Cryptocurrency, Investing

A Beginner’s Handbook to Successful Crypto Investments

Learn the basics of cryptocurrency investing and trading with this beginner's guide.
Written By: Eric Williams
Reviewed by: Mike Reyes
Last Updated February 20, 2024
Disclaimer

This content is not intended to provide financial advice; rather, it’s for information and entertainment purposes only.

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Key takeaways:

  • Cryptocurrencies offer diverse investment options with varying risks and rewards.

  • The crypto market presents the potential for significant returns but also carries inherent volatility.

  • Entering the crypto market requires careful planning and education.
crypto coins with graph in the background

There are various types of cryptocurrency. Bitcoin, Litecoin, and Dogecoin, as well as privacy-focused currencies like Monero, are among payment coins. You’ll also find utility tokens that serve a specific purpose within a blockchain’s ecosystem. For example, ERC-20 tokens built on the Ethereum network are utility tokens. Stablecoins are digital tokens pegged to fiat currencies or other assets. Even some central bank digital currencies, such as eNaira in Nigeria, exist in the market.

Regardless of the cryptocurrencies picked, it’s vital to have a smart investment strategy and a wallet to keep your assets safe. Each asset requires a separate wallet, so if you acquire BTC, you need the Paybis Bitcoin wallet to manage transactions.

Uncovering the Pros of Investing in Cryptocurrency

Bitcoins and U.s Dollar Bills

Before we continue, here’s why investing in crypto can be a smart move:

  • Excellent return potentials. On January 1, 2023, Bitcoin was worth $16,619.10. Eleven months later (December 1st, 2023), the value increased to $38,688.75. It’s only one example of impressive return potentials present in the crypto market.
  • Globally accessible. The entire point of cryptocurrencies is to make international transactions available to everyone. Regardless of your location, you only need an internet connection to access and move your investments around the globe.
  • Transfers are fast and reasonably affordable. Cryptocurrency trades are usually completed quickly. You can execute transactions 24/7 and send and receive payments anywhere.

Cryptocurrency Investment Strategies

The great thing about the crypto market is that you have many investing options. There are effective methods to make passive income in crypto and suitable strategies for more active traders. Here’s an overview of the most popular investment options currently available!

Long-Term Investing

The most common investment strategy is the one where you keep the acquired asset for a while. For some, long-term refers to holding on to a coin for over a day. For most, it indicates that you keep an asset for at least a few weeks or months.

You can even use the “Hold on for Dear Life” or HODL strategy. It indicates that you keep the asset regardless of its price, even if the value goes down significantly. The idea is that it will bounce back up to secure profit as initially planned.

Day Trading

As the term suggests, day trading involves making multiple transactions within a single day. For stock markets, that usually refers to the market’s working hours. Crypto markets operate around the clock, so this points to the activities made during that day.

You can use several approaches in day trading:

  • Scalping. You focus on minor price changes that occur quickly, with the idea of profiting from those adjustments. The crypto market’s volatility makes it suitable for this strategy.
  • High-frequency trades. Specialized bots with advanced algorithms identify and make thousands of trades that meet the specified requirements each day.
  • News-based trading. It involves acting based on the latest headlines and other important events.

Staking

Ethereum, Cardano, and Polygon are some popular crypto platforms that use the proof of stake consensus mechanism. It involves staking coins to mine new blocks and generate rewards. The idea is to acquire the desired currency that uses the PoS consensus first. Once you have the asset in your wallet, you can lock it to participate in the network’s validation and security. There’s a specified deadline when your currency remains locked. If you don’t unlock it during that time, once the deadline expires, you qualify for a reward.

Mining

Litecoin, Bitcoin, and many other currencies use the proof of work consensus mechanism. The protocol is a bit different because you’ll need rigs, which are specialized PC hardware solutions. You use these resources to solve complicated mathematical issues. They are a part of the cryptographic security imposed by blockchain networks. Solving these problems is used to validate transactions and secure the platform.

Once you have the necessary hardware, you can participate in a mining pool to boost the odds of winning prizes. After you receive the coins as the reward, it’s up to you what to do with them — trade, sell, or hold them for profit. Don’t forget that expensive hardware uses a lot of electricity, which can be costly.

Day Trading vs. Long-Term Investing in Cryptocurrency

Close-Up Shot of Silver and Gold Round Coins

These are two different approaches to crypto investments. Here’s an overview of how they match in different categories:

  • Effort. Day trading requires more activity from the investor since you’ll be making at least a couple of trades in a day. Long-term investing takes weeks, months, or years of holding onto an asset, so the activity is low.
  • Profit. Day traders could have a significantly high profit in a short span of time. Long-term investors profit from a gradual increase in the asset’s value.
  • Risk. It always exists, but long-term investing aims to decrease any short-term price adjustments that could be surprising. Day trading focuses on volatility within a single day, presenting a higher risk.

Day trading is the best choice for those investors who want to be active in the market. You should constantly consult technical indicators and perform analysis. Fast decision-making is imperative since each second or minute could significantly influence your profit.

Long-term investing is for those who are patient or don’t have much time for constant trading. It’s a passive approach that doesn’t require frequent price checking. That’s less stressful, but one should be aware they might miss out on chances to gain on crypto in the short run.

Conclusion

If you have experience with stock investing, you’ll feel right at home with crypto assets. And even if you are a total investment newbie, cryptocurrencies present an exciting investment opportunity. You can pick between different approaches, such as staking or mining, or going for long-term investing. If you prefer being active in the market, day trading can be the perfect fit. Don’t hesitate to try different investment strategies to pick the best option!

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