Cryptocurrencies have become a very popular financial tool. Maybe you too are thinking of investing in cryptocurrencies to capture this rising trend, but you are not sure if it is worthwhile and how to do it. In our guide today we will talk about just this: we will go to the discovery of the basics of crypto and we will explain how to buy Bitcoin or other cryptocurrencies safely and conveniently.
We will also have the opportunity to explain the main reasons why it may be a good idea to expose at least a small part of our investment portfolio to crypto.
We would like to clarify that ours is an impartial guide: we are not fanatics of cryptocurrencies and we are not even against this new world of finance. Cryptocurrencies can be a profitable investment but you need to know how to invest without errors.
We are investors, just like you, and we objectively analyze how each asset can be useful to us. We will also have the opportunity to talk about the various platforms that exist to invest in cryptocurrencies and the reasons that lead us to recommend eToro in particular.
How to invest in cryptocurrencies.
The first thing you need to invest in cryptocurrencies is a platform that allows you to do it easily and safely. Now there are hundreds of services advertising all over the place, offering people to invest in the most disparate crypto. Most of these services are unregulated and not totally reliable.
The basic problem is that cryptocurrencies, at least for the moment, are not subject to specific regulations. For Italian and European laws, opening a site that sells cryptocurrencies is no different than opening a site that sells garden pots. This has opened the door to operators of all kinds and even some of the most famous sites, in fact, have no regulatory constraints on customers.
The result of all this is the situation that has arisen in recent years: cyber attacks by hackers, exchanges that close overnight, and exchanges accused of manipulating the price of crypto. Now we will see exactly what are the pros and cons of each solution for investing in crypto and what can be done to maximize convenience and security.
Exchange
Cryptocurrency exchanges are specialized services that only allow you to buy and sell cryptocurrencies. The most famous are:
Binance - Specialized in crypto-to-crypto trading, i.e. exchanging one cryptocurrency for another rather than trading cryptocurrencies in exchange for traditional money;
Coinbase - On the contrary, it specializes precisely in fiat-to-crypto exchanges, that is, in exchanging traditional money with cryptocurrencies and vice versa;
Kraken - Very similar to Coinbase, it is especially popular in the United States and is the service that is used to show crypto prices on Bloomberg terminals.
According to Coinmarketcap.com, the best-known site that aggregates the capitalization and value of all cryptocurrencies, there are at least 381 exchanges currently operating. We do not recommend using exchanges to invest.
There are three compelling reasons why we don't recommend them. The first is what we just mentioned: by Italian law, they are no different from websites that sell candy. The second reason has to do with the difficulty in using these services, especially for a person who is approaching the crypto world for the first time. You have to open a wallet, remember the secret key, activate two-factor authentication, and transfer the cryptocurrencies from the exchange to the wallet and vice versa from time to time
The third reason is related to taxation, which in the United States has already begun to give many problems to users of exchanges. Since it is not clear how cryptocurrencies should be taxed, the exchanges do not produce a fiscally valid document for the 730 models. This means that overnight the Inland Revenue could notify all users of the cryptocurrency exchanges for not reporting their proceeds correctly.
Broker online
Online brokers are companies that offer clients access to all financial markets. Through a broker like XTB (find the official website here) you can invest in stocks, currencies, cryptocurrencies, commodities, and so on. The great advantage of brokers is that they are regulated by law. To operate legally in Italy, a broker must first obtain a European license and then be authorized by Consob to operate in our country.
To avoid falling into the same problems as exchanges, online brokers offer the possibility of investing in cryptocurrencies through CFDs. CFDs ( Contracts For Difference ) are derivative instruments that replicate the value of something else at all times. In the case of the Bitcoin CFD, for example, the derivative faithfully replicates the price of Bitcoin. From an investor's perspective, buying Bitcoin or Bitcoin CFDs makes no difference.
The only disadvantage of CFDs is that you do not actually own the actual cryptocurrencies, but the derivatives. So you cannot buy goods and services by paying in crypto, but if the value of the crypto increases you can resell your CFD and make money.
Otherwise, these tools have only advantages. To begin with, the fact that derivatives are regulated by law and provided for by European taxation. Brokers are required by law to send their clients a detailed report of their income every year with which to fill in the unique form - or have it done by the accountant - becomes much easier.
Furthermore, CFDs cannot be hacked, not for an IT issue but for a practical one. The CFD has value only between those who buy it and the broker who issues it, so if someone were to steal it, they would still have no way to take advantage of it. Finally, cryptocurrency trading on CFDs often involves much lower fees than exchanges.
Is it worth investing in cryptocurrencies?
