Do you want to become a cryptocurrency investor? There are many ways to get involved with the cryptosphere, but becoming an investor in this space is as easy as contributing to the first project by buying its altcoin.
How to decide which altcoin fits your investment needs, how can you actually buy and store the tokens, and prepare yourself with a strong investment strategy? Here’s your detailed guide with necessary tools and instruments referenced
- Why cryptocurrency?
- What’s your starting strategy?
- How does your starting capital influence your investing options?
- What’s the real risk?
- What are the tools you should be using?
- Why is the market priced in Bitcoin?
- What market indexes should you follow?
- How is the news affecting the coins price?
- At what price should you buy?
- Where to buy Bitcoin or Ethereum
- How to make your first cryptocurrency transaction
- How to join a cryptocurrency exchange
- How to transfer Bitcoin on the cryptocurrency exchange
- How to trade Bitcoin for altcoin
There’re many ways for you to decide if an altcoin is a good investment or not, but there’s only one way you can conduct thorough research without spending a lifetime trying to analyze them all. Did you know that there are over 1,000 altcoins available right now? You better get started!
What is the secret formula for finding the winners in this sea of opportunity?
There is none.
If you’re willing to put in the work to place your investment in the best position for victory, you better do it in the most efficient way possible. First, in order to understand come key principles that you should follow, you need to understand why you want to invest in cryptocurrencies in the first place.
In order to provide you with the most accurate information, we invited an expert in cryptocurrency trading to answer your question:
Rebecca Mora, Cryptocurrency Trader, is an autodidactic student of Macroeconomics, Austrian Economics, and Cryptocurrency Trading. She has a deep passion in Bitcoin and alternative cryptocurrencies.
Do you want to expand your knowledge and evolve from an inexperienced trader to a full-time cryptocurrency trader? Rebecca Mora guides you with her Cryptocurrency Trading course on how to understand the fundamentals, avoid getting scammed, and how to grow in trading confidence by watching live examples!
Do you know what kind of money you want to make?
“Over the summer, the whole market was down in general, but I was actually able to make good money in the first month where the entire market went from $40 billion to $100 billion. I was able to make 5 times the profit.” Rebecca Mora
First of all, have you made your decision to invest in cryptocurrencies? If not, here are 3 reasons that will convince you to take this step right away:
- Hedging your net-worth against the probability of the dollar to fall (many people assume that sometimes it’ll inevitably happen).
- Supporting the cryptocurrencies’ vision of freeing the world from banking systems controlled by governments.
- Believing in a better future for technology (Who doesn’t, right?).
With these reasons fueling your motivation, you’re already on the path to success. You should never get involved with cryptocurrencies because of FOMO (Fear Of Missing Out), trying to make a quick buck, or investing in things that you don’t understand. But I guess this doesn’t apply to you if you’re already here, reading and learning.
There are two things you have in your control: how much money are you willing to invest and for how long you want to keep them in. Based on your capital you want invested in cryptocurrencies, you have different options available for you:
- A small investment ($100 – $5000)
- An average investment ($5000 – $100,000)
- A large investment ($100,000 – $1,000,000)
With anything more than $1,000,000, you are already an accredited investor, and your strategy should be treated in a more diversified manner inside the crypto-space.
Risk increases exponentially with value, but also with profits. From 5 times on a small investment to 10 times for a big one. No one who has a few months in cryptocurrency trading under their belt will speak about a less than 100% increase in their portfolio. That is just to give you a taste of how profitable trading is in the cryptosphere.
This leads to the following question: When do you want to cash in your 2x, 5x, 10x profits?
- Short-term (hours to days)
- Mid-term (weeks to months)
- Long-term (6 months to years)
How the amount invested is increasing your profits, the duration is doing the same thing. If you’re willing to invest for a longer period of time, you’re decreasing your risk and increasing your profits because you’ll be able to choose safer options with slow, but steady growth, like the following examples showing their percentage increase from 2017: Ethereum (2,000%), Ripple (1800%), and Litecoin (1400%).
