There are many ways to invest in cryptocurrencies. It all depends on your goals and your knowledge of the market. From passive investment to daily trading, through network fees or even staking, we explain in this guide the existing ways to invest in cryptocurrency. We then give you some recommendations for choosing which project to invest in. If you are new to investing in digital assets, this guide is for you
Investing in cryptocurrency for the long term
Investing in crypto is in theory the easiest way to invest. It involves exchanging euros for a sum of cryptocurrency, hoping that it will increase in value in the future. The goal will therefore be to make a capital gain when reselling. The long-term investment strategy is also called “hold” in the jargon of the crypto and stock market communities.
Bitcoin (BTC) is still the most traded cryptocurrency. While Bitcoin can be used to purchase goods and services in several countries, payment by cryptocurrency is not yet widespread in France, making it difficult to use in everyday life. As a result, it is more than ever considered a speculative financial asset to invest in, as an investment. Investing in Bitcoin is less and less considered a risky bet. Today the largest financial institutions are buying cryptos, sometimes massively, especially bitcoin.
Long-term investing is more accessible for beginners, as you will only need to buy cryptos and store them in a wallet. The DCA (Dollar Cost Average) method is often adopted for a less stressful passive investment. A wallet (crypto wallet) is like a virtual or physical safe that can hold and secure crypto-assets.
This way, one takes a bet that the value of Bitcoin, for example, increases. If it does, it’s up to you to decide when you want your profits (or limit your losses). Some investors are content with a 25% gain on their capital to resell, while others prefer to wait until their investment has at least doubled (+100%).
This long-term strategy requires few transactions, and does not require being regularly active in the cryptocurrency market.
What is cryptocurrency?
Cryptocurrencies are digital assets based on a technology called Blockchain. These crypto-assets allow peer-to-peer exchanges without intermediaries such as banks or insurance companies. Any person interacting with the blockchain has control and responsibility for their money. At any time, the user can transfer his assets without the permission of a third party, no matter the amount or the recipient.
What is the Blockchain?
Blockchain allows the storage and exchange of value via the Internet without a centralized intermediary (banks, state, notary, etc.). A blockchain is a register that can be assimilated to a public account book. This account book keeps and secures data through complex algorithms, using cryptography. It is possible for each user to verify the validity of this chain. The blockchain is like a book of accounts that can be read and modified by everyone, without anyone being able to modify or destroy its content.
Trading cryptocurrency
Trading is betting on the movement of a price, up or down, via an online broker. It is a short-term strategy in general. Many crypto traders practice day-trading: they execute one or more market orders per day. While investors are interested in the long-term performance of a crypto, traders take advantage of the daily volatility of crypto prices to make immediate profits.
Being a profitable trader, however, takes a lot of practice.
Without real skills and an understanding of the market, trading is like a lottery. While the potential gains are tenfold due to leverage, so are the risks of loss. It is therefore highly recommended that you get proper training and prepare your strategy before you start trading.Trading is betting on the movement of a price, up or down, via an online broker. It is a short-term strategy in general.
Many crypto traders practice day-trading: they execute one or more market orders per day. While investors are interested in the long-term performance of a crypto, traders take advantage of the daily volatility of crypto prices to make immediate profits.
Being a profitable trader, however, takes a lot of practice. Without real skills and an understanding of the market, trading is like a lottery. While the potential gains are tenfold due to leverage, so are the risks of loss. It is therefore highly recommended that you get proper training and prepare your strategy before you start trading.
Here are some strategic trading concepts to explore if you are interested in this investment method:
- Range trading ;
- Scalping ;
- Arbitration ;
- Bot trading.
Transaction fees
Each crypto asset transaction requires a fee in order to be entered into a blockchain data record.
- These fees are used to pay the miners or validators because they are the ones who “incorporate” your transaction into the blockchain, thus allowing it to be validated.
- They protect the network against attacks (spam, hacks, manipulation attempts).
- On some blockchains, fees can vary from period to period, depending on how busy and congested the network is at the time of the exchange.
