Go WebCenter explains how you do cryptocurrency investment. Why should you invest in them? Which cryptocurrencies should you put in your portfolio? Where can you buy them, how can you store them, and how do you need to tax them? We try to give answers to the most urgent questions about investing in cryptocurrencies.
Investing in cryptocurrency could be a good investment, or it could not. That is true for cryptocurrency in general and likely for you as a person as well.
What is Cryptocurrency investment?
If you landed on this text, you might be already interested in investing in cryptocurrencies. Virtual or cryptocurrencies like Bitcoin and Ethereum are definitely by far the hottest investment product currently available. These immutable and exchangeable cryptographic token promise to become a hard and non-manipulatable money for the whole world. Their advocates see a future in which Bitcoin or other cryptocurrencies will substitute Euro, Dollar and so on and create the first free and hard world currency.
Holding Bitcoin means to have a share in this venture. If Bitcoin ever replaces monetary reserves of central banks or becomes the dominant currency for international trades – just to name two examples — the value of one Bitcoin will be far beyond 10,000 Dollar. Buying and keeping cryptocurrencies is a bet on the success of this silent revolution of money. It’s like a security of a large ecosystem.
Can you trust an asset, which demonstrated this incredible vertical take-off? Must it not be a bubble?
Sure: it would have been better to invest one year ago, two years ago or six years ago. But if you understand the potential of also be found and if your belief in their vision of money, today might be the best day possible to start investing in it. That’s why we wrote a guide explaining how to invest in cryptocurrencies. We will tell you how you create a cryptocurrency-portfolio, where you buy cryptocurrencies, how you store them and how you tax your gains.
This said we need to note that cryptocurrencies are not a normal investment. The volatility grossly exceeds that of any other investment class. It is to some parts unregulated. There is the risk that cryptocurrencies get outlawed, that exchanges get hacked or that you lose your cryptocurrency key. Cryptocurrencies are a high-risk investment.
Why Invest in Cryptocurrencies And Why Not?
Besides what was already said, there are three major good reasons to invest in cryptocurrencies. First, because you want to hedge your net-worth against the fall of the Dollar imperium, which is assumed by many people to inevitably happen at some time. Second, because you support the social vision behind cryptocurrencies – that of a free and hard money for the whole world. Third, because you understand and like the technology.
However, there are also very bad reasons to invest in cryptocurrencies. Many people fall victim to the hype surrounding every cryptocurrency-bubble. There is always somebody captured by FOMO (fear of missing out), buying massively in at the peak of a bubble, just in hope to make quick money, while not understanding cryptocurrencies at all. That’s a bad reason. Don’t do this. Learn before you invest.
What Cryptocurrencies Should I buy? Building your Portfolio.
The former only crypto has been Bitcoin. Up until late 2016 Bitcoin was the cryptocurrency, and there was not much besides it. If you wanted to invest in the success of cryptocurrencies, you bought Bitcoin. Period. Other cryptocurrencies – called “Altcoins” – have just been penny stocks on shady online-markets, mostly used to keep miner’s GPUs working, pump the price and dump the coins.
However, this has changed. While Bitcoin is still the dominant cryptocurrency, in 2017 it’s share of the whole crypto-market has rapidly fallen from 90 to around 40 percent. Many people saw this coming as a result of the growing popularity of Ethereum and the ongoing self-tearing of the Bitcoin community over the blocksize issue. This again shows that it is important to keep your eyes open and listen to what the communities say.
If you want to invest in cryptocurrencies, Bitcoin is still a standard item of every portfolio – but it is no longer the onliest asset. In every well-balanced crypto-portfolio today you find other coins, like:
A good starting point to put together your portfolio should be the website coinmarketcap.
How to invest in cryptocurrency:
If you want to invest in cryptocurrency, and not just buy, sell, or trade, then you have a few options. New investors can choose between the GBTC trust sold on the stock market, a cryptocurrency IRA (we don’t want to recommend one until we have reviewed them), or an exchange-broker-wallet hybrid like Coinbase/GDAX which allows customers to buy/sell actual cryptocurrency. Each option has its pros and cons, but notably, only an exchange-broker like Coinbase/GDAX allows one to trade and invest directly in cryptocurrency. Learn more about how to invest in cryptocurrency.
With the above said, please note that we don’t offer professional legal, investing, or tax advice on this site. With that in mind, the best advice is to be prepared to lose every penny you invest in cryptocurrency, it probably won’t happen, but it could, and you need to go into the cryptocurrency with some stored up resilience. If, with that warning, you want to ease into cryptocurrency investing. Consider taking no more than 1% of your investable funds, and then get a toe wet with GBTC or Coinbase. Keep it simple to start, and then consider easing into other options like online cryptocurrency exchanges or even cryptocurrency mining. Also, consider dollar cost averaging (taking your funds for the year and buying weekly or monthly on lows). This will help you buy the average price of an otherwise volatile market. Sure, you can jump right in, but if you time the market wrong, you could be in for an unnecessarily tense roller coaster ride.
