10 Things to Know when Investing in Cryptocurrencies

If you bought 1000 Bitcoins in 2011, ten years down the line, the investment would have grown to about US $52-million. That is approximately a 5.2-million percent return on your investment. These are the kind of numbers that many people find irresistible and head straight to the Bitcoin purchasing point. Bitcoin is just one cryptocurrency; others include Ethereum, Binance Coin, Bitcoin Cash, and Stellar.

Before rushing to buy Bitcoin or Bitcoin Cash, please pause for a moment because things might not be as straightforward as you anticipate. Well, digital currencies have become very common today, but you need to understand them more because they are somewhat complicated. Again, the niche is full of scammers, and the danger of losing investment always looms.

To help you make an informed choice, select the right cryptocurrency, and increase your chances of enjoying good returns on investment, here are the ten most important things that you need to know when investing in cryptos.

Understand What a Cryptocurrency Is

If you decide to invest in a specific area, the first thing is to understand the nature of the investment. A cryptocurrency, also referred to as crypto, is a type of digital asset created to work as a medium of exchange. Unlike the conventional coins and notes that can be stored in a pocket, cryptocurrencies exist as records stored on ledgers, which exist as computerised databases with strong cryptography.

Cryptocurrencies use decentralised control, meaning that there is no single authority, such as a central government or central bank that has overall control over their operations. In the case of Bitcoin, new coins are released using an advanced proof of work algorithm system, which rewards miners who help to confirm transactions on the network. However, some cryptocurrencies, such as NXT and Cardano, use other methods of verifying transactions and releasing new coins, such as the proof of stake (POS) algorithm that puts more focus on coin ownership.

By understanding this definition, it is easy to refine your expectations. For example, unlike investing in real estate, where you can see the condominium or villas that you purchased, you will only get a lengthy code as proof of your crypto coins ownership. So, are you ready for crypto investing? Please do not go for a loan to invest in cryptocurrencies.

What is the Legality of Cryptocurrencies in Singapore?

As we indicated earlier, cryptocurrencies are considered digital cash, which operates without centralised control. Because of this nature of operations, a lot of countries have been feeling that cryptocurrencies pose serious dangers to their currencies. Therefore, they have imposed restrictions or banned cryptocurrencies. Although the view of cryptos being threats is changing, there are some jurisdictions that still ban ownership or use of cryptocurrencies.

In spite of the fact that Singapore does not consider cryptocurrencies as legal tenders, they are regarded as goods. Therefore, you do not have to worry about investing in cryptos here in Singapore. However, other jurisdictions, such as Turkey and Nepal, have banned their use. Even though most countries, from the US to European Union, are considered crypto-friendly, it is crucial to carefully look at their legislations to avoid getting into trouble if found dealing with Cryptocurrencies when travelling there.

Cryptocurrencies are Highly Volatile

Today Cryptocurrencies are some of the most volatile investments, and you need to be aware of this because it impacts the price of the selected coin at any specific moment. About four years ago, the value of Bitcoin was in constant fluctuation. At one point, it was $700 before jumping up to $20,000.

This volatility is still being noted today, and news relating to cryptos can suddenly shoot the price up or down. For example, Bitcoin shot to record high in February when Elon Musk announced that his company had bought coins worth $1.5-billion. If negative news, such as a rival coin getting released into the market, new hackers making away with thousands of coins, or stiffer regulations, hits the headlines, the value takes a downtrend.

As a Singapore investor, it is crucial to carefully follow the latest news and factor in the input of trusted experts when making your decisions. Like investment in forex markets, you should target buying when the price is going down and sell when it peaks.

There are So Many Scammers in Cryptocurrency Investing

Many people coming to invest in cryptocurrencies are interested in making quick money. However, this fact has made the niche attract a lot of scammers. Today, it is not uncommon to get hypes about various investment strategies in cryptocurrencies that can make crypto investors quickly. You will also come across individuals making exaggerated claims about the price of specific cryptocurrencies to trick unsuspecting investors into joining.

In 2019 alone, investors lost over $4.3-billion to scammers. This was more than triple the amount that crypto investors lost in 2018. Therefore, you have to be extra cautious before investing money in that crypto scheme because it could end up being a Ponzi scheme. The best method is to go with companies of international repute that have invested heavily in protecting customer interests.

Which are the Leading Cryptos Today?

