Making money through investments has been common in the financial markets for many years. After the creation of Bitcoin in 2009, many investors turned to the cryptocurrency market and made good profits in this area. However, investing in digital currencies is not always profitable and if you are not familiar with the different aspects of this market, there is a possibility of losing your assets. That is why, in this article from the Inox digital currency exchange, we have moved on to training on investing in digital currencies and want to take a closer look at the advantages of this new attractive market.
What is investing in digital currencies?
Cryptocurrency is a type of virtual currency that can be bought and sold in the form of money. In addition, as with most assets, investing in digital currencies is possible and can be profitable for investors. However, it should be noted that cryptocurrencies are one of the most volatile types of assets and their purchase should be done with great caution.
Unlike traditional assets, cryptocurrencies are not issued by a central authority such as a bank or government and are decentralized in nature. Cryptocurrencies are traded using units called coins and tokens. You do not have to come in person to invest in digital currencies, but rather use reputable online platforms and exchanges. Since these coins exhibit high volatility over time, many traders start investing by analyzing the cryptocurrency price chart or considering the growing nature of a cryptocurrency project. If these analyses are done well, profits and capital increases can be made.
Types of digital currency investments
Many people think that investing in digital currencies is limited to buying and owning a cryptocurrency. However, income generation in this area can be divided into different types, which we will explain below.
Direct purchase of cryptocurrencies
The most common way to invest in digital currencies is to buy directly. In this context, you can start from the most well-known currencies such as Bitcoin and Ethereum and even move on to lesser-known cryptocurrencies. Sometimes, buying an emerging asset can generate good profits for investors.
Digital currency companies
To invest in digital currencies, you can contact companies that operate partially or fully in this area. For example, the American financial services company “Robinhood Markets” with its HOOD token and “PayPal Holdings” with its PYPL token operate in the cryptocurrency market. In addition, the company “MicroStrategy” (MicroStrategy) has launched the MSTR token and you can invest in these companies by purchasing these tokens.
Cryptocurrency-based funds
If you do not want to invest in digital currencies through companies in this field, you can use crypto-based funds. In this context, exchange-traded funds (ETFs), index funds, and futures funds are very good options.
In January 2024, the U.S. Securities and Exchange Commission approved Bitcoin exchange-traded funds. These funds allow you to invest in digital currencies without having to buy and hold cryptocurrencies. Therefore, ETFs are currently considered one of the most popular and safest investment methods in the volatile cryptocurrency market. For more information on this topic, see the article below.
Digital Currency Pension Funds
These funds allow you to benefit from the tax advantages of Roth IRAs while investing in digital currencies. This method is less risky than other options; this way, you can save your capital without paying taxes. Of course, it is currently not possible to obtain such funds from Iran.
Investing as a miner
One of the oldest ways to invest in digital currencies is to become a miner. Miners are people who use mining equipment to mine digital currencies. To do this, you need a powerful miner and large amounts of electricity. In addition, in recent years, it has been possible to become a miner through investments. With this method, you stake a portion of your digital currency on the network and make a profit by validating transactions.
Methods of investing in digital currencies.
There are different strategies for investing in digital currencies. Getting familiar with these strategies will help you find the best method and earn more income while managing risks. Stay tuned for the rest of this article so that we can discuss with you the different methods of investing in cryptocurrencies.
Holding or Hodling
The most popular investment strategy in digital currencies is hodling. “Holding” became popular in 2013 due to a verbal error in the expression of the word “holding” or “hold”. This approach is long-term in nature and helps investors to simply enjoy the long-term growth of their assets rather than getting carried away by the short-term volatility of cryptocurrencies.
Holding requires patience and confidence in the investment strategy, and one should not hesitate and sell their assets in this sense. However, remember that this confidence is based on proper analysis and sufficient knowledge. To know the best cryptocurrencies for long-term investment, you can read the following article.
