Back in 2009, Bitcoin was nothing more than an interesting phenomenon for the millennials and the technocrats. Despite this, technicians and futurists forecasted the bright and overwhelming future of cryptocurrencies, which now are drawing the interest of millions as an investment.
Cryptocurrency is based on blockchain technology. That’s a chain of information registration and distribution that is not controlled by any single institution. These tokens are not well understood and are highly unregulated, most financial institutions don’t want to deal with them.
In a little more than a decade, cryptocurrencies have become a household area of interest. Some are now coming to see cryptocurrency as an alternative global currency that will eventually replace sovereign currencies. But such thoughts are far-fetched fantasies.
In India, The honorable Supreme Court has provided legitimacy to the cryptocurrencies, which has brought the market to the sharp face with the Reserve Bank of India. However, the legal status has given the digital token market a much-needed boost.
This move has catalyzed a surge of investor interest, a dominating trend that startups in the Indian crypto sector are witnessing at the moment. However, cryptocurrencies are still an alien concept for many in the country and are likely to remain so until India’s regulations and categorizations are set up.
Here is a complete step-by-step guide on how crypto trading is done. The sole purpose of this article is to inform the reader about the various steps involved in crypto trading and the challenges faced at each step. So, let us have a simple look at crypto trading:
7 Steps of Crypto Investment
Key things and risks
Cryptocurrencies have been the talk of the town amongst the investor community. The legitimacy from the Apex court in India and the recent Elon Musk episode has given it a need boost.
Investing in Cryptocurrencies might sound grim, but one can start investing, sparing few minutes, to begin with. Here is a comprehensive guide to how to invest in cryptocurrency.
Step 1: Understand and allocate the investment
Before making any investment, an investor must understand the asset class and the need for investment in that asset class. One must comprehend that the crypto market is highly volatile,
and only a small percentage of the portfolio shall be allocated to such risky avenues of investment.
Industry experts suggest that as a thumb rule, an investor should not invest more than 5-10 percent of the portfolio in digital tokens. Cryptocurrency investment is similar to investing in stocks, but not the same. Investors must learn that cryptocurrency is a medium of exchange.
Many cryptocurrencies that have come on the market in the past decade have either flatlined or disappeared altogether. That means any investment you make could go all the way to zero.
Step 2: Choose the Cryptocurrency
It is the biggest challenge for any crypto investor. One must have heard about just a few top names like Bitcoin, Ethereum, Dogecoin, and a few more. Surprisingly, there are over 5,300 digital tokens available in the universe of digital tokens. It makes the choice more complex.
The story of cryptocurrency is just a decade old. Bitcoin is the most traded one, given its volume and value. For many investors, it is almost synonymous with ‘cryptocurrency’. However, many other cryptocurrencies have performed much better than the largest one.
Step 3: Understand the Cryptocurrency
Just like any other asset class, digital tokens have their fundamentals. They are backed by different blockchain technology, accessibility, mining technique, community addressed, and intrinsic value are main points to watch out for, suggest industry experts.
Step 4: Choose the Platform to Buy
Bank and investment brokerage firms do not offer to buy cryptocurrencies. These digital tokens can only be purchased from dedicated cryptocurrency exchanges. All the people trading in the most popular cryptos, and of course, you should expect to pay a fee for both buying and selling.
One can buy cryptocurrency either directly from the exchange or another peer who is selling his/her current holding. However, investors must understand that cryptocurrency trading is entirely anonymous.
Step 5: Store your Cryptocurrency
Cryptocurrencies are stored in crypto wallets, which are either hot or cold wallets. The hot wallets are connected to the internet, and the cold ones are not. It is a bit complicated and peculiar process. This wallet is not a physical wallet but a software program specially designed to store cryptocurrencies.
It stores the private and public keys that connect the user to the blockchain where one’s cryptocurrencies exist. They do not store the cryptocurrencies as such, but they help you access cryptocurrencies on the blockchain with public and private keys. A user needs both to complete the transaction. They’re called ‘keys’ as they unlock the cryptocurrencies on the blockchain.
There are multiple digital wallets like Desktop Wallets, Online Wallets, Mobile Wallets, and Hardware Wallets. One should choose the wallet based upon the balance between security and convenience. Some exchanges offer digital wallets to users.
Step 6: Secure your Crypto wallet
Safeguarding your cryptocurrency is an important aspect. It becomes more noteworthy if you are using cryptocurrency to buy products or you have a hot wallet. So, when the crypto is online, one needs to make sure of its security. Usually, people prefer using a VPN (Virtually Private Network) to ensure secured and encrypted online transactions.
Data encryption means that no one can see any of the users’ online transactions. It is an extra layer of protection that ensures users’ data and crypto purchases are completely anonymous. It makes it harder for others to hack into accounts, especially for users who own a lot of crypto.
Step 7: Hold and Sell to book profit
Cryptocurrencies are a long-term play, with their fundamentals and the communities they serve. Their usage is separate and much beyond the access we are aware of so far. Thus, one should not treat them as a get-rich-quick scheme. Investors buying crypto should have their investment horizon and book profits periodically.
Also, one should know that the crypto market is very nascent in comparison to other avenues of investment. So, new tokens will enter the markets, create the buzz, and euphoria will fizzle out. Thus, investors should be aware of such trickster schemes. Book your profits on time.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.