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How to invest in cryptocurrency

Cryptocurrency has become one of the hottest investments especially after the ongoing pandemic. Here is everything you need to know.

By Anna B Kiwanuka

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It is no secret that cryptocurrency has become one of the hottest investments especially after the ongoing pandemic that has frozen economies. 

Today, the process of moving money across businesses, customers and governments works through a number of intermediaries and middlemen such as banks, telecom companies, Fintech enterprises, money agents among others.  Cryptocurrencies came about as a means to cut the middleman by creating a new currency that didn’t involve any monetary institutions and avoid unnecessary interchange fees. So the cryptocurrency architecture (blockchain) and “altcoins” (Bitcoin alternatives), disrupt many of these intermediaries and act as a layer similar to the central banks which address the big headache of not holding any liabilities.

This year, cryptocurrency has beaten almost every other asset class, prompting many investors to question if they should add Bitcoin, Ethereum and other crypto-coins to their portfolios. On the market, there are a variety of cryptocurrencies with varying fundamental values. As one invests, they should be aware that cryptocurrencies can appear one day and vanish the next, rendering their investment useless. That’s why it’s crucial to have a cryptocurrency investment strategy in place and understand how to limit your risk. Let’s dive in!

Process
As a beginner, you may want to consider things like transaction fees, the type of cryptocurrencies available on the platform, special offerings like resources for education, and other features that align with your interests and goals, but most importantly, you need to choose a crypto trading service or venue. You can purchase, sell, and hold cryptocurrency by signing up for a cryptocurrency exchange. Using an exchange that allows consumers to withdraw cryptocurrency to their own personal online wallet for safety is often the best strategy. This functionality may not be important to people trying to trade Bitcoin or other cryptocurrencies.

There are many cryptocurrency exchanges from which to choose. TradeStation, Coinbase, eToro, and Gemini, among others, offer an easy, accessible and secure platform to own and transact cryptocurrency. In Uganda, Binance, OKcoin, Kraken, and Huobi have ranked the best exchanges for trading crypto. Because crypto ethos is about decentralization and individual sovereignty, some exchanges allow users to remain anonymous and do not require users to enter personal information. Such exchanges operate autonomously and are typically decentralized, which means they do not have a central point of control. An important thing to note, however, is that when creating a cryptocurrency exchange account you have to use safe internet practices. This includes using two-factor authentication and a password that is unique and long, including a variety of lowercase letters, capitalized letters, special characters, and numbers.

After choosing a cryptocurrency exchange, one needs to connect it to a payment option. At most exchanges, you can connect your bank account directly or you can connect a debit or credit card. Although you can use a credit card to purchase cryptocurrency, it is not a good idea because cryptocurrency price volatility could inflate the overall cost of purchasing a coin. Most Ugandan crypto traders are accustomed to using mobile money payments because they are more convenient and banks tend to impose numerous obstacles and challenges. After selecting your payment option, you can now successfully trade.

Bitcoins or Altcoins

For most newcomers to crypto, Bitcoin(BTC) is usually the first stop when it comes to investing. It’s the most famous blockchain project and the largest cryptocurrency by market capitalization.

However, there are thousands of different cryptocurrencies (altcoins) out there. Some altcoins have their own blockchain, while others use a pre-existing network (such as Binance Smart Chain or Ethereum). Every project has a different proposal, each with its own potential risks and benefits. Whether you want to invest in BTC only or multiple crypto assets is totally up to you. Some prefer to stick to BTC. On the other hand, some people prefer to diversify their holdings with altcoins. Asset diversification removes the risks of investing in only one project. If you have multiple assets, you are less likely to lose significant amounts if one of them fails. Altcoin investments can be risky and, unfortunately, there are many scams around, so it’s very important to do your own research before taking risks. 

How to store your coins

Cryptocurrencies are bought from an exchange. You can compare this to buying stocks on your stock brokerage account from a financial company. With stocks, you can leave them on the brokerage account and you’re fine. For cryptocurrencies, it’s a little different. There is a chance someone could hack into the exchange and steal your cryptocurrencies. This is why you should store your cryptocurrencies on a wallet which could either be an online wallet, or an offline hardware wallet. There are pros and cons to each as well as the difficulty of use especially if you are not tech-savvy. For more information on crypto wallets, take a look at Satsdaily – Crypto wallets: 3 software wallets that can secure your crypto assets

Should I trade or invest?

If you’re investing or trading, you’ll want to think about what you’re buying. The two are often confused, but there is a distinction to be made. Simply put, investing entails selecting assets that you believe in and holding them for a longer period of time. Such a method necessitates a lower level of active time commitment and usually entails a lower level of risk.

Trading, on the other hand, tries to make short or medium-term gains by buying and selling on a regular basis. It takes a lot of time and experience to become a competent trader. A trader must devise more intricate tactics, devote more time to market and trading platform analysis, and manage greater risk. They must also take into account the money spent on trading as well as transaction fees.

Keep in mind that cryptocurrency markets might be more volatile than traditional markets at times. While traders require volatility in order to make money, excessive levels of volatility can also mean considerable danger.

Investing is by far the simplest and safest option for novices. Short-term price adjustments aren’t as essential to investors because they normally consider in terms of years. The basics of a coin are used to make an investment decision (how solid is the project and how likely it is to succeed in the long run). Some people prefer to invest rather than risk their money on short-term changes. Others want to trade frequently in order to optimize their gains. Some people even combine the two. It all depends s on your risk tolerance, plan, and profile.

Again, it’s your choice, but you should never invest or trade with money you can’t afford to lose.

It takes some time to learn how to invest or trade cryptocurrencies. Improving your knowledge is a good way of reducing your overall investment risk, leading to more informed decisions. It’s easy to panic-sell an asset-based on emotion, but the chances of this happening are much lower when you study up on investment and trading.


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