This guide explains how you invest in cryptocurrencies. Why should you invest in them? Which cryptocurrencies should you put in your portfolio? Where can you buy them, how can you store them, and how do you need to tax them? We try to give answers to the most urgent questions about investing in cryptocurrencies. We are not a financial institution: All we are proving is educational material: Do not take this information as professional investment advice.
If you landed on this text, you might be already interested in investing in cryptocurrencies. Virtual or crypto currencies like Bitcoin and Ethereum are definitely by far the hottest investment product currently available.
These immutable and exchangeable cryptographic token promise to become a hard and non-manipulatable money for the whole world. Their advocates see a future in which Bitcoin or other cryptocurrencies will substitute Euro, Dollar and so on and create the first free and hard world currency.
Holding Bitcoin means to have a share in this venture. If Bitcoin ever replaces monetary reserves of central banks or becomes the dominant currency for international trades — just to name two examples — the value of one Bitcoin will be far beyond 10, Dollar.
Buying and keeping cryptocurrencies is a bet on the success of this silent revolution of money. In the past, investors in cryptocurrencies have been ridiculously successful. Since , Bitcoin generated an increase in the value of at least 25, percent.
Since May , Ethereum value shot up by 2, percent. And talking about all cryptocurrencies — the complete market cap soared by 10, percent since mid Can you trust an asset, which demonstrated this incredible vertical take-off? Must it not be a bubble? But if you understand the potential of also be found and if your belief in their vision of money, today might be the best day possible to start investing in it. We will tell you how you create a cryptocurrency-portfolio, where you buy cryptocurrencies, how you store them and how you tax your gains.
This said we need to note that cryptocurrencies are not a normal investment. The volatility grossly exceeds that of any other investment class. It is to some parts unregulated. There is the risk that cryptocurrencies get outlawed, that exchanges get hacked or that you lose your cryptocurrency key. Cryptocurrencies are a high-risk investment. So an important advice is to only invest as much that you can keep on living and be if all of it goes to zero. Besides what was already said, there are three major good reasons to invest in cryptocurrencies.
First, because you want to hedge your net-worth against the fall of the Dollar imperium, which is assumed by many people to inevitably happen at some time. Second, because you support the social vision behind cryptocurrencies — that of a free and hard money for the whole world. Third, because you understand and like the technology. However, there are also very bad reasons to invest in cryptocurrencies.
Many people fall victim to the hype surrounding every cryptocurrency-bubble. There is always somebody captured by FOMO fear of missing out , buying massively in at the peak of a bubble, just in hope to make quick money, while not understanding cryptocurrencies at all. Learn before you invest. Up until late Bitcoin was the cryptocurrency, and there was not much besides it. If you wanted to invest in the success of cryptocurrencies, you bought Bitcoin. However, this has changed.
Many people saw this coming as a result of the growing popularity of Ethereum and the ongoing self-tearing of the Bitcoin community over the blocksize issue. This again shows that it is important to keep your eyes open and listen to what the communities say.
If you want to invest in cryptocurrencies, Bitcoin is still a standard item of every portfolio — but it is no longer the onliest asset. In every well-balanced crypto-portfolio today you find other coins, like:. Market cap means the value of all token available. It is not a perfect metric, but likely the best we have to recognize the value of a cryptocurrency. If you want to have a balanced portfolio at one point in time, it might be a good strategy to simply reflect the ten most valuable currencies in your portfolio.
More interesting however is it to take some time, read about those coins, decide, if their vision gets you and make this to the base of your asset selection. Some on smart contracting, like Ethereum and Ethereum Classic , and some on scaling payments, like Litecoin and, again, Dash. Some coins, like Ripple or Nem or Bitshares, seem to be less open and decentralized as Bitcoin and other coins.
The cryptocurrency markets are a blazing, often confusing ecosystem, in which you find thousands of chances to win a lot of money — and to lose it. Every day gives birth to new coins and death to some old coins. Every day sees some coins heavily falling, and some vertically raising. If you buy altcoins, there are some rules to discriminate the good from the bad.
Good coins have a transparent technical vision, an active development team, and a vivid, enthusiastic community. Bad coins are in transparent, promote fuzzy technical advantages without explaining how to reach them, and have a community which is mostly focused on getting rich.
Maybe the worst shatter of cryptocurrencies are the MLM coins, for example, OneCoin, which target the technical uninformed with a multi level marketing system, promising to be the next Bitcoin. While some years ago it was a real Odyssey to buy cryptocurrencies, today you have a full scope of options. Some people want to invest in Bitcoin without having the trouble of storing them. As Bitcoin rises, more and more brokers and exchanges try to setup a Bitcoin based financial product.
You can use the investment channels you already are used to, and if something goes wrong, you have your certificate and someone to take to the court. Currently, no such investment product exists which covers more cryptocurrencies. But there are some in progress, both in the USA and in Europe. If you want to experience possessing real Bitcoins — or if you want to avoid paying the partly high fees for investment products — you should start buying Bitcoin directly. For doing so, you have a lot of options all over the world.
Mostly buying Bitcoin is not a big problem. You open up an account at the exchange, verify your identity — this is required due to Anti-Money-Laundering rules in most jurisdictions — and fund your account with Dollar or Euro or whatever paper money you use. On some exchanges, like Bitcoin.
The question, what exchange to use depends mostly where you live. If it is located in the same jurisdiction like you, you have the best chances to get money legally back if some bad things happen. If no exchange is located in your jurisdiction, it is better to use exchanges based in stable countries with a good legal system. Another factor to decide which exchange you use is some coins you want to buy and your patience.
If you want to acquire large sums of Bitcoins fastly, you need to use one of the major exchanges which provide enough liquidity. If you only want to buy small amounts of coins and if you are not in a hurry, you can try to buy them on small exchanges. If your order gets filled, you most likely will get better prices than on big exchanges. Other than Bitcoins Altcoins are somehow harder to acquire.
But there are hundreds of cryptocurrencies out there. If you want to go to a crypto supermarket, where you can buy and sell most of them, you need to register at what is usually called an altcoin exchange. Again, the site coinmarketcap is useful, as it lists all crypto exchanges , sorted by trade volume. Like with Bitcoin exchanges you should be careful to choose an exchange with a high trust level.
However, most altcoin exchanges are not regulated, and many are located in Asia. So you never should place too much trust in them, as you have nearly no chance to get anything back if they are hacked or file bankruptcy.
But exchanges like Poloniex and Bittrex are based in the US and have a long history of providing a secure and safe trading environment.
There is no general rule when to buy cryptocurrencies. Usually it is not a good idea to buy in at the peak of a bubble, and usually, it is also not a good idea to buy it when it is crashing. Best time might be when the price is stable at a relatively low level. The art of trading is to decide when a crypto is in bubble mode and when it reached the bottom after falling. What is easy to say in retrospective is a hard question in the present, which can never be answered with absolute certainty.
Sometimes a coin starts to raise, and after it passes a mark, where everybody thinks this must be the peak of a bubble, the real rally just begins. But some month later these prices appear to have been a good moment to start. There is only two advice about timing we can give.
Second, take some time to watch. There might be another. Watch it, get yourself informed, buy it, when you think the timing is good. And, maybe most important: The monetary revolution has just started. After you acquired cryptocurrencies, the most important question is how to store them. You have several options which enable you to find your balance of risks.
If you invested not only in Bitcoin but in several Altcoins, there is usually no way around keeping coins on an exchange.More...