Chasing big profits in a short period of time can lead you to losing all of your money in just a few transactions. These schemes are called PnDs (Pump and Dump), and they work as follows:
- You see sudden increase in price due to someone driving prices up (that’s the pump).
- It then goes down no more than 50% of how much it pumped (there’s the dump).
If you are not that “someone” who invested prior to this movement and sold at the first peak, you’re losing money (2x, 5x, 10x). It would be illegal in a trading market but cryptomarkets are free markets, yet to be regulated.
Does this scares you? Here’s the decision maker: pump’n’dumpers need to target coins with a low market cap and reduced trading volume in order to be able to manipulate the market with fairly small amounts of money.
That’s the question you should ask yourself. You shouldn’t be chasing the most popular altcoin, the cheapest one, or even the newest one. The popularity is relevant only if you have bought way earlier and you’re now enjoying the rise generated by newcomers (don’t be that newcomer yourself).
Don’t forget about the best feature of blockchains: It’s verifiable. Everything is open for anyone to easily audit and verify it. And because you may or may not be technical enough to check every blockchain directly (plus, doing the math can be a real time-consuming chore), there are websites and online tools that provide the data in real time.
- CoinMarketCap for related resources.
- Digrate for rating markets.
- TradingView for technical analysis.
- Coingecko for price tracking.
- Cryptocompare for portfolio tracking.
Simply because Bitcoin is considered the blue-chip of the cryptomarket (a stock that has a market cap in the billions, is the market leader in its sector and a household name).
Being able to accurately speculate Bitcoin’s price can help you successfully trade altcoins in relation to it. But remember, this is only ONE factor influencing their fluctuations.
Take Ethereum for example. When it reached its all time high this year, everyone was speculating that it will take over the market (take Bitcoin’s price). So when Bitcoin was going down, investors were moving their investments to Ethereum. This made its price always act in opposition to Bitcoin. Months in, Bitcoin maintained its supremacy, stole the spotlight because of all the SegWit drama, and as a result Ethereum’s price moves up and down in correlation with Bitcoin’s.
People who are interested in cryptocurrency actively use stats on coinmarketcap and other resources to calculate the gross market value without an inclusion of dead or scam currencies. There are cryptocurrency indices as well, like DRI Index, Bit20, Composition, CRyptoIndeX, and CAMCrypto30.
The DRI Index, formed by Digital Assets Rating Agency DigRate, calculates not only the arithmetical capitalization value and market dynamics accordingly, but it also successfully excludes dead wallets and scam coins. In this way, the data provided on coins who have the liquidity to the users follow a clear set of rules:
- Are traded on the top 10 exchanges.
- Have a turnover of no less than $30 million.
- Have a daily turnover of no less than $50 thousand.
Besides that, it is very convenient to examine the dynamics of market capitalization in different dimensions. There are more than a thousand coins on the market. Monitoring a coin’s position in the DigRate Index will protect investors from swindlers and adventurers.
You can stay in touch with the DRI Index on Digrate right now.
This leads to another factor: the news! Prices are highly influenced by the news. Keep in mind that the news itself doesn’t really need to always be related to altcoin or even in cryptocurrency in general. Analyzing the recent news of China banning ICOs, coins related to projects based in China, like Neo, were affected by the news cycle. One good example is PAY, the token used by TenX project, which is based in Singapore. Somehow, the FUD (Fear, Uncertainty, and Doubt) affected its price heavily. The development process of their projects wasn’t affected in any way by the new Chinese laws, but if you bend the logic in some way, you can interpret people’s reaction based on Singapore’s geographical proximity to China and the lack of knowledge in some parts of the world about the relationship between Singapore and China.
“I think you should be very careful in a very volatile market. When China was banning the ICOs, everything was in red. So it’s just a matter of knowing that if you are an investor it’s going to be great, but if you are a trader like me you should always be aware of the immediate dangers that are involved within the market.” Rebecca Mora
The news isn’t always as straightforward as you want it to be, but you definitely can’t ignore that factor because your investment is directly influenced by it.