Investment Strategies: Let’s Make Something Clear
How do investors make decisions they want to invest in real estate or stocks? Do they start making investments the moment they think about it? My guess is that the answer to that question is – no!
Before you invest in anything, you need a clear understanding of what your investment goals are and how you will achieve them. You want a good idea of how long you are prepared to keep your investment open, and what amount of profit you are happy to take.
You should have the same mindset with cryptocurrency investments. Before you decide what the next cryptocurrency to invest in 2018 is for you, let’s discuss the two main types of investment strategies for cryptocurrencies.
Long-term Cryptocurrency Investment
A long-term investment is one where you expect a cryptocurrency to perform better over a longer period of time. Simple! Normally, the minimum time for long-term investment is 6 months to 1 year. Although, some people plan to hold onto their investments for 5-10+ years. It’s up to you how you choose to invest; you can either make your full investment in one go, or you can invest at different times.
Long-term Investment Strategy
Once again, before investing any amount, you must have a clear idea of what your investment goals are:
Will you sell the cryptocurrency after a certain amount of time or will you sell it when it reaches a certain price?
Will you sell off your investment at once or will you sell parts of it at different times?
On what occasion would you sell the long-term investment in the short term? For example, if new laws come into place that could affect the long-term price of your investment, you might consider selling it sooner.
Next, you should do some research to decide which cryptocurrencies are best as long-term investments. I recommend that you check for the following:
Is their technology better than their competitors?
Do they have a strong team of founders and developers?
How good is their roadmap/plan?
Are they solving any real-world problems?
If you really believe in the cryptocurrency you invest in, you should learn to hold on to your investment even when the prices drop. If you ‘panic sell’, then you could lose money and regret selling.
Reasons For Making Long-Term Investments
Long-term investing makes your life easier as you don’t need to watch the market all the time
You believe that some cryptocurrencies will give a better return in the long-term
You truly believe in the future of the cryptocurrency
Short-Term Cryptocurrency Investment
Short-term investments are made over shorter time periods in the hope of making quick profits. So, just how short is a short-term investment?
Short-term investments can take seconds, minutes, days or even a few months.
How Do Short-Term Investments Work?
Just like long-term investing, you need to have clear goals for your investment. You need to be asking yourself:
What profit are you expecting to make from this investment? This will give you an idea of the price at which you should buy/sell the cryptocurrency.
How much of a loss will you accept? This will help you control your losses if the price of cryptocurrency suddenly drops.
Do you have time to study and follow the crypto market and the news?
Can you make technical analyses of the crypto market? If not, then you should learn before investing.
Will your short-term strategy give you higher returns than a long-term strategy?
You need to find out which is the best cryptocurrency to invest 2018 for short-term. Cryptocurrencies that have the following are good options for short-term investments:
Low market cap
High trading volume — lots of people are buying and selling it every minute
Are currently trending on the news and on social media
Have an ICO or have just finished their ICO — try to get them at a low price
While cryptocurrencies like Bitcoin and Ethereum can also be traded in the short-term, you should think about investing in the newer cryptocurrencies. Investors have made huge profits in past with short-term investments – including some of the major, but newest cryptocurrency investments like NEO, Stellar, IOTA and NEM.
The main advantage to short-term investments is that you can make a lot of money in a short amount of time — they have made a lot of people rich quickly. However, they still have their disadvantages.
So, what are they?
They take up a lot of time and effort as you need to watch the market prices constantly
It is a riskier investment and can result in greater losses because of how much the price changes in a short time
It can be very stressful and emotional
It’s difficult to say which is the better option of the two investment strategies. It all depends on your goals and experience in the cryptocurrency market.
If you really believe in a project, then I recommend that you invest for the long term. However, if a project is new and is generating a lot of attention, then short-term trading could be the better option.
The Pros and Cons of Investing in Cryptocurrency:
CON: The cryptocurrency market has been very volatile since its inception. The price of Bitcoin can swing up or down hundreds of dollars in a day, and the price more than quadrupled in 2017. We have already seen one bubble and bust back in 2013, and currently in 2017 bitcoin looks like it is in a classical bubble. In fact, our header image is a reference to the psychology of bubbles. Specifically, it is a reference to “the Minsky cycle,” which may give you an idea of how likely it is that we are in bubble territory. That said, there are many more factors to consider here. If there weren’t, the answer to investing in cryptocurrency would have just been a simple “no.”
