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How to invest in cryptocurrency

By Alison Hunt
November 7, 2019, 8:10 AM GMT
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    Whether you love them or hate them, you can’t deny that cryptocurrencies are a hot investing topic at the moment. But should I make them part of my portfolio?

    What is cryptocurrency?

    Essentially digital money that we can convert our boring fiat money into, cryptocurrencies (such as bitcoin) provide a cheap, efficient way of transferring funds or holding value – and we can transfer them back into fiat money at any time. Companies will even allow us to pay for goods and services directly with bitcoins or other cryptocurrencies (altcoins).

    However, a lack of regulation and fears that they offer an untraceable method of payment that could facilitate criminal activities has concerned numerous governments around the world.

    Current value

    But what are cryptocurrencies worth? Well, if I were to buy one Bitcoin on November 5 2019, it would cost me a healthy US$9,303 (£7,221). However, the coins haven’t always held such value.

    Is cryptocurrency a good investment?

    Back in the early days – on 22 May 2010, to be exact – a programmer named Laszlo Hanyecz in Florida mentioned on a Bitcoin forum that he wanted to buy two large pizzas for 10,000 Bitcoin.

    A fellow forum member “jercos” offered to help. Hanyecz sent his 10,000 Bitcoin to jercos, who then placed an order at Papa John’s for two large pizzas, paying approximately US$30 at the time.

    While at the time those coins were worth less than a penny, at today’s prices, those 10,000 Bitcoin are worth a staggering US$93m, making that pizza order a cool US$4.6m a slice.

    Rocky ride

    However, while jercos may be looking forward to a comfortable retirement, assuming he held onto his “pizza” Bitcoin, the same can’t be said for all cryptocurrency investors.

    Advertising agency owner, Peter McCormack, ploughed £23,000 (US$29,673) into a variety of cryptocurrencies in 2017. His investments soared during the year to a whopping $1.2m high and like the Tulipmania seen in 1636, more and more hyped-up investors wanted to get involved. Sadly, January 2018 saw the bubble burst and McCormack’s investment plummet.

    How do I invest in cryptocurrency?

    There’s no doubt investing in cryptocurrencies is a heart-stopping ride and thus not for the faint-hearted. With prices that can fall and rise at the drop of a hat, this can be a frighteningly volatile world that potential investors should assess thoroughly before getting involved in.

    Which cryptocurrency to invest in?

    The first thing to do, after copious hours of research, is to work out which of the many cryptocurrency coins to invest in. From Bitcoin to Ethereum, Litecoin to Ripple there are more than a thousand out there. Some are similar to Bitcoin while others focus on privacy and the only way you will know which are for you is by reading up about them. Boring, but essential.

    While you’re at it, be wary of any “too good to be true” Initial Coin Offerings (ICOs) you come across; unsurprisingly, there have been numerous Bitcoin copycats that have turned out to be elaborate scams.

    How to buy and sell cryptocurrency

    Next, you’ll want to buy some of your desired coins and for this you will need a suitable Cryptocurrency Exchange. Again, do your research; check on the exchange’s reputation and above all, how it manages security. There are even apps that allow you to trade instantly via your mobile phone.

    Once you’ve bought your coins you’ll need to store them so investigate hot and cold wallets.

    Stay safe with crypto investments

    Of course, the guidelines we set ourselves for investing in cryptocurrencies should be the same as investing in any market; namely don’t risk more than you can afford, stay logical, unemotional and ignore any hype. What’s more, as cryptocurrency investments have proved vulnerable to hackers in the past, keep on top of online safety, ensuring anti-virus software is up-to-date and that your personal data stays private.

    Is it worth investing in Cryptocurrencies?

    The Financial Conduct Authority (FCA) in the UK published its guidance on cryptoassets in July 2019. It stated that products that reference crypto-assets are “ill-suited” to small investors due to numerous reasons including their “extreme volatility,” the fact they are difficult to value and that consumers seem to have a patchy understanding of what they are buying.

    While we do also see ups and downs in the stock market, it does tend to grow consistently long term. The cryptocurrency market, on the other hand is volatile and unpredictable and not suited to those investing for long-term growth.

    New investors should undoubtedly steer clear of investing in cryptocurrencies as there are even more investing pitfalls than usual to watch out for. Investors who are more risk-averse may consider following suit.

    But, Bitcoin has already been around for 10 years – longer than many people predicted it would last. For investors with a bit more experience who understand leverage, can trade without FOMO, fix their limits, ignore the noise and always spread their risk, there may just be space for a coin or two in their portfolio.

    Tokenised securities are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how tokenised securities and leverage work and whether you can afford to take the high risk of losing your money. Nothing in the above article should be regarded as a recommendation to trade generally, to trade on a particular platform or to trade in a particular asset. Asset prices can go down as well as up and past performance is not a guide to future performance. Investors and traders should thoroughly research an asset or strategy before making any trading or investment decision and if necessary seek professional advice.

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