Reliable news sources:
- CoinDesk: an independent publication covering the news and market analysis.
- Cointelegraph: an independent publication offering the latest news, prices, and breakthroughs.
- Bitcoinist: blockchain industry news, reviews, and education.
- CryptoInsider: a dedicated cryptocurrency development and consultancy group.
- CryptocoinsNews: provides breaking cryptocurrency news, blockchain technology, and smart contracts.
And the news isn’t always coming from related resources or even true facts (Remember fake news?). Being part of such an early market with such a small community, the news can grow rapidly on social networks and forums with just a few shares. Ethereum’s price was driven down by almost $100 when someone posted on 4chan that Vitalik Buterin (Ethereum’s founder) died in a car accident. How crazy is that?
The market is always changing. You need to assure your success by staying in touch with the relevant information, and by making the right interpretation. The signals will be there long before the market will make its move.
Besides its market relationship and the current news cycle, you can interpret the price in other ways. How does it relate to its past price? It can be at an all-time high value. This is the biggest risk you can assume when buying. From here, the price can go in two ways:
- It can continue going up until it finds its value (this happens when the product is launched, an important milestone is reached, or an unexpected partnership is announced).
- OR the buying volume is exhausted and it’ll go back down to a correction (the price was pushed up by hype and momentum higher than its real value). Usually, traders look for this target price to cash in their profits because they may or may not care about the project’s development and once a few big sales happen, the price faces a larger pullback.
You can avoid this uncertainty by trying to figure out the real price yourself. It takes some imagination and a few calculations, but if you can get a good prediction, it can save you some serious money.
How do you calculate its future price?
You can do this by interpreting the market cap in relation with other coins on the market. In order for Ethereum to reach $500, the market cap needs to be $47bn. How likely is it that this will happen? Bitcoin’s current market cap is $70bn. Ethereum is in direct competition with Bitcoin, so it is not unlikely that it could reach $70bn.
Possible Price * Circulating Supply = Market Cap (Is this Market Cap plausible?)
This is what you should calculate for each altcoin. Can it reach that market cap? Does the project address a market that big? Does it REALLY have the potential to become the leader in its field? To determine if the current price is undervalued or overvalued, you’ll need to delve into the project’s details and analyze that information yourself.
In order to be able to make an accurate analysis, you need to understand the project you are about to invest in by buying its tokens. How you can do that in the most efficient way is shown just by answering the questions below. Use it as a template, a step-by-step guide, or simply as a checklist that you need to go through when you want to determine the value of a specific token. Each question comes with guidance tips and suggested places. By having this information at your disposal, you are already steps ahead of most investors who blindly follow rumors and outdated news.
- “Good technology (technology that’s not a complete rip off of another coin).
- A community which is easy to interact with.
- A development team which frequently answers questions.
1. What problems are they solving?
Where’s the need for this product or service? Why does this exist? If these questions have a simple answer, it has a good reason to be here.
Where to look: analyze what got you here and why anyone should be interested.
2. What’s the proposed solution?
Explain it to yourself in one sentence. You can even try the template: “Do X and get Y without [the problem found above].” Is this the most straightforward method to solve it?
Where to look: the website, the whitepaper.
3. Who’s the target market?
If you’re interested in the project, you may be in the target market. You should define the people like you that would become customers for the proposed product or service. Is the market large enough for this product to exist?
Where to look: look in the whitepaper if it is defined. If not, you should try to define who needs this product yourself.
4. What’s the competition?
Who will try (or is currently trying) to get a share of that market? It doesn’t necessarily mean that product needs to use the blockchain. Any product or service that is solving the problem for potential customers is competition.
Where to look: look in the whitepaper who they are considering competition, then search for similar services and try to find a solution.
5. Who’s on the team?
You need to find out if they can really bring the idea to life, right? Research each team member for past experience, recommendations, and rumors. You never know what you could find, but always be sure to go deep enough to get the whole picture.