This is a somewhat controversial question, which often reveals people who are very favorable and very unfavorable to investing in cryptocurrencies. They tend to be a tool that splits opinions in two, leaving little room for rationality.
On the one hand, cryptocurrencies indeed tend to be very volatile and fluctuate more strongly than any other asset class. Specifically, they tend to move in bubbles: for a few months, their value increases a lot, then collapses. Over time, however, each bubble has still led cryptocurrencies to settle on a higher level than they had before the bubble. Over time their market capitalization has grown, actually in a rather important way too.
Cryptocurrencies are a tool in which it is worth investing a small part of your portfolio, approximately 1-3%, so as not to compromise your financial situation even if their value drops. The horizon to be adopted is the long-term one: as time passes, they become more known and adopted tools in the real economy.
There are also applications of cryptocurrencies that have a specific value beyond just investing. This concerns, for example, smart contracts and the possibility of creating decentralized applications or even digital works of art such as NFTs. All this, over time, is leading cryptocurrencies from being mere speculative tools to being an instrument with a concrete value.
Time will pass and gradually cryptocurrencies will continue to fluctuate. But undoubtedly, from 2009 to today, the trend they have shown has always been bullish through many bursting bubbles. Investing a small portion of your capital that you can afford to lose, even if they fall would not be a problem. But if they were to skyrocket, they would lead to an important capital gain: the important thing is to maintain correct risk management.
Strategies for investing in cryptocurrencies
Cryptocurrencies are an emerging world, so it is important to know how to diversify investments and find valid information on the various cryptocurrencies to learn how to distinguish them. You could invest a lot of time researching all the various details that might make a certain cryptocurrency slightly more useful or interesting than another, but it's not worth it.
The reality is that we are talking about a world that is still "immature", in which anything can happen. Dogecoin, for example, is a cryptocurrency that has no particular advantage and was born as a simple joke. For some reason, he has met Elon Musk's favor and this has led her to skyrocket in 2021. This is one of the many anecdotes that tell how unpredictable the crypto world is.
Our sincere view is that it is simply better to diversify your investment. The same strategy that venture capital funds use to choose the startups to invest in when they are still in their infancy: betting on many different horses to increase the chances of finding a winning one.
1. Automatically copy other investors
We will shortly see our suggestions for building a balanced and diversified cryptocurrency portfolio that can best expose you to the growth of the industry over time. In the meantime, however, we want to emphasize that the simplest thing to do is to copy the best crypto-investors of eToro.
eToro allows you to copy other users of the platform. This means that you can simply replicate the moves of someone who knows the world of cryptocurrencies extremely well and who perhaps does this professionally. You can find out about a person's returns before you start copying them, you can see how their portfolio is made up and you can choose what part of your capital to copy them with.
You can try all this for free by registering your account on eToro right away.
2. Diversified investment funds
Some platforms have built funds made up of cryptocurrencies. By investing in the fund, it is as if you automatically divide your investment across all the cryptocurrencies that are part of it, to diversify your investment to the maximum with the minimum capital.
Also in this case there are more and less serious platforms that offer this possibility. Our advice is to play it safe and do it with eToro's CopyPortfolio function (here you can find the dedicated page on the official website). eToro, which offers the security of a Consob authorized broker, is a convenient choice both for its ease of use and for the quality with which it has built its fund.
EToro 's Crypto CopyPortfolio® is a fund where all the main cryptocurrencies are collected. Inside we find Bitcoin, Ethereum, Litecoin, and all the other best known and capitalized cryptocurrencies. This means your investment will be exposed to the growth of all the biggest names in the industry, lowering your overall risk and eliminating the hassle of having to pay a fee for every single cryptocurrency you buy.
Investire in Startup
There is also an alternative, albeit more complex, way to invest in cryptocurrencies: investing in startups operating in the cryptocurrency sector.
It can be a very profitable approach but there are also greater risks. Furthermore, investing in startups that are still in their infancy can be complicated.
It can be easier to buy the shares of these startups when they go public.
Which cryptocurrencies to buy?
If you don't want to copy other investors and don't want to invest in a diversified fund, then you will need to find your own strategy to build the crypto portfolio. This solution is a little less convenient since it takes more time and involves paying the trading costs for every single cryptocurrency added to the wallet. That said, the allure of doing your own thing sometimes takes over.