Cryptography
Cryptography comes into play when a transaction is requested. In order to be validated, a kind of mathematical equation must be solved by computers using complex algorithms. The computational capabilities required make the equation impossible to solve by humans. The two main cryptographic consensuses are Proof-Of-Work (PoW) and Proof-of-Stake (PoS).
- The Proof-of-Work (PoW) consists of putting all the computers mining cryptocurrency in competition with each other, with the aim of being the first computer to solve the puzzle and validate the blockchain.
- This process is commonly referred to as “mining” and the computers as “miners”. Mining requires a lot of computing capacity. These machines can therefore consume a large amount of electricity because many computers are competing for the same thing, the next block.
- The Proof-of-Stake (PoS) allows computers (“validator” and not “miners” in the case of PoS) to be chosen for the creation of such or such block. This approach allows both to have a fairer reward system while reducing energy consumption.
Staking: a passive investment that generates interest in crypto
Staking is investing a “locked” amount of cryptocurrency to earn regular interest. On blockchains, it is a way to participate in the validation of transactions and/or the security of the network. Your investment therefore contributes to the proper functioning of a blockchain.
Staking is possible on blockchains using a verification model called “proof-of-stake”. This is a much less energy consuming operation than the “proof-of-work” model. Indeed, the latter requires miners to use the computing power of their computer hardware to validate transactions on the blockchain.
This is a great option if you plan to hold a crypto for the medium to long term (at least 1 year). Rather than leaving your tokens in a wallet waiting for them to increase in value, you receive daily, weekly or monthly interest that accumulates.
How does staking work?
Staking is therefore a means of validating new transactions that are added to a blockchain. Participants start by committing their investment by purchasing the native crypto of that blockchain. The blockchain’s protocol will then choose validators to confirm the blocks of transactions among the participants. The more they invest, the more likely they are to be rewarded.
Each time a block is added to the blockchain, new crypto tokens are created and distributed in the network. To access this type of investment, all you need to do is create an account on an exchange platform that offers this service. If you decide to withdraw from a staking program, a withdrawal period may apply. In some cases, however, the money is locked in for a specific period of time.
Start by learning more about the proof-of-stake cryptos you’re interested in, how their proof-of-stake works, and the staking rewards provided for each.
To conclude, here is a summary of the advantages and disadvantages of this investment.
Benefits of staking:
- contribute to the security and operation of a blockchain;
- investing in a more environmentally friendly blockchain;
- take advantage of compound interest by making your cryptos work.
Disadvantages of staking:
- some protocols require that the money invested be blocked for a certain period of time;
- the withdrawal of the amounts invested in staking can take several days.
Yield Farming
Yield Farming is a method of passively generating interest in cryptocurrencies. Except that unlike staking, it is no longer about locking in an amount of money, but lending it to a decentralized finance platform. These cryptos will be locked in a pool (pool) of liquidity, in the form of a shared smart contract or an investment fund.
Escrowed funds provide liquidity to a decentralized finance protocol, used to enable trading and borrowing. When a user borrows crypto from this pool of liquidity, they will repay the amount with interest, which is then redistributed among investors who have locked their liquidity into this pool.
For example, if a trader wants to trade Ethereum (ETH) for Dai (DAI), they pay a fee. This fee is paid to the liquidity providers in proportion to the amount they have invested. The more capital provided to the liquidity pool, the higher the rewards.
The complex yield farming strategies are quite daunting for novices who have not yet started investing in cryptocurrency. However, the returns on investment can be higher than staking.
Choosing a platform to invest in cryptocurrency
There are many players in this very lucrative market. That’s why we feel it’s essential to help you select a trusted crypto exchange platform.
There are of course other criteria to consider when choosing a platform:
- its creation date ;
- exchanged cryptos ;
- its costs;
- accepted deposit methods;
- opinions and feedback from its customers;
- the level of liquidity of the platform.
To learn more, read our tips for choosing a crypto platform.
