The 8 best ways to get the most out of the market
Regardless of your opinion, there is no doubt that crypto-currencies have taken the world by storm. If you're like most people, you at least have an idea of what crypto-currencies are, but you may not know how to tap into the market.
Well, you're in luck, because we're going to show you seven different ways to invest in cryptos. But first, a quick reminder for our readers who may not be familiar with cryptocurrencies.
What are cryptocurrencies?
A cryptocurrency is simply a digital currency based on distributed ledger technology (DLT). These assets are not physical, but simply exist as a record on a blockchain, which is essentially a database stored on multiple computers. By sharing the ledger across multiple computers around the world, the network becomes decentralized and no single individual can control it.
In addition, it also makes it difficult to hack the network, as no one can hack all the computers on the network simultaneously. Bitcoin, for example, has about 70,000 computers on its network. In addition, sharing a single ledger acts as a self-correcting mechanism that overwrites any "bad" or corrupted databases.
Bitcoin was the first cryptocurrency to gain widespread acceptance in the world. Since its release in 2009, many other crypto currencies have been created. According to crypto tracking site CoinMarketCap, there are nearly 20,000 different cryptos. And while each one has a different structure, the main idea is decentralization.
Why invest in cryptocurrencies?
Aside from all the ads urging you to get into crypto trading, there are several real reasons to get involved in cryptos today.
More importantly, it is perhaps the most profitable financial market to date. For example, if you bought Bitcoin 5 years ago at a price of $2,500, you would have a profit of over 700% at the current price of over $20,000 at the time of publication. Meanwhile, an investor who bought Apple stock 5 years ago at about $36 would have had a return of about 300%.
This is why the first crypto investors became millionaires and billionaires, like the famous Winklevoss twins. Therefore, you too should consider investing in cryptos if you want to improve your financial performance at a faster rate. You should be wary, however, as crypto currencies have high volatility and there is no guarantee that any particular crypto currency will increase in value.
Another reason to consider crypto investing is that they have become widely accepted by the general public and even some financial regulators. El Salvador was the first country to adopt bitcoin as a legal currency, while many other regulators and governments are working on regulations around cryptos. In 2017, bitcoin futures were introduced by the CME and the SEC is considering several applications for bitcoin ETFs.
They have become so common that even large investment banks and hedge funds are now offering cryptocurrencies to their wealthy clients. Even companies such as Tesla and MicroStrategy have purchased cryptocurrencies. So, despite the initial reluctance and criticism, crypto-currencies have stood the test of time and proven that they are here to stay.
On the other hand, you should also be wary of certain cryptos and associated industries such as DeFi and NFT because of scams and theft. The same anonymity provided by blockchain technology can be exploited by scammers to steal cryptos. Therefore, be careful whenever you are in the cryptosphere.
Beware, the cryptocurrency market, just like the financial markets, is a very risky market. If one can generate significant gains, the losses can be just as much. It is necessary to be aware of this. It is often advisable to:
- Do not invest money you are not prepared to lose;
- Do not invest more than you can afford;
- Consider that it is possible to lose your entire investment!
8 ways to invest in cryptocurrencies
Let's get to the main reason you landed on this page and look at six ways to invest in cryptocurrencies.
Buy and hold
This is the main and easiest way to invest in cryptocurrencies, as it requires no skills. The principle is the same as investing in stocks: you buy a cryptocurrency at a low price and sell it later when its value increases. For example, if you buy a bitcoin at the current price of about $20,000 and sell it a month later at $25,000, you will pocket a profit of $5,000.
The best place to buy crypto currencies is a crypto exchange, which is basically a company that holds massive reserves of crypto currencies. The most popular crypto exchange in the world is Binance with 252,597 BTC worth more than $5 billion at the time of writing this article and accounts for about 1.32% of all bitcoins. Nevertheless, there are over 500 other exchanges you can join to buy cryptos. The choice comes down to the variety of cryptos offered by the exchange and the fees you will have to pay for the transaction.
Other sources of cryptocurrencies are decentralized exchanges (DEX) and peer-to-peer (P2P) platforms. The advantage of these sources is that they have fewer requirements, especially when it comes to customer identification. Therefore, you can remain anonymous if it is important to you, but you have less protection than a centralized exchange (CEX).
You will then need a cryptocurrency wallet to hold the cryptos you have purchased. This can be software installed on your computer or an app on your cell phone, from which you can send and receive cryptos. All CEXs provide a crypto wallet when you buy crypto on their platforms, but these are considered "hot wallets" because they are always connected to the internet and are at risk of being targeted by hackers. For added security, use a so-called cold wallet such as Trezor - a physical crypto wallet.
Timing is everything and makes the difference between profit and loss. Essentially, you don't want to sell too soon and miss out on the price rise, but you also don't want to wait too long until the tide turns against you. The decision of when to sell will depend on your trading strategy and goals, but you should simply keep an eye out for any crypto-related news on social networks.
Automatic trading or copytrading
Not everyone can be a trader! It requires time, personal investment, skills and a strong mind. That's why companies have been set up to offer solutions to trade or manage capital.
