How to get your hands on cryptcurrencies?

Can investing in cryptocurrencies make you really rich?

Yes, if you know how to play the game.

The total market capitalization of cryptocurrencies skyrocketed in 2017 to more than $800 bn and the market value of some of the digital assets appreciated by more than 12’000% (e.g., XRP). Given this tremendous value increase, it is no coincidence that a wide bunch of players within this fascinating ecosystem have become millionaires or even billionaires by mining and holding cryptocurrencies. Among these players were speculators (“gamblers”), believers and criminals but barely institutional investors. 2017 included a lot of incredible success stories which may lead you to start investing in Bitcoin and co immediately. Erik Fineman represents one of the most interesting stories as he began investing in Bitcoin in 2011 by the age of 11. His grandmother gave him 1,000$, and he decided to spend all of that amount in Bitcoin. At that time, Bitcoin was worth $12 per coin and by the end of 2013, its value of exceeded $1,200. This means that Erik turned $1,000 into $100,000 in just three years – not a bad investment decision for an 11-year-old!

Another story, the one of Chris Larsen, Ripple co-founder, summarizes the highs and lows of crypto investing pretty well. With Ripple’s coin XRP appreciating from less than 0,01 USD to more than 2,50 USD, Chris made a fortune exceeding the net worth of Mark Zuckerberg in 2017. Without any warning, XRP depreciated again which led to Chris losing $44 bn in a few days. Many people have experienced similar unfortunate circumstances due to the enormously high volatility of cryptocurrencies nowadays.

From this, two crucial questions arise. Is it wise to invest into cryptocurrencies right now? And how can you actually get into trading?

Figure 1: Cryptocurrency trading

How to trade cryptocurrencies?

To get started with trading cryptocurrencies the first thing you need to do is to choose (at least) one cryptocurrency in which you want to invest in. Based on that, you will need to pick a trading platform offering the specific currency of your choice.

Research is required to pick a solid trading platform. The past proved that many exchanges are not yet sufficiently secured (and therefore not “trustworthy”). Just to mention one specific example, Japan’s Coincheck exchange was recently hacked for $530 m of user’s assets – a serious blow to Japanese crypto traders. Generally, an exchange platform’s size as in volume can be considered a good indicator for its adoption and therefore its security as well. According to the 24 Hour Volume Ranking on coinmarketcap.com, Binance ($1.53 bn), OKEx ($0.97 bn) and Huobi ($0.83 bn) are the most liquid platforms today. [4]

One of the most reliable and easiest-to-use platform to start with is Coinbase. After having registered yourself on the website, you can transfer your money as domestic currency (EUR, USD, etc.) from your credit card or bank account into your Coinbase crypto wallet. From there, you can  buy, sell and store the most common cryptocurrencies such as Bitcoin (BTC), Bitcoin Cash (BCC) and Ethereum (ETH). Depending on your investment strategy you can decide to sell the cryptocurrency and transfer domestic currency back to your bank account anytime.

Besides Coinbase, there are a lot of other cryptocurrency exchanges (e.g., Binance, Bittrex, etc.). These platforms usually have a much broader selection of coins available – as stated in our previous blog posts, there are more than 1,200 different cryptocurrencies in the market. Less known coins, also known as altcoins, are mostly not quoted in fiat currencies but traded directly with equivalent values of BTC, BCC, ETH.

Should you trade cryptocurrencies?

When considering whether or not to trade cryptocurrencies, the first aspect you should take into account is if you are in the position to make a 100% loss on your investment. Cryptocurrencies are a highly risky investment which you should always keep in the back of your mind.

Your investment strategy can either be based on a long- term, a holding or speculative day trading. Either way, research on specific coins is recommended (and required) before investing.

We summarized several Cons and Pros evaluating cryptocurrencies as a trading instrument:

Cons

- Volatility: cryptocurrencies are highly volatile – the rule to follow is only to to only invest money you are ready to lose

- Value determination: cryptocurrencies’ values bear a high level of uncertainty – demand today is mostly based on speculation and intrinsic valuation

Pros

- Liquidity: globally active markets with 24 hours-a-day availability and high volumes

- Access: everybody with an internet connection may have access to platforms in order to invest in cryptocurrencies

- Anonymity: many markets conceal your identity fromto the governmental by letting you invest more or less anonymously

- Settlement: almost all platforms are characterized cheap trading fees and fast transaction speeds

If you are interested in short-term day trading, following introductory video will get you started:

Should you invest in cryptocurrencies?

After having achieved substantial gains throughout the last year, the crypto market cap is now back at a relatively low level – these days could, therefore, be described as an excellent time to “buy the dip” and to invest!

HOWEVER, crypto trading can be summarized fairly easily: high potential profits are always connected to high risks, and the crypto market is one of the most volatile markets in history. There is one golden rule to follow: never invest more than you can afford to lose.

See you next time!