Seasoned investors continue to cross over from the more mature asset classes and regulators have eased off on the Crypto assault that led to the 2018 slump.
With Bitcoin and the broader market sitting at more than 50% below their all-time highs, there is still plenty of incentive to enter the crypto sphere.
For many, however, the crypto market may seem like a maze. There are a tremendous number of exchanges and brokers and that is before considering regulations imposed by regulators in recent years.
Investing in cryptocurrencies requires a level of due diligence not too dissimilar to the research involved in other more mature asset classes.
The volatility and sizeable returns on offer have certainly allowed investors to dream. After all, Bitcoin has yielded a mass number of Bitcoin millionaires, more commonly known as whales.
So, how do we invest in cryptocurrencies?
While there are multiple considerations, some are more important than others when looking to enter the crypto market.
Just jumping in on a whim that the majors will reach historical highs is a dangerous game. This is no dissimilar to jumping into the equity markets when they are sitting at record highs.
There is one material difference, however. The regulatory landscape has materially changed since late 2017. For this very reason, investors may continue to face plenty of uncertainty before the market can find a return to the hay days.
Understanding the key drivers and market characteristics are therefore particularly important.
In this guide, you will learn the key preparations that you need in order to build your cryptocurrency portfolio.
Before making an investment, deciding on the source of funds would certainly be step 1.
In spite of the current interest rate environment, it is recommended that you avoid funding the portfolio with debt.
Credit Card or Bank Account – Investors will, therefore, need to decide on cash or credit card. As an investor, you can either fund your crypto trading account with a debit/credit card or by funding with a bank transfer.
It is worth noting, however, that certain jurisdictions have banned the funding of crypto exchanges with credit cards. Some banks have even taken a step further and banned the transfer of fiat money to such exchanges.
Nonetheless, the simplest method to fund a crypto exchange account is with a credit/debit card. This does tend to come with higher fees and caps on transfer amounts, however.
Fiat to Bitcoin Exchange
First, you need to decide on which cryptocurrency or cryptocurrencies that you wish to trade.
You would then need to identify the exchanges that have the largest trading volumes for the chosen cryptocurrencies.
One consideration here is your source of funds. Not all exchanges allow fiat money deposits. A vast majority of exchanges restrict deposits to Bitcoin.
Carrying out the necessary research on the most appropriate exchange is important. If you are looking for an exchange that accommodates the purchase of Bitcoin with fiat money:
Coinbase is popular and easy to use, with a strong global presence. The exchange has the necessary security measures as well as delivering adequate liquidity for trading.
When searching for the right exchange, it is worth noting that each has its pros and cons. The important thing is to identify the exchange that, first and foremost, delivers on your personal requirements.
Other popular exchanges include:
These crypto exchanges not only cater to Bitcoin investors and traders but altcoins in general.
It’s also worth considering exchanges that offer a wider choice of cryptocurrencies and altcoins. This would allow you to diversify your investments and gain exposure to the broader crypto market.
We recommend that you use Coingecko to research the respective cryptocurrencies and volumes across the exchanges.
Bitcoin to Crypto Exchange
The next exchanges that you should look into are the ones you will be using for the Altcoins. Many of the smaller coins, my market cap, are generally not supported by larger exchanges. Generally speaking, the only way to buy those smaller coins is by buying them using Bitcoins or Ethereum.
On most exchanges, you need to deposit Bitcoins as you cannot buy coins directly from the exchange. This is why it’s crucial that you have a Fiat to Bitcoin Exchange first.
You can buy Altcoins from Binance, BitTrex, Kucoin, and Kraken.
Choose the Right Wallet
The next step in the crypto investment journey is to select the appropriate crypto wallets. It is essential to have your crypto wallet before buying any cryptocurrencies. You will need wallets to store your coins within your secure personal wallets.
While exchanges allow investors to hold purchases coins within assigned exchange wallets, it’s recommended that you withdraw your cryptos and hold them in private wallets. This protects you and your investments from hackers and theft. It is also worth noting that wallet compatibility also needs to be considered.