PRO: There is a significant upside to investing in cryptocurrency. That is, the cryptocurrency market is still young, and the most optimistic of investors are projecting future prices that would make buying any of the major cryptocurrencies (even at the height of 2017) a good bet. If Bitcoin goes to $6k, $7k, $15k, or say $600K+ like some notable investors suggest, $4.2K (about what it trades here in the second week of September 2017) is going to end up looking like a great price, regardless of what happens in the interim.
CON: Even if cryptocurrency is a good long-term bet, we don’t know if Bitcoin (or any of the top coins) will be the one that sticks around. This is even more true for the countless less popular coins with smaller market caps. Thus, there is a risk in betting on a given coin even if cryptocurrency is here to stay and the best prices are ahead.
PRO: Even if cryptocurrency is in a bubble, the trend could very well be toward cryptocurrency being an important medium of exchange and store of value in the future. If the current price is lower than the highest price we will ever see. That makes it a good long-term bet. Meanwhile, for day traders, cryptocurrency is a very risky (but potentially rewarding bet).
CON: Those with low risk tolerance have an added difficulty; they are prone to getting weak knees and pulling out at a loss while the market is correcting or slumping. If you bought Microsoft at the height of the .com bubble, it seemed like the end of the world unless you waited 17 years. 17 years later you realized your profit and a nice profit at that. Microsoft was never a bad bet; it only looked like one after the bubble popped to those who bought at the height of the bubble. If Bitcoin behaves like the Microsoft of cryptocurrency, then an investor needs to be prepared to take a loss or sit on a loss for a while if the market goes down (if this is a major bubble). That takes a certain type of steady mindset and expendable funds. In other words, there are psychological factors to consider along with economic ones.
CON: Regulators of major countries like the U.S., Russia, and China can have big impacts on cryptocurrency (they likely can’t crush it, but they can make life difficult for investors). The U.S. shutting down the Silk Road caused a crash in 2013 (popping a bubble that didn’t recover until 2017). In 2017 China began talking about banning ICOs (crowdfunding for new coins) and gave signals of disapproval (bringing the price of a Bitcoin from $5k to $4k in a matter of hours). Currently, cryptocurrency trading is legal in the U.S., Russia, and China (although that could change), and the U.S. and Russia have been fairly friendly toward cryptocurrency but keep in mind governments can influence the price (even when all other signals are good).
PRO: Since the market is volatile, if you time your buys and sells correctly, you can often buy high low and sell high. There is money to be made.
CON: The only way to trade cryptocurrency on the stock market is to buy GBTC, which trades at a premium. The simplest way to buy cryptocurrency for a novice aside the stock market is via a company like Coinbase, and they charge a premium for that (much lower than GBTC’s, but still a premium). Meanwhile, the lowest fees are on the open exchanges of the internet. Where their fees are low, their risk and complexity are higher than GBTC or Coinbase. Between premiums and fees and finding a seller, all options for trading have costs that eat into any potential gains. Those can be hard to calculate.
PRO/CON: In the U.S. cryptocurrency is legal, regulated, and when held for investment taxed as an investment property. This is good. It means you can keep a tally of your trades, treat them as capital gains, and then report to the IRS just as with any capital investment. On the other hand, the exact rules are murky, and this complicates things. For example, it isn’t 100% clear that the rules of like-kind property exchange apply to cryptocurrency. Assuming they do apply, that means every trade from one cryptocurrency to another is a taxable event for the year. Meanwhile, if they don’t apply, then you don’t pay taxes on cryptocurrency until you take it out of cryptocurrency and convert it to USD (or otherwise spend the coin). This is far from the only tax consideration. Thus, one should study and consider the tax implications of cryptocurrency before making investments in the cryptocurrency space. That means you may need to hire an accountant, and that cost must be considered.
PRO/CON: In 2017 we saw a boom of new coins and ICOs. That could be good for the market, but it could also flood the market with low-quality coins and result in bad experiences for new investors. It could also draw too much heat from regulators. Cryptocurrency is exciting and legal here now, but too much chaos from an oversaturated market full of low-quality products could put a damper on that.
PRO: Cryptocurrency is, despite all its risks, perhaps the most exciting asset of the 21st century. A decentralized digital currency that works on the very interesting and likely here-to-stay blockchain technology. There are a thousand reasons to be excited about cryptocurrency, but also reasons to be conservative in your investment strategy. Don’t dump your whole 401k into cryptocurrency, but don’t be scared to get a toe wet with a small investment you are comfortable losing (to join in the fun and to learn more now, so you have the know-how later).
CON: The attitude of crypto investors seems to change with the wind. A bit of bad news in term of regulations tends to send prices into a tailspin one day, but the same news another day might have no effect. Join a given cryptocurrency group on social media, and you’ll note it goes from hot-to-cold with the weather. The market is somewhat “finicky.”