Periodic Periodic Costs
This strategy, also known as DCA, is particularly useful in the volatile cryptocurrency market. Based on this strategy of investing in digital currencies regardless of market conditions, we buy an asset at certain time intervals. This interval can be weekly, monthly or yearly. In fact, DCA helps investors reduce market risk and avoid falling into the trap of emotional decisions by spreading their capital over a longer period.
Trend Following
Predicting or following the trend is one of the digital currency investment strategies consistent with the dynamics of this market. This strategy consists of identifying market trends and taking advantage of them. Of course, traders in this field do not seek short-term profits, but rather identify long-term trends and make profits from them.
The most important tool for trend forecasting is technical analysis. This method consists of predicting future trends by analyzing past price movements. So, when a trader relies on a trend, he invests in digital currencies by buying in an uptrend or selling in a downtrend.
Swing Trading
Swing trading is a tactical method in the cryptocurrency market that involves making profits on short-term price movements. Since the cryptocurrency market is very volatile, this strategy is considered a very cheap way to invest in digital currencies. Typically, traders in this area keep their trading positions open for a few days to a few weeks, taking advantage of market trends and movements.
Swing traders must have precise timing and a deep knowledge of market indicators. Most traders in this field use indicators such as moving averages, the Relative Strength Index (RSI), or the MACD.
Intraday trading
This digital currency investment strategy is suitable for people who have a lot of energy and speed. In this method, trading positions are opened for one day and closed at the end of the same day. Of course, these transactions can only take a few minutes to a few hours. Day traders make quick decisions and constantly monitor volatility.
Therefore, this type of digital currency investment requires traders to be familiar with trends and indicators and be able to react quickly. To find out the best digital currencies for daily profits, click on the link below.
speculation
Scalping is a method of investing in digital currencies that involves taking advantage of the speed of market fluctuations and making small, frequent profits. Scalping traders pay attention to small price movements and execute their transactions in a matter of seconds or minutes. The goal of these traders is to accumulate profits from multiple transactions in one day.
Since this digital currency investment strategy is based on short-term fluctuations, it requires high speed and accuracy. Typically, these traders use technical analysis to identify rapid market movements. Although this strategy is very difficult, it can guarantee individuals consistent profits.
The best way to invest in digital currencies
The choice of a method for investing in digital currencies depends on your trading strategy. In addition, when choosing a strategy, you should pay attention to your desires, tastes, risk tolerance, and mental performance. In this context, knowledge is also very important. For example, if you are looking for scalping and swing strategies, you will need more analytical knowledge than hodling.
On the other hand, you need to check what your risk tolerance is and how much psychological pressure you can withstand. Basically, strategies based on short-term trading require time, knowledge, and great mental capacity. On the other hand, methods like hodling are less risky and do not require constant monitoring of market trends. To know the best swing strategy, you can read the following article.
Learn how to invest in digital currencies
Investing in digital currencies requires learning technical analysis and traders must have sufficient knowledge in this area. In this context, there are important training tips that will help you secure your investment and reduce possible risks.
Prepare to lose
Cryptocurrencies are emerging assets and always experience enormous volatility. Due to the volatility of this market, you should invest in cryptocurrencies only to the extent that you can afford to lose them. With this in mind, experts recommend allocating only 5% of your capital to invest in digital currencies.
Use the average
We have said that DCA is one of the methods to invest in digital currencies. Since this method has nothing to do with price fluctuations and buys assets over specific periods of time, it can be a suitable approach to avoid possible risks and profit from this market in the long term. To manage price fluctuations, traders in this field usually buy fewer assets when exchange rates rise and increase their purchases when prices fall.
Research projects
Investing in digital currencies is very different from traditional financial markets. In fact, the progress of a cryptocurrency largely depends on the founder, goals, vision, and budget of a project. All of these elements constitute the basic principles of a project. In this sense, projects that do not only aim to copy and offer unique features are more valuable. When performing a basic analysis, be sure to consider the use of a project's tokens, transaction scalability, network security, programming languages, team transparency, and competitive advantages.
