Bitcoin and cryptocurrencies in general have had a wild year. Bitcoin soared to unprecedented heights and is finally starting to behave as the store of value it always promised to be. The price has since stabilized, which makes it a great time to consider the option. But there are things that you have to know before investing in cryptocurrencies, as they have fundamental differences with other asset classes. Let’s take a look at how to invest in cryptocurrency trading in 2021.
Learn Your Top Cryptos
You should first know that Bitcoin is not the only game in town. It would be wise to look at a few altcoins so you can hedge your bets.
Besides Bitcoin and Ether, you should check out other cryptos such as Litecoin, XRP, Monero, and Binance Coin.
You should also start looking at the different types of coins there are on the market. Not all coins are meant to be substitutes to fiat currency. Ether is theoretically not a currency, but a medium to transact on the Ethereum blockchain and power decentralized apps. XRP was created to facilitate international money transfers, while Monero banks on privacy. Understanding these differences will allow you to gauge demand for certain products and what could have a potential for taking off.
Learn About Derivatives
While crypto ETFs are slow to take off, there are other derivatives that you could look at. An interesting one is contracts for difference. These allow you to get exposure to the crypto markets and potentially benefit from their fluctuations while applying leverage. CFDs also remove many of the barriers that make day trading with cryptos difficult. They negate the need to hold the underlying asset, which means you don’t need worry about securing a cryptocurrency wallet. If you want to trade with CFDs, we suggest you look at regulated trading platforms such as easyMarkets.
Learn About Wallets
If you decide to directly buy cryptocurrencies, you will need to get familiar with what a crypto wallet is. Crypto wallets do not contain cryptocurrencies. Instead, they store an encrypted version of your private key and a copy of your public key. These will be used to verify transactions on the blockchain.
The public key is essential for letting people know where they should send funds to or who they are getting funds from. The private key is what will allow you to request your funds and verify your identity.
These are extremely important. Pick a wallet that has poor encryption and security features and someone else could get their hands on your funds. There’s also the very real possibility that you lose your wallet and all your coins in the process. So, you will need to research the different types of wallets available and consider using multiple ones at once.
Learn About Exchanges
Cryptocurrency exchanges are the last piece of the puzzle. They work a lot like regular exchanges, but with a few differences. For one, they aren’t as tightly regulated. Some will also only allow you to exchange crypto for another crypto, so that’s something you’ll have to prepare for.
This is all you need to know to get started with cryptocurrency. Follow these instructions and make sure that you know what you’re investing in first.