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After more than a decade of being present in the financial market, cryptocurrencies have become a great long-term investment for many. There are several ways to invest in cryptocurrency. It all depends on your goals and your knowledge of the market. From passive investment to daily trading through network fees or staking, we explain the existing ways to invest in cryptocurrency in this guide. If you are new to investing in digital assets, this guide is for you.
What Is Cryptocurrency?
Cryptocurrencies are digital assets based on a technology called a blockchain. These crypto-assets allow peer-to-peer exchanges without intermediaries such as banks or insurance companies. Anyone interacting with the blockchain has control and responsibility for their money. At any time, the user can transfer the assets without the permission of a third party, regardless of the amount or the recipient.
Investing in Cryptocurrency for the Long Term
Investing in crypto is, in theory, the easiest way to invest. It involves exchanging euros for a sum of cryptocurrency, hoping it will increase in value in the future. The goal will therefore be to realize a capital gain on resale. The long-term investment strategy is also called “hold” in the jargon of the crypto and stock market communities.
Bitcoin (BTC) is still the most traded cryptocurrency. If Bitcoin can be used to purchase goods and services in several countries, payment by cryptocurrency is not yet very widespread, making it difficult to use in everyday life.
Investing in Bitcoin is less and less considered a risky bet. Today the largest financial institutions buy cryptos, sometimes massively, in particular bitcoin. As a result, it is more than ever considered a speculative financial asset to invest in.
A long-term investment is more accessible for beginners since it will suffice to buy cryptos and store them in a wallet. A wallet (crypto wallet) is like a virtual or physical safe that can hold and secure crypto assets.
We thus take the bet that the value of Bitcoin, for example, increases. If so, it’s up to you to decide when you want to hit your profits (or limit your losses). Some investors are content with a gain of 25% of their capital to resell, while others prefer to wait until their investment has at least doubled (+ 100%).
This long-term strategy requires few transactions and does not require being regularly active in the cryptocurrency market.
Trading consists of betting on the movements of a price, upwards or downwards, via an online broker. It’s a short-term strategy in general. Many crypto traders practice day trading, executing one or more daily market orders. While investors are interested in the long-term performance of crypto, traders take advantage of the daily volatility in crypto prices to make immediate profits.
Being a profitable trader, however, takes a lot of practice. Trading is like a lottery without real skills or understanding of the market. If the potential gains are increased tenfold thanks to the leverage effect, the risks of loss are just as much. Therefore, it is strongly recommended to train properly and prepare your strategy well before embarking on trading activity.
Here are some strategic trading concepts to explore if this investment method interests you:
- Range trading;
- Arbitrage trading;
- Bot trading.
When it comes to the latter way of trading, the thing is to execute trading orders using auto-trading systems or algorithms. These are also called auto-trading software or programs.
They are very helpful for beginner traders with limited trading strategy knowledge and professionals with years of experience.
If you decide on this way of crypto trading, it’s ultimately important to choose reliable software and thoroughly research various software on the market. The first step of our research should be reading a software review, such as a Biticodes review, for instance.
Each crypto-asset transaction requires a fee to be introduced into a block of blockchain data.
These fees make it possible to remunerate the miners or validators because they are the ones who “incorporate” your transaction into the blockchain, thus allowing it to be validated.
They protect the network against attacks (spam, hacks, manipulation attempts). On some blockchains, fees may vary from time to time, depending on the traffic and network congestion at the time of the exchange.
Staking: A Passive Investment That Generates Interest in Crypto
Blockchains, it is a means of participating in the validation of transactions and/or securing the network. Your investment, therefore, contributes to the proper functioning of a blockchain. Staking involves investing a sum of “locked” cryptocurrency to obtain regular interest.
Staking is possible on blockchains using a verification model called “proof-of-stake” or proof-of-stake. It is a much less energy-intensive operation than the “proof-of-work” model. Indeed, the latter requires miners to use their computer hardware’s computing power to validate blockchain transactions.
This is an interesting option if you plan to hold crypto for the medium or long term (at least one year). Rather than leaving your tokens in a wallet waiting for them to increase in value, you earn daily, weekly, or monthly interest that accumulates.
Yield Farming is a method that also allows you to passively generate interest in cryptocurrencies. Except that, unlike staking, it is no longer a question of blocking a sum but of lending it to a decentralized finance platform. These cryptos will be locked in a cash pool through a shared smart contract or an investment fund.
The blocked funds help provide liquidity to a decentralized finance protocol used to enable trading and borrowing. When a user borrows crypto from this liquidity pool, they will repay the sum with interest, which is then redistributed among the investors who have locked up their cash in this pool.
For instance, if traders wish to trade ETH for Dai (DAI), they need to pay a fee. These fees are paid to the liquidity providers with regard to their invested amount. The more funds provided, the higher the rewards.
Complex yield farming strategies are quite a deterrent for novices who have not yet started investing in cryptocurrency. However, the returns on investment can be higher than those of staking.