Crypto wallets to choose from include but are not limited to:
Before Getting Started
Prior to deciding on the most suitable crypto exchanges and wallets to support your trading activity, you need a trading strategy. As part of your strategy build, there are a number of factors to keep in mind:
- Only invest in what you can afford to lose
- Do not take a loan to invest
- Do your own research, monitor the news wires, and view technical analysis on the respective cryptos that you decide to go with. FX Empire covers the largest cryptos, with exchanges also providing technical analysis to their users free of cost.
- Set realistic expectations, don’t be greedy, and know when to accept a loss. (It is easy to be influenced by the news wires and overzealous analysts talking of the next crypto boom or doom. It is best to block out such noise.
Forming a Crypto Trading Strategy
While identifying the most appropriate wallets and exchanges are vital, formulating a trading strategy is undoubtedly the most important pre-investment step for a prospective trader.
- Cryptocurrency selection – A blend of the largest cryptos along with medium-sized to small cryptos by market cap is recommended. This also addresses any liquidity issues for the overall portfolio.
- Worth noting – A certain cryptocurrencies may have values that exceed the intended investment size. In such instances, identifying an exchange that offers CFDs or partial investment of a crypto coin is important.
- Trader durations – For traders with adequate time to trade, a short, medium, and longer-term trading strategy would make sense.
- Smaller size, more volatile, coins increase earnings potential intraday. These should ideally form no more than 20% of the total investment pool.
- The Largest coins should form longer-term strategies. With adequate research, however, smaller coins may also form part of this strategy.
- For the more medium-term strategies, which would be anything beyond intraday but less than a month, a blended portfolio is recommended. This can comprise of small, medium, and large-cap coins.
- In any trading strategy -using risk management tools and indicators is recommended. While there are fees incurred for using stop loss and trade profit, using these would protect your downside.
When considering crypto market volatility and the rise and fall of the smaller coins, an 80/20 blend of large-cap to mid to small-cap would be recommended.
This would provide the opportunity to make sizeable gains any sudden surge in the small to mid-cap cryptos, whilst also holding the more stable coins. Do note that stable is a relative term in the crypto market. Even Bitcoin can see sizeable swings on a given day…
Does the Number of Coins Matter?
It ultimately boils down to the investment strategy that you build. With a blended portfolio, 1 Bitcoin may make up your large-cap portfolio, or 20 Litecoin for instance. It is important to focus on the blend rather than the actual number of coins that make up each component of the portfolio.
Below is a range of cryptos to consider the different components of your portfolio. This is not a comprehensive breakdown of the broader market and there may be coins that are more to your liking. As always, carry out the necessary research before hitting the buy or sell order…
Tezos, Ripple, Bitcoin, Ethereum, EOS, Cardano, Bitcoin Cash SV, Bitcoin Cash ABC, and Binance Coin.
Zcash, VeChain, True USD, Tron’s TRX, Qtum, OmiseGo, OKB, NEO, Ethereum Classic, Dogecoin, DASH, and Cosmos. These have been selected based on 24-hour volumes and have market caps of between $100m and $1bn.
This will consist of cryptos with a market cap of less than $100m and will likely have lower trading volumes. That means less liquidity, which is why this component should form a lower proportion of the portfolio.
Unibright, Theta Fuel, Status, MCO, Matic Network, IOST, HyperCash, BitTorrent, and ABBC Coin.
Once you have built your strategy, selected your cryptos, opened your trading accounts, and set up your wallets, it’s time to trade.
While you may be able to have a better sense of when to enter more mature markets, such as the global equity market, it’s less simple to pick the right entry point in the crypto world.
Other than entering at an all-time high, there’s no hard and fast rule other than waiting for any sell-off to flatten out.
Once you start trading, remain disciplined, and ensure you run your risk parameters each day.
These will include your charts that should have your support and resistance levels embedded.
And remember, not every trade will yield a return, so don’t panic should your first trade take a hit.