Comparative cryptocurrency exchange platforms
| Name | For whom? | For what? | Where? | Fees | Method of payment |
|---|---|---|---|---|---|
| Coinbase | Beginners | Buy / Sell | United States | Raised | Credit card, money transfers, crypto-currency |
| eToro | Beginners | Trading | Cyprus | Means | Credit card, bank transfer, PayPal…Credit card, bank transfer, PayPal… |
| Kraken | Experienced | Buy / Sell | United States | Means | Credit Card and transfers |
| Binance | Experienced | Trading | Asia | Low | Credit Card and transfers |
| Coinhouse | All profiles | Trading, Buying and Selling | France | Means | Credit Card, transfers |
Secure your cryptocurrencies well
Knowing how to secure your digital possessions is essential when you start investing in digital assets.
The first thing you should do, of course, is to enable dual-authentication as soon as possible on apps and websites used to buy and sell cryptocurrency.
Also avoid trading cryptos when using insecure internet connections in public places.The first thing you should do, of course, is to enable dual-authentication as soon as possible on apps and websites used to buy and sell cryptocurrency.Also avoid trading cryptos when using insecure internet connections in public places.
Next, you will need to familiarize yourself with wallets (digital wallets). There are several types:
- hardware wallet or cold wallet: an external crypto storage medium disconnected from the internet (the most secure method);
- hot wallet: a virtual wallet that stores cryptos on a computer, phone or tablet. Less secure, but more convenient to use.
Hacking is a real threat to be taken seriously in the world of crypto-assets. That’s why if you have any doubts about the security of your private data on your computer, we advise you to check your entire system with a good antivirus. Investing is much more enjoyable when you have peace of mind!
How to select an interesting crypto project?
Choosing a project to invest your savings in can be complex. Every day, hundreds of tokens appear or disappear. Stories of scams and thefts appear frequently in the news. Many self-proclaimed experts advise betting on the “next Bitcoin”. In short, it’s easy to get lost in a jungle of information about a market that never closes its doors.
Just like in the stock market, no one can determine with certainty whether a company will increase in value or not. However, we can limit the risks and maximize the chances of betting on a crypto project that has potential.
Analyze the documentation and supports at your disposal
Spend some time looking at the documentation and materials available on the web about the crypto project you are interested in. The website is the first step: it is most often used to disqualify or not a crypto project.
The white paper should be easily accessible on the website. This document is comparable to the business plan of a start-up company. It should explain:
- project objectives;
- the technologies used ;
- who is in charge of developing the project;
- what is the economics of tokens or cryptocurrency?
Also check the legal and contact pages. Information about a company’s status and the identity of its representatives is usually accessible from the bar at the bottom of a site’s page.
Good to know
Finally, ask about referral and affiliate programs. Almost all crypto platforms as well as many blockchain projects offer them. The principle is simple: the customer of a company invites one of his acquaintances to join the company, and each receives a bonus (in euros, crypto, free subscription, etc.). An affiliate program is common, it is normal to find them. However, if this one is overly promoted, and seems excessive, beware: it could be a pyramid scheme, and you could be facing a fraud!
Communication around the project
Like all businesses, projects built around blockchain technologies use marketing to get their name out there. This is normal. However, some communication campaigns can be a warning about the seriousness or not of a project.
First, a project that promises a return on investment should be dismissed. Certain terminology should alert you, especially when the founder(s) sell their invention as “a must-have innovation” or “the opportunity of the year”.
Focus your research on crypto projects run by a team of experts who explain what they plan to do and what problem they want to solve. Serious talk popularizes technological explanations to help explain a smart solution in the blockchain world.
Finally, it is important to know how to recognize good sources of information. Discovering a blockchain/crypto project on an authority site, whose content is recognized as a reliable source is more reassuring. Conversely, hearing about a blockchain project through questionable influencers, or even worse, being contacted directly by the founder is often a bad sign.
Which cryptocurrencies to invest in?
As a novice in the world of crypto-currencies, it is not recommended to look for the next nugget at any cost. Perhaps you’ll get there one day, as you improve your level of understanding of the crypto markets. Here are some thoughts on investing in cryptocurrency in 2023.