Stick to the best cryptocurrencies
The major cryptocurrencies in the market, such as Bitcoin and Ethereum, have very high market capitalizations and are responsible for almost all of the market volatility. In addition, these assets are present on most exchanges and investment methods, such as exchange-traded funds. These digital currencies have gone through several major cycles and recessions. While investing in popular digital currencies remains risky, these cryptocurrencies have shown resilience and strength and have remained stable. So, even if you benefit from the growth of new coins, you should still allocate the majority of your portfolio to the major cryptocurrencies.
Use secure storage
Every year, millions of dollars worth of digital currency are stolen due to user negligence. Since all the processes in the cryptocurrency space are carried out online, the risks of hacking and fraud are also very high in this field. Therefore, always use secure wallets to store your cryptocurrencies. For this reason, hardware volts are much more desirable options and offer greater security. Also, never store your recovery offers online.
Make a Rational Decision
Investing in digital currencies brings up many emotions. When you follow the news of cryptocurrencies and market fluctuations, you are constantly in a state of excitement or doubt and are likely to make rash decisions. Therefore, never get carried away by the hype around memecoins and never sell your assets for fear of losing them; instead, make your decisions wisely and based on your knowledge and stick to your trading strategy.
Take the Time to Understand Crypto Technology
Many people who invest in digital currencies are ignorant of the technology underlying cryptocurrencies. While knowing how blockchain networks work, consensus mechanisms, hashing algorithms, and smart contracts will help you better understand the vision and characteristics of a crypto project. In this way, you recognize the talents of a growth project and invest more consciously in digital currencies.
Pay attention to regulatory standards.
Be sure to pay attention to domestic and foreign regulatory laws on cryptocurrencies when investing in cryptocurrencies. Important laws passed by governments can have a major impact on cryptocurrency trends. Also, familiarize yourself with the project's governance rules. Because these rules can influence the value of tokens.
The importance of investing in digital currencies
Cryptocurrencies are an emerging asset class offered thanks to current technologies. Unlike corporate stocks, cryptocurrencies have many applications and are used in governance, public services, tools, security, etc. In addition, crypto projects are also decentralized and offer their users their own governance. In addition, most of these projects are created with the aim of offering new and innovative services.
As the world today is rapidly evolving, cryptocurrencies have gained popularity in recent years. For example, the NatCoin game introduced by Telegram has introduced cryptocurrencies to a wide range of societies. Therefore, with this rapid growth of the cryptocurrency market, it seems that everyone should own a cryptocurrency to play a role in the growing future of the cryptocurrency world. This issue highlights the need to invest in digital currencies.
Who is suitable to invest in digital currencies?
Anyone can buy cryptocurrencies and benefit from the rise in their prices. However, the cryptocurrency market is highly volatile and investors must have enough knowledge and caution in this field. Moreover, mental preparation is another prerequisite for investing in digital currencies. Usually, people who do not have the mental preparation to trade in this volatile market get tired early and leave the cryptocurrency market. In general, it can be said that investing in digital currencies is suitable for people who want to acquire knowledge in this field and who are able to take possible risks due to their high mental performance.
Advantages of investing in digital currencies
The advantages of operating in this emerging market are as follows:
- Before 2022, cryptocurrencies did not have any significant correlation with other asset classes, such as the stock market and the foreign exchange market. However, this ratio has increased in recent years and could promise a more stable market.
- Some experts compare cryptocurrencies like Bitcoin to gold; this is because they share common characteristics such as scarcity, durability, and lack of dependence on central institutions.
- Thanks to distributed ledger technology and the decentralized nature of cryptocurrencies, this market seems difficult to manipulate.
Disadvantages of Investing in Digital Currencies
The disadvantages of investing in digital currencies can be listed as follows:
- The cryptocurrency market is very volatile and interest in assets increases and decreases rapidly. On the other hand, indicators that show changes in trends are not always noticeable.