At Robot-Trade.fr, some solutions are referenced, such as Algorent, Armonia Capital or even Crypto4winners. It is necessary to be aware that even if these companies are generally made up of competent personnel, the risk exists!
Crypto-savings with Coinhouse
To get more stable and reliable returns on your cryptos, you can choose to back up your holdings through a crypto bank. Most major cryptocurrency exchanges offer this type of service, and you can browse several exchanges to find the one that offers the best returns. However, for our French readers, we recommend using Coinhouse, as it is based in Paris. More importantly, it is regulated by the AMF (Autorité des marchés financiers).
As we mentioned earlier, scams and thefts in the cryptosphere are very common, so you should take security very seriously. Being registered by the AMF proves that Coinhouse is a legitimate company and guarantees you security.
Coinhouse offers a fixed interest rate of 5% over 13 weeks, but there is no time limit to keep your crypto in savings. Compare this to the average interest rate of the Livret d'Epargne Populaire (LEP) of 2.2% in France and you'll see that you can perform better.
Coinhouse is able to guarantee these returns thanks to the experience of its crypto experts. The exchange has been in existence for nearly a decade and only hires experienced crypto traders and investors. Furthermore, the crypto savings are mainly held in stablecoins such as Tether, USD Coin and Euro Coin. These are stablecoins, which means that their value stays the same, unlike most other cryptos with extreme volatility.
Trading crypto ETFs
If you're looking to gain exposure to cryptocurrencies, but want to do so through a traditional financial product, ETFs are the best option. For starters, crypto ETFs are listed on major exchanges, which means you can invest in cryptocurrencies through the same broker you use, for example, to trade stocks. In addition, ETFs charge low fees and can offer high returns depending on the underlying cryptocurrencies.
The first crypto ETF in the U.S. has been the ProShares Bitcoin Strategy ETF (BITO) since its launch in October 2021. It has an expense ratio of 0.95% and current assets under management (AUM) of over $1.3 billion. Unfortunately, BITO was launched at the height of bitcoin's performance, so the fund has taken a hit since bitcoin prices collapsed. Nevertheless, the fund is supposed to represent the performance of bitcoin, so it's not really the fault of the fund or its managers.
Today, there are more than a dozen crypto ETFs such as:
- Valkyrie Bitcoin Strategy ETF
- VanEck Bitcoin Strategy ETF
- Global X Blockchain & Bitcoin Strategy ETF
What you need to know about these ETFs is that they do not hold actual bitcoins. Instead, they invest in CME-listed bitcoin futures, although the concept is the same. There are also closed-end grantor trusts, the most popular of which is Grayscale Bitcoin Trust, with over $25 billion in assets under management, but a slightly higher expense ratio of 2%.
Investing in cryptocurrency-related stocks
Like ETFs, this is a good option for an investor who wants to have some exposure to cryptos, but do so through traditional financial assets. Thanks to the popularity of cryptos, several publicly traded companies have become involved in crypto and blockchain technology, offering a way to invest indirectly in cryptocurrencies.
The most famous of them is Coinbase - the 3rd largest crypto exchange globally. It went public in April 2021 and its share price generally follows the cryptocurrency market. Meanwhile, Riot Blockchain and Marathon Digital Holdings operate bitcoin mining facilities, both of which are publicly traded. There are also payment players such as Silvergate Capital, Block and PayPal. Finally, you can invest in companies with cryptocurrency reserves, such as MicroStrategy and Tesla, or mining equipment producers, such as Nvidia and AMD.
CFD Trading
A CFD is a derivative, which means that you will not be trading actual cryptos. In this sense, they are similar to the crypto ETFs discussed above, except that they are not offered by an exchange. Instead, online CFD brokers are the primary providers of these contracts. These brokers source cryptocurrency market prices from cryptocurrency exchanges to track values. They then create crypto derivative products that accurately track the prices and give you exposure to the market.
CFDs are ideal for retail traders, as you only need a small amount of capital to get started, with some brokers accepting deposits as low as $100.
Staking of cryptocurrencies
Staking consists of putting one's crypto assets on the line in a blockchain in order to participate in its security. Staking has been possible since the advent of proof of stake (PoS) where the investor simultaneously becomes a validator on the network and can even participate in governance. Staking returns vary from crypto to crypto, but they can even be over 100% over a year.
The advantage of staking is that the investment usually generates steady returns, such as 3.5% for Tether and around 5% for Ethereum. However, cryptocurrencies offering very high returns are not recommended, because although you can make huge profits in the short term, many projects are not fully established and may even disappear.
Lending of cryptocurrencies
Where stakers lock their cryptos into a blockchain, lenders lend theirs to borrowers in order to earn interest. This is a part of decentralized finance (DeFi) that provides financial access to all cryptocurrency users without the dependence on a central institution such as a bank. Interest rates are constant and can range from less than 1% to as high as 15%.
But you need to be careful about the platform you use, as you are entrusting your cryptos to a company in some cases. To ensure the safety of the loans, lending platforms require a high collateral from the borrower, while they will refund you if the borrower bails.