Where to look: website or whitepaper, their Linkedin profiles, or do an internet search to see if they appeared in any publications or interviews.
6. How are they running the business?
This one is harder to find out, but it is well worth the time. You need to understand where their focus is. Are the developers trying to build or launch their first product? Have they hired PR managers and bought billboard ads? Or are they entrepreneurs hustling their way into cryptospace? Figure out what their strategy is from their actions.
Where to look: try to get the bigger picture by looking at the whitepaper, roadmap, and interaction with the community.
7. Would you use the product?
It’s a simple question. Even if you don’t have the problem. Would you use the product? Try to go deeper and think about why. Why would you use this product? What convinced you that this is a better product than that of their competition?
Where to look: find out what you liked about the product (it can be the interface, the novelty, the ease of use).
8. Will the product remain relevant in 3 years?
You can’t know for sure, but you can guess. How obsolete is the technology or the methods they’re using? Even if they’re using a blockchain and you are SURE that this is the way of doing it in the future, ask yourself: Will people still want to do this in 3 years? The field may become obsolete by then.
Where to look: find out what experts believe the future might hold.
9. Is it related to something you do or something you like?
This is a tricky question aimed to identify if you are betting on this project because you are emotionally invested, or if you’re analyzing it from a rational perspective. If you are indeed biased, it doesn’t necessarily mean it’s a bad thing, but you should realize that and try to eliminate your emotional biases during the research process.
Where to look: examine the things you’re doing every day, the things you like, and the things that kept you busy. Are any of them related to this project?
10. Does something appear to be sketchy, or off?
Does anything appear abnormal or “sketchy?” Try to think of how it will affect a potential buyer’s decision. You did your research, and you found that it has a simple explanation. But every newcomer on the edge of deciding to buy or not won’t have that information, and most of them won’t even attempt to get it. They will just leave because of their first impressions.
Where to look: what raised a question mark for you when you first got into this project?
Here are the 10 questions whose answers will cover for you the main information you need to make a proper analysis of any project.
Should you invest or not?
If you’re still not sure about your decision, you can ask yourself these questions that will certainly bring together any doubt your prior research didn’t reveal already.
Let’s wrap this all together:
- Does it fit your strategy?
- Is its current price around what you’re willing to pay?
- Can it answer all 10 questions?
Not sure about it? Maybe you should look at other projects first before making your final decision.
Do you have your confident YES? Let’s find out what your investment options are and how to buy the tokens, keep them safe, and how to cash out your profits (how to spend them will be your toughest choice!).
Like in the stock market, you need to use a public exchange to buy tokens from available sellers. But these are not just normal exchanges, where you send your money in and start trading. These are cryptoexchanges. You need to have cryptocurrency in order to get started.
Let’s say you want to invest in the NewEconomyMovement project (a Smart Asset blockchain). Their tokens are called XEM on the exchanges.
On Bittrex, you find that you can trade BTC (Bitcoin), or ETH (Ethereum), for XEM. The flow is:
Done! But how can you do all of these?
I’m willing to walk you through all of the formal steps that you need to follow in order to choose the most reliable services, to be sure that you won’t lose your money, and to get you the lowest fees (In order to make more many you need to spend less, right?).
Which one should you choose? XEM is a great example because it can be traded with both of them. But most of the available altcoins are paired only with BTC, but some can be traded with ETH too. There are also small number of cryptocurrencies can be bought directly with fiat currency (regular old money).
- Coinbase is an online platform for buying, selling, transferring, and storing digital currency.
- Cex.io buys and sells Bitcoin for USD or Euros with payment cards or bank transfers.
- Coinmama buys digital currency with your credit card or cash.
- LocalBitcoins facilitates over-the-counter trading of local currency for bitcoins.
Does it matter which is cheaper? Not at all. You’ll exchange it to your desired altcoin no matter what. You only need to worry about the price of the altcoin at the moment of the transaction. What you should know is that ETH has smaller transactions fees and shorter durations. But because BTC is the most common choice, I’ll use that as a guide.
