Cryptocurrency and buying into it for the first time

In the wake of PayPal’s major announcement that it’s soon to be accommodating the likes of Bitcoin, the cryptocurrency market is really hotting up.

Prices of Bitcoin and various altcoins have experienced significant rises in value following the news of PayPal’s arrival, with Bitcoin itself bouncing to a three-year high.

In early 2021, PayPal intends to allow users to buy, sell, and make purchases using a small selection of cryptocurrencies, opening the door to mass adoption and the potential for the cryptocurrency to experience a significant rise in the sheer volume of investors embracing the coin.

With this in mind, more investors are looking to embrace the wild and often erratic world of crypto and dip their toes into the water before the new wave of PayPal investment.

But investing in cryptocurrencies is an altogether different proposition to that of stocks and shares – and just about any other form of asset investment for that matter.

So, let’s explore six key things to keep in mind when buying cryptocurrencies like Bitcoin and Ethereum for the first time:

Cryptocurrency: Understand Your Market Capitalization

With cryptocurrencies, there are plenty of mysterious processes that drive sentiment, speculation, and investment that even the most experienced of investors don’t understand. However, coin market capitalization is one of the most effective things to learn to gain a better overview of which coins are worth investing in.

Essentially, market capitalization – also known as market cap – shows the size of a coin, and the metric gets calculated by taking the coin’s value and multiplying it by the number of available shares.

Market caps offer an insight into the level of risk that each investment represents – which is why it’s so important to check the capitalization of a coin before investing in it.

Coins with a high market cap and a larger circulating supply are, in theory, less vulnerable to the wild volatility that other tokens can experience. However, smaller market caps are more prone to wild price swings and are more vulnerable to being manipulated by large holders.

Embrace Volatility

One thing that you’re likely already aware of is the fact that most cryptocurrencies are susceptible to high volatility. The price of Bitcoin, for instance, can rise and fall by thousands of dollars in the space of a very short time.

This means that if you’re embracing cryptocurrencies, it’s important to be unperturbed by the sight of your investments falling significantly before quickly recovering.

Most cryptocurrencies are affected by supply and demand, meaning that mass sell-offs can cause a fall, and mass adoption helps the coin to rise. Coins like Bitcoin also respond to market news. If there’s a positive emerging story surrounding cryptocurrencies, prices are likely to rise sharply, whereas news about regulations or market bans can cause prices to fall.

By training yourself to stay strong in the face of this volatility, you can save a small fortune in avoiding the temptation of cashing out your investments if you see them falling over a short space of time before reinvesting upon recovery.

Diversify Your Holdings

One piece of investment advice that does transfer well between stocks, shares, and crypto is the benefit of utilizing a diversified portfolio.

Investing in multiple coins that have an attractive future is a great way of protecting your portfolio in the long term. You can invest in different sectors of the cryptocurrency landscape which pander to different use cases.

Different coins have different purposes, from the burgeoning tokens of decentralized finance to secure privacy coins, to coins with faster payment processing speeds.

There are plenty of assets in the world of crypto that can grow at different rates, and it’s certainly worth covering your portfolio to accommodate different assets outperforming others.

Account For Developer & Community Activity

Coins that are attached to strong cryptocurrency projects tend to have high levels of developer activity. One of the best ways of keeping in touch with developer activity is through viewing its progress on GitHub.

Through GitHub, it’s possible to see the activity surrounding a project and monitor how regularly updates occur. You can also tell how many watchers are keeping track of a project’s progress as well as how many forks have been created.

Having active developers is a great way of seeing how coins are able to develop in the future. If a token is backed by innovative developers, they’re more likely to make for a better long term investment.

Likewise, if a coin comes attached to an active community, it can be a sure-fire bet to stand the test of time when it comes to investing.

Cryptocurrency: Choose The Right Exchange For You

Choosing the right exchange to suit your needs is another important thing to consider. While there are many reputable exchanges out there, not all of them list privacy coins like Monero and DASH due to their highly decentralized and private nature.

You’ll also need to consider the type of exchange you want to use moving forward. While there are some excellent places online like Coinbase to begin your journey into crypto, non-KYC exchanges like Evonax and Binance require less information to get started and allow you to set up an account in seconds.

Learn The Values of ‘Hot’ & ‘Cold’ Wallets

Finally, it’s important to know how you want to store your assets. Cryptocurrencies can be stored through offline ‘cold’ wallets to keep your coins safe from potential security risks, or online ‘hot’ wallets.

Most investors prefer the ease of access offered by hot wallets, but if you’re looking to invest more money over long periods of time in specific currencies, it may be worth making your purchase and storing your coins in a cold wallet to ensure that your portfolio stays free of cyberattacks.

However, you choose to invest in crypto, ensuring your comfort in looking after your investments is paramount. Choose an exchange that suits your needs, try to tune out of the market volatility, and enjoy the ride. Investing in cryptocurrencies is a ride like no other.

Prepared by Patrick O’Brien.

About the author

Peter Jobes is a tech, cryptocurrency  & blockchain writer having worked with the Press Association and clients like Tesco, RAC, and HelpUCover. CMO at Solvid.

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