In this case, our advice is to buy 5-10 different cryptocurrencies to still divide the risk across multiple instruments. We can also sketch a strategy with which to choose the currencies to bet on. Our strategy is to choose two or three cryptocurrencies for each of these categories:
Large, highly capitalized, and established cryptocurrencies - Ideally Bitcoin, Litecoin, or Ethereum which control the list of the most capitalized currencies for years and tend to rise and fall together with the entire sector;
Cryptocurrencies that have particularly advanced and useful technology - Examples can be Polkadot, Tezos, and Elrond that offer a particularly advanced IT infrastructure capable of exploiting the potential of blockchain to the maximum;
Exchange cryptocurrencies - Cryptocurrencies that arise from the most famous exchanges, such as Binance Coin and Crypto.com Coin, and tend to grow when the popularity of the exchanges that issued them increases;
Best platforms to invest in cryptocurrencies
As we said at the beginning, choosing the right platform to invest in cryptocurrencies is essential. If you are looking for a way to buy cryptocurrencies and use them in your daily life, for example by shopping on the sites that accept them, then it is worthwhile to use an exchange.
This is a more complicated and less protected process, but it is also the only one that will allow you to buy full-fledged cryptocurrencies.
In this case, the best exchanges recommended by our editorial team are:
Coinbase
Binance
Crypto.com
eToro
However, we know that the vast majority of our readers want to invest in crypto and not use them for their expenses. In this case, we strongly recommend using a CFD broker, both to save costs and to improve the safety and ease of operations.
Below we want to introduce you to the three brokers we believe are the safest, most reliable, and most affordable to invest in cryptocurrencies today.
1. eToro
eToro (you can try the service for free here) is the most popular broker in Italy and Europe. It allows you to invest in over 2,000 financial instruments including all major stocks, cryptocurrencies, Forex currency pairs, and much more. Speaking of cryptocurrencies specifically, it is one of the first brokers to have included them on its platform and offers a very wide range of choices.
Through eToro (here you can find our review) you even can choose whether to buy real Bitcoins or Bitcoin CFDs. It is currently the only regulated broker in Europe that offers both derivatives and the ability to buy and sell real cryptocurrencies. All this takes place through a very easy-to-use platform, right from the first experience.
Obviously, eToro also offers the features we talked about before: you can copy other investors and you can invest in the Crypto CopyPortfolio® to diversify your portfolio without having to buy the various crypto individually. A truly complete, convenient, and secure broker perfect for first-time cryptocurrency investors.
2. XTB
XTB (visit the official website) is another broker regulated in Europe and authorized by Consob that offers a very intuitive experience. Its crypto offering is very significant and covers not only all the main cryptocurrencies but also many of the less capitalized ones.
One thing that immediately catches the eye of XTB is that the trading costs on crypto are very low. There are no fixed commissions, just a variable spread. Specifically, the XTB spread on Bitcoin and altcoin is among the tightest we have found by comparing dozens of authorized Consob brokers.
You can try all XTB services by opening a demo account for free from here. You can start trading without taking risks, using only virtual money, on all the cryptocurrencies that interest you the most.
You may also be interested in our full XTB review.
3. Trade.com
Trade.com is another very interesting broker that has everything it takes to position itself among the best traders in the crypto industry. Also in this case we have a wide choice of tradable cryptocurrencies and we can also take advantage of two different platforms.
The first is the Trade.com web trader, the broker's proprietary platform, easier and more intuitive to use; the second is Metatrader 4, which is perfect for those looking for professional and advanced features.
Trade.com boasts triple regulation by the CySEC in Europe, the FCA in the UK, and the FSCA in South Africa. This dispels any doubts regarding the reliability of the service, which has now been on the market for years with excellent results.
Alternatives to invest indirectly in cryptocurrencies
If you want to expose yourself to the growth of cryptocurrencies over time, you can do so without buying cryptocurrencies directly. Some alternatives also allow you to trade directly on regulated markets, such as stocks.
Large cryptocurrency exchanges, such as Coinbase, have started going public. Several mining farms, companies that are involved in mining cryptocurrencies, have also started going public to raise liquidity with which to expand their operations. This means that if you want, you can simply expose yourself to the growth of these companies.
The advantage of this solution is that the world of regulated markets is more transparent. You can know the balance sheet data of the companies, you can compare their performance between one historical period and another and make decisions based on concrete numbers. These are elements that in an unregulated world like cryptocurrencies can mitigate risk and help you better evaluate your moves.
You can buy Coinbase shares using eToro (here for the official website). Thanks to eToro's Realstock system, there are hundreds of shares on the platform that you can trade at no cost.
Conclusions
By investing in cryptocurrencies at least a small portion of your portfolio you can expose yourself to the growth of one of the most promising sectors for the future. We are not just talking about a new way to pay and manage currencies; let's talk more generally about all the possibilities offered by the world of decentralized finance and blockchain.
There are two main rules for investing in crypto: always pay attention to risk management and use platforms with proven reliability. By diversifying, allocating a small part of your total investments, and choosing a reliable broker like XTB you can expose yourself in a balanced way to the potential of cryptocurrencies.
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