The transaction process is rather easy. You need to validate your identity like any other services that offer monetary services.
You can do this by providing:
- The required personal information.
- A photo or scan of your ID/Passport/Legal documentation.
- And proof of residency(a recent utility bill or a bank statement in your name).
I should warn you that the validation process can take anywhere from days to weeks, depending on their customer volume.
Once you’re validated (you’ll be notified through email), you are ready to buy your first cryptocurrency: Bitcoin.
Follow the same process for choosing and getting an account on a cryptoexchange that listed the altcoin. You can find the list of exchanges on coinmarketcap. Look for any geographical restrictions and fees, and start the validation process right away (this could take a few days).
- Bittrex is one of the largest crypto-to-crypto exchanges, offering a large number of trading pairs into bitcoin.
- Poloniex is a digital asset exchange offering maximum security and advanced trading features.
- GDAX is a digital asset exchange offering an easy way to deposit funds with a Coinbase wallet, bank transfer, wire transfer, or digital currency.
Once validated on the cryptoexchange, you’ll need to transfer your BTC.
In order to be safe when doing this, you need to understand how the exchange works.
Your cryptoexchange account will automatically have virtual wallets for all of the listed currencies. Of course, they will be empty (zero balance.) But all of them have an address to which (if you send THE RIGHT ones) the tokens will be credited into your account. Simple, right? How do you do it?
In the cryptoexchange (where you want to buy the altcoin), look for your BTC wallet and copy the address. It should look something like this: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 (DON’T USE THIS ADDRESS!).
Warning: Always copy and paste it. If you change one single character, you’ll lose all your money.
How to transfer your Bitcoin on the cryptocurrency exchange?
Now, going back to the platform where you bought the BTC (and have them in their virtual wallet), you’ll need to:
- Withdraw your funds by using your cryptoexchange address.
- Wait for your transaction to be confirmed.
- Check your BTC wallet on the exchange.
A Bitcoin transfer usually takes about 10 minutes. But for you, it will take longer. Sometimes the withdrawal process isn’t straightforward. The exchanges require a fixed number of block validations. The only thing that you need to know is that one block takes around 10 minutes. So, for 6 blocks, you’ll wait about an hour.
I recommend that you only send a small portion first, as a test. Even if you’ll have to pay fees for it, you’ll be sure that you’re doing the right thing and that you won’t risk too much.
How to trade Bitcoin for an altcoin
You can do this by finding the BTC[altcoin] pair on the exchange and issuing a buy order.
You should familiarize yourself with the interface first. These are the elements that you’ll find on the exchange page:
- The current trading price.
- The price graph (usually set to 30 minute candles; one green/red candle represents a 30 minute time frame).
- The order book (bids [traders willing to buy for that price] and asks [traders willing to sell for that price]).
- If you did your research, you’ll have a clear peace of mind. You’ll want to buy around that price. How is it compared to the current trading price?
How to place a buy order?
You have two buying choices: set an order and wait for someone to sell to you, or buy directly from the open orders within the order book.
The first choice is simple:
- Set how many tokens do you wish to buy (usually there is a MAX option to buy with all your available BTC).
- Set the price you wish to pay.
- Set the type of order (you don’t need to dive too deep into it, you’re not here as a trader, you’re here as an investor). Then, choose a “Limit” order.
Now you can place the order and wait. It can happen instantaneously or lie there for days until you find a seller.
The second choice, buying from the order book, is the fastest. When there’s a lot of movement in the market, you should consider making your decision fast, then click on it and make the trade. But sometimes, you should ask yourself, “Why is it lying there and nobody wants it?” Maybe the price is too high, and you should reference that to your desired price.
Any path you choose gets you your tokens. Now, you’re officially invested in the project (and cryptocurrencies). Welcome!
