How to start investing in cryptocurrency right now?
At the beginning of 2021, the market capitalization of crypto hardly exceeded $1 trillion and a half a year later it made more than $2 trillion. Considering that the first cryptocurrency called Bitcoin was founded in 2009 and cost almost nothing, it is not surprising that the number of people asking how to start investing in cryptocurrency grows exponentially.
Cryptocurrencies can be sold and bought:
- Centralized crypto exchanges
- Decentralized crypto exchanges
- Advanced crypto wallet services
- Directly from the crypto issuer
There are different approaches to earning on crypto – from speculating to holding crypto on a long-term basis. To choose wisely among the various options it is necessary to know more about how investing in cryptocurrency works.
This is a huge, incredible, unique opportunity. I personally own bitcoins – through my fund and investment account.Chamath Palihapitiya
How to start investing in cryptocurrency – basics
The Crypto industry is very young, however, there are many ways to earn and platforms to choose from. The main way to earn on crypto is speculative trading, which means that most brokers try to earn on the volatility of crypto assets by opening short-term orders. Hence, other ways to earn on crypto are becoming more popular and reliable than trading. Anyway, to explain how investing in cryptocurrency works, we are going to disclose all available methods to earn.
Graph of change in the price of a cryptocurrency (source Getty)
Usually, all the newcomers in crypto start their ways on centralized exchanges – these are services that provide an opportunity to easily trade crypto with low fees. Usually, centralized exchanges allow users to make deposits and withdrawals in fiat currencies, which is attractive for the majority of newcomers.
Depending on the level of services, CEX can provide advanced trading opportunities like margin trading, big choice of trading pairs, futures trading, etc. However, these trading practices only fit experienced traders, not newcomers who know how to start investing in cryptocurrency.
Moreover, if you want to invest in classic bonds, companies’ shares, and other assets that can usually be found in classic stock exchanges, you can purchase tokenized versions of these assets on some of the crypto exchanges.
Lastly, most of the crypto exchanges provide additional ways of earning along with trading and holding crypto which will be explained below.
Decentralized exchanges (DEXes) rely on community activity much more than centralized exchanges which is why they are usually more transparent and reliable. They usually do not demand identity verification, do not allow to make transactions in fiat, and all the fees for trading depend on the network fee of the blockchain on which trading is conducted. The main difference between DEX and CEX is that on DEX your account cannot be blocked, and is governed by you.
Decentralized exchanges with automated market-making
If you want to know how to invest in the cryptocurrency exchange rate, this section is for you. DEXes with AMM is the next generation of the DEX concept. There are usually three ways to earn on DEXes with automated market-making:
- Provide a liquidity – providing a liquidity means making a deposit to the pool for the specific trading pair and earning on trading fees. E.g. given you invest ETH and USDT to the pool on the DEX, which act like an open limit order on the CEX. Once the trade is made using your funds, you get part of the trading fee as a reward.
- Swap – it is a trade on DEX, which means that you trade one crypto for another.
- Staking&Farming – in plain words you earn just on holding a token for a specified period of time. The earn rate is not fixed and usually depends on the amount of investment, and activities around the token.
NFT (non-fungible tokens) are the tokens that usually represent a digital piece of art published on the web. Buying NFT tokens can be a good investment just like buying a picture or sculpture in the real world, as they usually do not get cheaper
Although investing in crypto can be rewarding, high volatility of the assets and the fact the industry is too young brings high risks of using crypto investing services no matter how you start investing in cryptocurrencies.
Although there are risks when it comes to crypto, the majority gives a positive answer to the question should we invest in cryptocurrency, and here is why. Most of the services and assets launched on the blockchain are more transparent and decentralized than the classic ones, and moreover, the value of all crypto assets has grown to $2 trillion years since 2009 when the first crypto was launched, and the majority of this growth took place in past 3 years.
To conclude, there is much more to know on how to start investing in cryptocurrencies to earn, as each half-an-year there appear new ways of earning on crypto investments.