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How to Invest in Cryptos

A short guide to help you successfully invest in cryptocurrencies

The hype is more alive than ever, for the good and the bad. With the fork of bitcoin, Ethereum driving down bitcoin's market share as investors rally behind it, and the worry of how the SEC will regulate cryptos and ICOs, people are becoming more interested and investors want to dive into this new wave of digital currency. I hope that by cutting through all the technical jargon out there, I can successfully guide investors on how to invest in cryptos. After that, I will then provide advice on what to look out for and how to decide whether or not to invest.

How to Invest

1. Find an exchange

Crytpocurrencies are traded on exchanges just as securities are traded on the NASDAQ or NYSE. When looking for an exchange, you will want to stick to the larger exchanges with higher volume to increase the chances of your trades going through. The best exchanges are Bitfinex, Gemini, GDAX, and Kraken. Typically you will need to verify your account with a driver's license and add other details to expand your buy limits. Since cryptocurrencies are "hard currencies," the exchanges don't want to risk getting ripped off, since you can't reverse a cryptocurrency transaction once it's done. Many websites drive investors to Coinbase because it is easy to use. However, the easy to use interface and the wallet it provides are in exchange for higher fees.

If you are looking for some of the newer coins that are making big movement but haven't made their way to the aforementioned exchange sites, you can look into Poloniex or Livecoin. You can transfer Bitcoin or Ethereum to these platforms from Coinbase and then exchange it for any other digital currency that you want.

After you complete your buy order, the tokens will be held in the exchange for you. Unless you're looking to day trade cryptos, it's best to immediately transfer your currency into a "wallet."

2. Get a wallet

As long as the exchange holds your tokens, you do not have full ownership of them. Establishing a wallet enables you, as the investor, to transfer your private key into a "wallet" where your investment is more secure. By housing your private key, the wallet is ensuring that no one will be able to touch your currency.

Cass Proffitt from Disruptor Daily discusses the top 10 best cryptocurrency wallets for 2017. The suggestions are great, but investors need to know the distinction between the different types of wallets out there, so I have highlighted them below:

  • Desktop — typically an installed application on your computer that will connect to the blockchain. 
  • Hardware — these are typically USB devices that can access the blockchain. 
  • Web-based —  convenient as you can access from anywhere. Funny enough, your private keys are stored on a central server, which may prove to be a security risk.
3. Transferring and Receiving Funds
If you’re moving cryptocurrency out of the exchange, simply paste your wallet’s public key into the exchange website and send. If you’re doing the reverse, paste the exchange’s public key into your wallet’s transaction contract and confirm.

Build a Portfolio

While Bitcoin is still the dominant cryptocurrency, in 2017 it’s share of the whole crypto-market has quickly fallen from 90 to around 40 percent. Many people saw this coming as a result of the growing popularity of Ethereum and the ongoing divide of the Bitcoin community over the blocksize issue (which has recently split into two versions and now we have Bitcoin Cash).

If you want to invest in cryptocurrencies, Bitcoin is still a standard crypto of every portfolio – but it is no longer the only 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.
There will even be a derivatives market for cryptos for those investors who love a little more risk in their portfolio. However, as any finance expert knows, the premiums on any options contracts for volatile assets are often very expensive. Since cryptos are pretty much the most volatile assets out there, the premiums on these contracts will be insanely high. The idea is that if you leave the window open for too long for volatile assets, the premiums will just be more expensive and this will happen with cryptos as they tend to go up and down all the time. But, an options exchange may spur trading and attract investors who are fearful of entering what has so far been an unregulated market, dominated by coders and entrepreneurs, ultimately leading to an increase in the value of cryptos.
As you begin to invest and build your portfolio, you need to be aware of fraudulent activity and scammers. Good cryptos will have a very enthusiastic community rallying behind them, a transparent technical vision, and a super active development team. If you don't find this in new ICOs or new tokens, then do not invest.

When to Invest?

Usually it is not a good idea to buy in at the peak of a bubble, and usually, it is also not a good idea to buy it when it is crashing. You can avoid buying at the peak of a bubble by not comparing crypto bubbles with traditional financial bubbles. A twenty percent increase is certainly not a bubble and is most likely just day-to-day volatility. A hundred percent increase seems huge and usually is a bubble in the stock market, but with cryptos, it's usually just the beginning. And always take time to just watch the market like you would with any investment. Don't buy in because of fear that the market will skyrocket tomorrow or because you saw a sharp decrease. There could be more market moves coming shortly. Once you get informed, then you can buy when you believe the timing is just right.

Another piece of advice is to never sell right away. When buying crytpos, you should buy them as a long term investment (unless you're a day trader). And you shouldn't invest more than 10-20% of your wealth. Crytpos have a long way to come before usability becomes a thing and not many merchants even accept bitcoin (the share of bitcoin accepting merchants has actually dropped). At the time being, they're speculative assets, not transaction methods, but I believe they're good speculation and worth the investment.
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