How do you get into cryptocurrencies? We explain the types of cryptocurrencies and several ways of making money in the industry.
Cryptocurrencies have always been some of the most volatile financial assets in the industry. In 2018, Bitcoin prices dipped by more than 80%. Similarly, in 2022, Bitcoin moved from near $70,000 to about $15,000. In total, cryptocurrencies saw their total market cap crash from more than $3 trillion in November to $823 billion in January 2023. Still, it is possible to make money in cryptocurrencies despite this volatility. In this article, we will explain how to get into cryptocurrency.
Types of cryptocurrencies
Bitcoin is the best-known cryptocurrency in the industry. It was started in 2009 to act as a digital alternative to fiat currencies like the US dollar and euro. It is a decentralized cryptocurrency with a fixed supply cap of 21 million.
Since its founding, thousands of other cryptocurrencies have been created. According to CoinMarketCap, there are now more than 20,000 cryptocurrencies in the industry.
Broadly, there are two main types of cryptocurrencies. First, there are coins like BTC, Litecoin, and Ravencoin that exist on their own blockchains. Second, there are crypto tokens that are built on top of existing smart contract blockchains like Solana and Ethereum.
There are other types of crypto tokens. For example, there are meme tokens like Shiba Inu, Bonk, and Floki Inu that are mostly driven by hype. There are centralized exchange tokens like Huobi Token and OKB that are used to reward their customers and provide incentives. Further, there are governance tokens like UNI and ATOM that are used to vote for decisions on blockchains.
Crypto trading vs investing
There are two main ways of making money in cryptocurrencies. First, you can make money as a crypto investor. Investing is the process of buying and holding a financial asset for a long time with the goal of generating a return.
Unlike stocks, it is relatively difficult to value cryptocurrencies. Instead, the real value of a cryptocurrency is often seen as the maximum amount that investors are willing to pay for it. Also, unlike stocks, cryptocurrencies are unregulated, meaning that their creators are not mandated to publish regular financial statements.
Second, you can trade cryptocurrencies. Trading is the process of buying and selling cryptocurrencies within a few minutes or days. There are several strategies for trading cryptocurrencies and other assets. For example, scalpers focus on extremely short-term movements. In this, they buy and sell assets within a few minutes and make a small profit.
Swing traders, on the other hand, buy or short cryptocurrencies and hold their positions for a few days. Algorithmic traders use bots to automate their trading, while price action traders focus on chart patterns like triangles, channels, head and shoulders, and wedges.
Staking is another way that people make money in cryptocurrencies. It is a process in which an investor locks a proof-of-stake coin such as Solana, Avalanche, or Cosmos and then receives a monthly staking reward. A popular type of staking is known as “liquid staking,” because it makes it possible for people to withdraw their staked coins at any time.
Finding a good crypto exchange
Finding a good cryptocurrency exchange is an important step when you are investing in digital currencies like Bitcoin and XRP. An exchange provides a place where you can buy and sell the coins in a seamless manner.
Most exchanges allow spot trading and futures products. Spot trading is where you buy coins at the exact price, while futures contracts are derivatives that obligate parties to buy or sell assets at a predetermined date. Futures contracts are recommended for experienced traders.
A good exchange should be safe, have low transaction costs, and be well-managed. Finding a good exchange will help you reduce the risk of losing money when the company goes under.
After finding an exchange and buying the coins, you should store them well. Most investors use a hybrid model where they combine cold and hot wallets. A hot wallet is connected to the internet, while a cold wallet is not. A cold wallet is usually safer, while a hot wallet is easier and more convenient to use.
Summary
Investing and trading in cryptocurrencies can be a highly profitable venture for most people. In this article, we have looked at the different types of digital currencies on the market and some of the top ways to make money. We have also highlighted the process of buying and storing your coins.