Cryptocurrencies favored by beginners
To get started, it’s safest to focus on established crypto-currencies: Bitcoin, Ethereum, or even Cardano and Solana. One of the most essential reasons is that the information available about these cryptos and their blockchain is understandable, and easily accessible.
Bitcoin (BTC) is the preferred cryptocurrency for most beginners. Often compared to a digital version of gold, Bitcoin is the most traded crypto currency in the world.
Ether (ETH) is also positioning itself as a good starting point. The Ethereum blockchain technology is used in the majority of decentralized finance projects. These projects use Ethereum to issue smart contracts. The growing adoption of decentralized finance is creating a strong demand for Ether.
Other crypto-assets, also known as “alternative coins” or “altcoins” have emerged in 2021. Cardano (ADA) and Solana (SOL) are among the tokens with high development potential according to many blockchain specialists. They will probably rank among the major capitalizations in the coming years.
Investing in crypto projects without buying cryptocurrency
The sometimes extreme volatility of tokens scares many investors who fear a speculative bubble. Others are anxious about making a mistake or not securing their cryptos properly. Fortunately, there are solutions to gain exposure to the blockchain, metaverse and cryptocurrency innovation sector in other ways.
Investing in crypto ETFs
On October 20, a big news shook the crypto world. It was the listing of the ProShares Bitcoin Strategy ETF (tracker, or index fund). An ETF is a fund that replicates the price of a financial asset. Here, the ProShares ETF holds futures contracts on the valuation of Bitcoins.
Futures contracts are financial instruments that anticipate changes in the price of a so-called “underlying asset” in the future: a stock index, a stock, or a digital asset such as cryptocurrency. This financial asset is bought and then sold at a set price and quantity, on a date scheduled when the contract is purchased.
The main advantage of this ETF is that you can invest in it by buying shares via a securities account, without buying Bitcoin directly.
Build a basket of targeted stocks in the stock market
Apart from ETFs, it is possible to buy shares of publicly traded companies already present, or planning to invest in the blockchain sector. Here are some examples:
- Coinbase (NASDAQ : COIN) : plateforme crypto ;
- Block (NYSE : SQ) : payment application, blockchain innovation with Square Crypto;
- Nvidia (NASDAQ : NVDA) : the world’s leading producer of graphics processors used to mine cryptocurrency;
- IBM Blockchain (NYSE : IMB) : blockchain research and development.
To go further, read our presentation of the methods to invest on cryptos in the stock market.
In conclusion about investing in cryptocurrency
Now you’re all set to understand how crypto-assets can boost your wealth. While some experts are still skeptical, there’s no denying that blockchain technology and its many uses will be part of our future.
To go further on your understanding of crypto-currency investing, check out our various guides presented in this article. Just click on the internal links
Now you’re all set to understand how crypto-assets can boost your wealth. While some experts are still skeptical, there’s no denying that blockchain technology and its many uses will be part of our future.To go further on your understanding of crypto-currency investing, check out our various guides presented in this article. Just click on the internal links.
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Frequently asked questions
🤝 How to buy cryptocurrencies at the best price?
The site cryptoradar.co compares the prices of more than 3000 brokers in the world in real time. So this tool allows you to buy cryptocurrency at the best price.
🤔 Can cryptocurrency investing be considered green?
The mining of some cryptocurrencies consumes a lot of energy. Bitcoin and Ethereum are regularly cited as the most polluting blockchains due to their volume and operation. However, several studies and numerous innovations tend to prove that blockchain technology would not be so polluting, and could even reduce the impact of some traditional systems.
🤷 What are the promising crypto-currencies in 2023?
The crypto-currencies in vogue since the beginning of the year are: ADA, DOT, SOL, RIPPLE, BNB, as well as BAT. Of course, there are others to consider if you think you can make a profit. However, we remind you that it is necessary to do your own research before investing in cryptocurrencies.
🤝 What is halving?
Halving refers to the event of halving the reward, or fee, for mining a cryptocurrency. Logically, this drives up the price of a crypto, as it becomes harder to obtain, thus driving up its “production” cost and scarcity.