- Although hacking the blockchain is very difficult and almost impossible; But users are exposed to hacking and theft.
- Since there is no sufficient legal control in this area, one wrong transaction can destroy your capital and there is no responsible authority in this area.
How to Invest in Digital Currencies
Investing in digital currencies is very easy for professionals and takes little time. However, inexperienced users who are unfamiliar with various aspects of the cryptocurrency world always face difficulties in this area. To solve these problems and learn how to invest in digital currencies, follow the steps below.
Choosing a digital currency
Just like you look for a company to buy stocks, you should carefully research projects aimed at investing in digital currencies. Research on cryptocurrency projects should be much more thorough; Because many of these assets have become a method of fraud. Remember that social media experts do not always speak for you. So learn to analyze projects yourself. Finally, you can choose one or more cryptocurrencies to invest in digital currencies.
Exchange Choice
Investing in digital currencies is done through a cryptocurrency exchange. Generally, there are two types of exchanges in the market: centralized exchanges and decentralized exchanges. However, working with a decentralized exchange is difficult for beginners and such people should look into centralized exchanges. Please note that many exchanges have added Iran to their sanctions list and do not offer services to Iranians. This leaves you with a handful of external options. Generally, when choosing an exchange, you consider factors such as security, fees, trading volume, minimum investment requirements, and the list of cryptocurrencies.
Use a wallet
You should use a secure storage method to keep your cryptocurrencies safe. Since cryptocurrencies are completely digital, you also need a digital space to store the tokens. There are different wallets including software, hardware, paper, and web wallets that you can use depending on your digital currency investment strategy. To learn more about the best wallets in the cryptocurrency market, click on the link below.
Determining the investment amount
Deciding how much to invest in cryptocurrency depends on your budget, risk tolerance, and trading strategy. However, only invest what you can afford to lose. In addition, experts recommend not investing more than 2% of your capital portfolio in any of the cryptocurrencies in order to reduce possible risks.
Capital management
Cryptocurrencies are unique assets; because they serve as a purchasing instrument and can be stored for the long term. How you hold and manage these assets depends on your digital currency investment strategy. However, we recommend that you invest regularly and continually diversify your portfolio.
The most important tips for investing in digital currencies
Once you are familiar with investing in digital currencies and the different aspects of this field, we must briefly explain the key points of this field. If you keep these points in mind, you will reduce market risks and be more profitable:
- Before investing in digital currencies, expand your knowledge about cryptocurrencies.
- Based on the information obtained, choose one of the trading strategies.
- Invest only a part of your capital in cryptocurrencies that you can afford to lose.
- A price trend does not last forever; So do not be afraid and follow your strategy.
- Create a diversified portfolio to reduce potential risks.
- Using other asset classes in the capital portfolio controls the risk of the cryptocurrency market to some extent.
- Make sure to use a powerful storage device, such as a Volt hard drive.
- Follow the news about cryptocurrencies; But do not let immediate emotions or fears influence you.
- Make sure to take into account transaction fees. Because they cause a decrease in their profits.
- Although new cryptocurrencies are on the horizon; But base your cryptocurrency investment strategy on the main tokens on the market.
A summary of investing in cryptocurrencies with Inox
In recent years, many people have shown interest in investing in digital currencies. However, the crash of the cryptocurrency market in 2022 has deterred many beginners; But now, professional investors have left their assets intact and are now experiencing, in 2024, the renaissance of the cryptocurrency market. We can understand that participating in the cryptocurrency market requires sufficient knowledge and high mental performance. Therefore, before investing in digital currencies, expand your knowledge and choose a trading strategy that is compatible with your risk tolerance and mental capacity. In this article from the Inox digital currency exchange, we will discuss with you from zero to one hundred cryptocurrency investments. We hope that reading this article has been practical and useful for you.
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