safety they offer. As such platforms are managed, updated, and regulated by the owners, they’re less likely to take a hit. Also, as crypto is still not mainstream, people believe more in CeFi systems to store money.

So, you can store your crypto money in a CeFi wallet. But which type of wallet should you use? The wallets are broadly categorized into two categories: Hot and Cold.

Hot wallet

You can think of this as a digital way of storing money. Your crypto asset will be on a computer or on mobile, which is connected to the internet all the time.

Advantage

The benefit of using this wallet is that you have your money on the go. If you have a wallet on your phone, you can make transactions no matter where you go. Also, sending and receiving money becomes so easy.

Disadvantage

However, hot wallets are prone to cyber-attacks. Again, it’s because you’re always connected to the entire world via the internet. But taking precautions can prove effective.

Cold Wallet

It’s a type of wallet which is completely offline. In this case, your assets will be safe from online attacks. Also, this option is suited if you’re a long-term investor and won’t need the assets anytime sooner. In this case, you can write down the private key on paper or store it in a pen drive.

Advantage

In this case, the data remains secure from online thefts or attacks. It’s the reason most experienced investors prefer this option.

Disadvantage 

However, sometimes, due to human error, you might misplace the device in which you’ve stored the assets. Or it can be stolen by a thief. So, a risk prevails in this case.

How can you secure your cryptocurrency?

Now that you have cryptocurrency in your wallet, it’s time to secure it. Most of the time, people make poor choices. They either choose a poorly managed wallet or crypto exchange. And this is the last thing you would want to do. So if you store your money in an online wallet, make sure it’s a trusted one. Otherwise, you’ll be at continuous risk of being hacked.

Use VPN for online storage.

Let’s say you’re using an online wallet stored on your laptop, PC, and mobile. Now, if you use that mobile or PC for visiting shady websites without a VPN, you can lose money. It’s because some websites are not secure, and if you don’t use a VPN, your IP can reveal a lot of info about you.

Create encrypted backups

Now, you need to create complete backups of your wallet and those two encrypted ones. It’s to make sure that you have something to fall back on. This way, even if you lose your wallet, your backup will save you. Also, if you can, create multiple backups at different places for added protection.

Keep it offline

If you’re a long-term investor, print the wallet key on paper and secure it somewhere safe. This is possibly the best way of saving money. However, you must ensure there are multiple copies of the wallet key. It’s because if you lose the private key or wallet key, there’s no way you can access the money.

Visit “How to secure bitcoins?” section for deeper insights.

Can you earn profits by investing in cryptocurrency?

Both Yes and No. Several people have both lost fortunes and have made one with Cryptocurrency. It’s because investing in cryptocurrency is complex. If you blindly choose a currency and start infusing money, you cannot expect returns.

You need to put in good time learning about the mechanism of how it works. Also, you need to choose the right currency and platform, as said above. Once you do that, there’s a probability that you can make profits.

However, most people think of shortcuts and are impatient when it comes to investing. If you’re one of them, maybe crypto investing is not for you. But if you can be patient and can deal with emotions, you’ll eventually do good. This article has loads of useful information, which is enough to help you start investing.

Are there any taxes you need to pay for crypto investing?

Taxes and death are the two most inventible things out there. So, yes, if you make profits by investing in crypto, you need to pay taxes. However, the tax returns vary by region and national regulations. Also, you won’t be liable to pay VAT similar to other financial products out there.

There’s good news, though. In several countries, it’s not obligatory to pay taxes. Also, Germany does not consider Bitcoin as a financial product. Instead, it considers Bitcoin as a property. So, you won’t have to pay a flat 25% tax on the profit you make from crypto.