In 2009, when Satoshi Nakamoto founded Bitcoin, it was the only crypto by then, but things are very different today. By mid-April 2021, over 6,500 cryptocurrencies were trading publicly, according to CoinMarketCap.com, one of the leading market survey sites. As an investor, you should target the top cryptocurrencies to increase the chances of reaping higher returns on investment. So, here is a list of the top five cryptocurrencies based on their price and market share as of 3rd May 2021:

Note that these figures can change rapidly depending on the volatility of the market at the time. Therefore, you should follow the emerging trends and also compare them with others on the market before making the final cryptocurrency investment decision.

How to Buy Cryptocurrencies in Singapore

There are a number of ways that you can acquire cryptocurrencies of choice in Singapore. One of the methods is through mining, a process that involves helping with confirming transactions to get rewarded with crypto coins. However, few opt to go this route because it is very complex. Instead, most people opt to purchase the crypto coins from cryptocurrency exchanges.

The exchanges work like forex exchanges - buyer deals with cryptocurrencies instead of standard currencies. You should also appreciate that not all exchanges accept SGD. However, most of them are likely to support Bitcoin, Ethereum, and USD. Therefore, you might need to convert your currency to USD before buying the selected coins on the exchanges.

Some of the top cryptocurrency exchanges that you can use in Singapore include Kraken, Gemini, and Binance Singapore. When selecting the exchange, make sure to factor in things such as transaction fees, reputation, and customer support. Also, we would recommend paying for your cryptos using bank transfers because they are cheaper compared to credit cards.

The Best Way to Store Cryptocurrencies

Before buying cryptocurrencies, you need to think about their storage, and there are two main methods that you can use: hot or cold wallets. The wallets do not store the coins in reality, but they only hold the codes that can be identified on the respective blockchain as proof of ownership.

A hot wallet is a type of cryptocurrency store that works online. Because your cryptocurrencies are available online, it implies that they are more vulnerable to hackers. To make it easy for traders, most cryptocurrency exchanges also offer storage services to their clients.

Instead of relying on hot wallets, it is advisable to go for a cold wallet, which is considered more secure. Cold wallets come in the form of software or hardware that helps you store the crypto coins completely offline. They are considered the most secure methods of securing your coins.

Note: Even in the case of cold wallets, you also need to ensure they are kept secure because it will be impossible to access your coins.

How Much Money Is Needed to Buy a Crypto?

Although the price of one Bitcoin is about US $57,955 (as at 3rd May 2021), investing in the coin does not mean that you need to have all this cash. Unlike other types of investments, such as shares, which have the minimum amount set by brokers, cryptocurrencies are different. Because most crypto coins can be broken down into smaller subunits, it is possible to invest even as low as $50. Even the other coins, from ETH to XRP, also allow investors to buy a fraction of the full coin.

Because they are divisible into smaller units, it means that you can even spread the risk by focusing on different cryptocurrencies. For example, instead of investing $800 into ETH, you might want to consider $300 for ETH, $300 for BTC, and $ 200 for XRP. Once you have bought several cryptos, keep growing the portfolio with time. Remember that you will need to get a wallet for every type of crypto to be able to transact it.

How Much Should You Invest in Cryptocurrencies?

This is a common question that most new investors ask, but we must say there is no definite answer. Like other investments, be they stocks or bonds, it is advisable to start small and only increase your portfolio after gaining more knowledge about the industry. For example, you need to take note of the factors that affect the crypto market and make timely moves for optimum returns. You should also learn from other expert traders and craft a good strategy for crypto investing.

Even as you invest in the crypto market, it is crucial to diversify your investment portfolio. For example, you should not direct all your resources into cryptocurrencies. Instead, consider investing some in rental property, stocks, bonds, and other areas.

One More Thing: Read the Selected Cryptocurrency’s White Paper

The nine things that we have listed in this post can help you to get prepared for investing in cryptos, but before you can finally pay for the selected coin, you need to go back to its beginning. Download the cryptocurrency’s white paper to try and understand it well. Check it closely to understand the following things:

• Why the cryptocurrency was created.

• Its roadmap.

• The role played by the crypto.

If you take the example of Bitcoin, it was designed to serve as a peer-to-peer coin, while Enjin Coin was designed to act as the payment coin for the Enjin blockchain. Then, you can weigh how effectively the cryptocurrency is achieving the preset objective.

Note: This post has demonstrated the ten most important things that you need to know when investing in cryptocurrencies. Remember that the world of cryptocurrencies is unpredictable and that the risk related to this type of investment is always high. Lendela does not encourage anyone to take up a personal loan or any other type of credit to invest in cryptocurrencies.