Diversifying investment portfolios is one of the primary goals for investors worldwide. Following the advent of Bitcoin and subsequent cryptocurrencies in recent years, this new investment opportunity has been in the sights of many investors. This is partly because of the high-risk yet high potential reward that cryptocurrencies offer. Adding high-risk investments to a balanced portfolio is significantly less risky than investing in them alone. It’s important to always remember that, when investing, your capital is always at risk, no matter how high or low that risk is. This article will discuss what cryptocurrency investing is and discuss the steps involved so that you can add them to your portfolio.
What Is Cryptocurrency?
These digital currencies have no physical representation like a note or a coin. They can be traded for goods and services or other currencies with relative freedom across the globe. Cryptocurrencies like Bitcoin are said to be near impossible to counterfeit as every Bitcoin can be traced by something known as the blockchain. The blockchain is just an online ledger that everyone can access to track every Bitcoin transaction. The blockchain will then automatically verify a transaction and even await confirmation. Once a transaction is confirmed, this is irreversible, which then prevents issues like double-spending from occurring and reduces the chance of fraudulent transactions too.
Decide On An Investment Plan
When you decide to start investing, it’s important to know what you want to get from it. Creating an investment plan might be a good idea here, as it can keep you on track and reduce your chances of making decisions which fail to align with your goals. For a start, when you create your plan, you’ll want to think about how you’ll diversify your investments so that you reduce the risk of you losing everything. While it might seem tempting to maximise those returns on a single investment by spending more and more on that particular thing, you could just as easily lose it all if things go wrong with that investment. You should consider how much you put into your monthly investments and set aside a certain percentage of your paycheck. Many people agree that the 50/30/20 rule is best here, with 50% of your earnings going to things you need, like rent and groceries, 30% for spending on things you want like luxuries, and 20% for savings investments or paying off any debts.
Choose An Exchange
You’ll then want to think about which exchange you’ll use to buy and sell your crypto, as many will have varied offerings. One of the most notable differences between cryptocurrency exchanges is their fees. You should also note that different exchanges may also offer various cryptocurrencies, with some larger exchanges including trades for newer yet more unpredictable currencies. Using your chosen exchange, you’ll be able to invest in new currencies or well-known and respected options like Bitcoin and claim earnings by converting Bitcoin to cash when you sell. You can then reinvest in different trades or withdraw those funds too. Certain platforms will also give you the tools to automate your trades, letting you set the threshold of what value you wish to buy and sell. You can prevent sales if that value drops below a certain point and force it to wait until that value rises again.
Use A Hot Wallet
Unfortunately, there is a risk of hacking and cyber theft when trading with cryptocurrency. There are no official protection schemes in the UK that can compensate you if you lose your money to a nefarious scheme. This makes it essential for crypto traders to have their own secure storage methods to keep their cryptocurrency safe once they withdraw them. There are three main ways in which you can keep your cryptocurrency safe when trading. The first option is known as a hot wallet. These are the most common forms of storage and allow you to store cryptocurrency on a device that’s connected to the internet. This could be a tablet or a PC, or even a smartphone. They are convenient as they provide you with instant access to your cryptocurrency, but there is still a risk of theft due to their online presence. One of the safest ways is to leave your cryptocurrency in the marketplace, where your exchange will store it in its own crypto wallet.
Consider Offline Storage
A cold wallet is an alternative option. This is offline storage, in which you store your cryptocurrency data on a USB or hard drive and password protect the device. This is immune to hackers and digital theft as there is no online connection. However, there are some other risks when it comes to using a cold wallet. The most obvious risk is that someone could physically steal the device, or it could get damaged beyond repair, making it potentially impossible for you to access your funds. There are ways to recover cryptocurrency in the event that a wallet is lost or if you fall victim to a scam, but these methods are definitely not guaranteed. Instead, you should do everything you can to keep your cryptocurrency secure.
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