All of your hard work, research, and choices, have finally come to this. You can feel good, but don’t relax yet! You need to secure your latest investment, and I will show you how to do it in the safest way possible.
You’ll need to set up your own virtual wallet (it sounds harder than it actually is).
It’s a software program which:
- Generates a new empty wallet based on a unique mnemonic phrase (a list of words from its own dictionary).
- Assigns a private key, as well as a public key.
- Creates an address for you (similar to the one you saw on the exchange, only the format differs based on the altcoin’s technology).
- Lets you receive, store, or send your tokens.
There are a lot of wallets available out there. You need to find a wallet that supports your desired altcoin from the ones listed below.
You have 4 options, placed in ascending order in regards to their security:
- Web wallet (set up an account on a website and you’re done)
Why are the web and mobile wallets the least secure? Every time you’ll want to access your web wallet, you’ll need to go to their website. What if, one day, you’re not careful enough and you’re accessing a scam website that looks exactly like the one you should go to and you insert your wallet there. You lost everything. Myetherwallet, EthereumWallet, MetaMask
- Mobile wallet (install an app and you’re done)
A mobile one? What happens when you access a public wifi network and get malware installed on your computer (It happens on Android devices more frequently than you think)? You guessed it. You lost everything. Jaxx, Coinomi, EthereumWallet
- Desktop wallet (install the software on your laptop or pc)
A desktop wallet is a good starting choice, but again, how often does it happen that your PC gets infected? What if you have some shady software on it right now? While the process states that you should be very careful when you’re downloading the wallet installer and setting everything up, once you get it installed on your computer, you need to treat your security much more seriously. Now, it doesn’t just keep the hardware price value, but your whole investment value. Decentralization does bring you freedom, but with some drawbacks. This is one of them. Exodus, Mist, Parity
- Purchase a hardware wallet (install a software on your pc that you’ll be able to access only with the hardware device plugged in)
The last one, the most secure consumer method to storing your coins is using a hardware wallet, an additional device which you set up a pin or a password one. Only those who have access to the device and know the password can connect it to a computer and access the wallet. With this option, you can actually hold your coins in your hand, literally. Trezor, Ledger, KeepKey
There is another option when securing your funds offline. A much safer one than writing your private key on a paper.
Write the mnemonic phrase on a paper (or print it.)
Actually, all the wallets include this as an essential step in their setup process. Having this list of words allows you to recreate the wallet in case of computer failure, or if you want to access it from another device.
This will be your new way of storing your investment. How will you actually do it? What wallet will you use? Where will you hide the hardware wallet and the mnemonic phrase? I’ll leave that to your imagination.
Now, you can relax for a while. You bought your first cryptocurrency, invested in a tech project, and stored your investments in a safe way. Now, all you need is time.
One option is to follow the same steps that got you invested in the first place, in order to get your funds out. You already have a verified account and you’re familiar with the tools, so you only need to:
- Use your wallet to send the tokens back into the exchange wallet.
- Trade them for BTC.
- Send the BTC back to the platform (if the plan went well, you’ll now have much more BTC than what you initially bought).
- Sell your BTC for fiat currency (usd, euro, your local currency).
- Withdraw your fiat into your bank account.
Another choice is to use one of the available payment services that aim to intermediate the process and let you pay directly with Bitcoin or other cryptocurrencies by using your credit card. These are just a few of the services:
- BitPay. Store and spend bitcoin securely.
- Xapo. Buy bitcoins, make purchases, and send money anywhere around the world.
- TenX. Make digital currencies spendable, anytime and anywhere.
- Monaco. Hold, spend, and exchange multiple currencies, including Bitcoin and Ether.
Based on the laws in your country, you’ll most likely need to declare the profits as you would any other. For example, if you would sell a piece of furniture your grandfather left to you, you should declare that income. And exactly like that, you need to declare your extra money that came in from your bank account and pay taxes on it accordingly.
“If you are persistent, determined to learn and grow, and accept all of your downsides then you’ll be able to move forward.” Rebecca Mora