Understanding Cryptocoins and Investing
One of the most controversial and exciting new technologies today is the crypto-coin. Nowadays, everyone is talking about Bitcoin and its steady rise in value. Some economists say it is never going to be a true currency, while others say it is merely an investment vehicle and a fad. One thing is for sure though, it has created a huge market for modern investors and speculators to make money with. While Bitcoin is the most well known and popular Cryptocoin, there are many other cryptocurrencies that are making people take notice of this revolutionary technology.
The modern cryptocurrency market can be a lucrative way to make incredible amounts of profits fairly easily. The volatility of the currency values, however, means that there is an increased risk involved when trading in cryptocurrency. Nevertheless, if you have a good understanding of the underpinnings of the system, you can mitigate those risks and predict the values of the currency so you can know when to buy and when to sell. This brief guide will help you along on your way toward investing in cryptocurrency.
Things to Consider
Not only is cryptocurrency in a huge bull market (as of late 2017), but the technology itself is in a highly volatile state, where any crypto-coin could rise or fall out of nowhere. Also, there is the possibility that we may be in a bubble like the-dot-com boom back in 2000. This is a fair assessment of the technology and trend in general, and is the opinion of some famous and proven economists such as Peter Schiff.
Still, if interested, one must ask themselves these few simple questions before they decide to invest in any crypto-coin:
- Is it safe to invest in this particular coin and its development team? The first rule of investing into cryptocurrency should always be the preservation of your capital. Can you trust the developers of the crypto-currency? Are you about to invest your money into something with founders who have been involved in questionable activities? What reputation, if any, do these developers and founders have? Chances are, if they are unknowns or ambiguous, there is a greater chance of a pump-and-dump. The coin’s price might grow in the short term, but it is just not worth it to invest in such risky conditions for the long haul.
- Does the coin I am interested in have a long-term development plan? Before investing in any crypto-currency, you should study their materials diligently. First, study their yellow paper, but if you can’t understand all the technical jargon, at least read their white paper. What goals are the team trying to achieve? Do they have the means, or the skills needed? Have they already worked towards some of their goals? What are the time-lines and milestones? Asking these questions and more, will help you to understand whether or not the particular currency will hold up in the market, and reach the heights you desire for investment.
- Does the coin I am interested in seem like just a well-marketed plan with no actual substance? A lot of ICOs these days will have a pretty web-page, and that’s about all! They are pre-mined, and then they’re dropped onto the market to sell to unwitting dupes. Watch out for these types of crypto-coins, they are a very risky investment!
- How long should I stay in this? Do I have an exit plan? There will be coins where you do not want to hold forever, but wish to flip for some short-term gains. In this case, be sure to set a time-frame, or an exit price, to reduce to effect of emotions on your trades. Stick to your plan and watch your emotions.
- Does it have any real-world use? Some coins seem to keep increasing in value simply due to supply vs demand. This trend might not be sustainable for the future. For a coin to have long term supported value, it must have a real-world use case eventually. Look out for coins that look too much like a get-rich-quick scheme.
If you have done the necessary research and preparations, asked yourself the right questions, picked a target coin, and come up with a satisfactory strategy, then you are ready to begin investing. Understanding the right investment method and taking action are the next logical steps, so think hard about the options you have before you. Your choice of investment method could be the biggest factor in determining whether you make any actual profit, or not!
Here are just three different major methods of investments, there are many more, but these are the most commonly used.
This is the quickest way to make money on cryptocurrency, and is the easiest one to understand. Cryptocurrency values are often spoken about on the news, and these news stories can help you determine whether the price of a particular cryptocurrency will rise or fall in the near future. Staying current on the emerging technologies and the market trends is essential to being a successful investor. Once you have the data you need, you must act fast, as there is only a short window of time during which your trade is likely to be profitable.
This is the exact same method used by currency speculators dealing with national currencies (FOREX), the only major difference is that the values of cryptocurrencies change more rapidly, so as to allow a shorter window of time for profitability. However, cryptocurrencies also increase and decrease in value more frequently, so you stand to make more cash if you trade right. Needless to say, if you are looking to get into day trading crypto-coins, you need to really practice, research, and prepare your strategy accordingly.
If you are working with cryptocurrencies that use a Proof of Stake system, rather than a Proof of Work system (like Bitcoin), you are not dealing with mining coins, but staking them. This staking is in fact what economists dealing with national currencies would call a return on investment, getting dividends on your stock. Of course, the methods and amounts of the returns made vary from currency to currency. While it takes much less effort to make money as compared to the Proof of Work system coins, it also involves substantial risk and should be avoided by newcomers.
When you have access to multiple exchanges, another way to make money opens up to you. This method is called arbitraging, and is the same name used for a similar transaction in mainstream economics. It consists of buying from one exchange and immediately selling to another, so that you make a profit from the price difference. Just remember to consider the fees involved, and keep in mind that the price of the currency may change when you are transferring from one exchange to another, especially when the market is particularly volatile. This method is a sound and long trusted practice, and with a little research and investment it can be consistently profitable.
With so much to soak in and decide upon, investing in cryptocurrency can seem like a daunting and serious task, and it is! However, it can be an enjoyable and profitable endeavor as well. Of all the good and bad things that can be said about Bitcoin and all of the other Alt-coins and their markets, one thing is sure – investing in them is smart and profitable when done with sense.
If you have just started out trying to understand cryptocurrency investing, you have a lot more research left to do before you can invest safely, but luckily you are on the right website for learning. CryptoCoin Empire is happy to be a part of your learning experience, and will hopefully start you off on the right foot.
Below we have noted some helpful resources for potential investors to benefit from.
Watching the market closely is a big part of successful investing, and the only way to understand what your choices should be. For information on the price and market caps of the various cryptocurrencies, you may wish to use sites such as coinmarketcap and cryptowatch to get the best information available to you as an investor. Remember to keep watching the market, and never lapse, you could miss out on important information or opportunity.
Talking with others who are interested in the knowledge of this ever growing industry is one of the best ways to learn and expand. There are many forums and discussion groups available to people who are interested in Cryptocurrency investing, mining, etc. One of the most popular forums is Bitcoin Talk, another really good place to discuss all things cryptocurrency is on reddit, with the Bitcoin subreddit being one of the most useful.