How to invest in cryptocurrencies?

Placing money in crypto assets like Bitcoin is like a piece of cake today, thanks to the explosion of online cryptocurrency exchanges like Coinbase. But, making profits out of this investment class isn't that easy.

To beginners, blockchain, bitcoin, altcoins, NFTs might all sound as synonyms of each other. Before any individual investor decides to take the plunge, it is important to at least know the basics.

Choosing the right crypto project

Blockchain is the tech that underpins the entire crypto sector. Bitcoin is a digital currency that proponents say reduces the cost of remittances. Altcoins on the other hand are alternative cryptocurrencies to Bitcoin and are basically used within a specific blockchain platform. Here, if that blockchain project is finding the love of users, like more apps are being built on Ethereum’s blockchain, Ether might rise in value.

Also read: Is investing in altcoins better than Bitcoin?

An NFT is a blockchain-registered proof of ownership over any digital asset. At present, many metaverse cryptocurrency projects including Decentraland and The Sandbox are finding backers for their use of NFT features within the project. For example, digital assets like a piece of land in Decentraland’s virtual reality world are non-fungible tokens.

Only when you know this, you might pick an altcoin that may gain value in the near-term. A few altcoins like Axie Infinity have gained multi-fold in 2021, while bitcoin has just doubled so far. It is notable that a few like Squid Games crypto have just vanished from the radar.

Also read: Is Bitcoin better than gold as hedge against high inflation?

Investing indirectly

Second, there are alternatives to investing directly in cryptos. For example, there are listed companies like MicroStrategy and Tesla that hold Bitcoin, and hence investing in their stocks can be relatively safer since these companies undertake unrelated business activities. This means their sustainability is not reliant on crypto gains and losses alone.

Also read: 5 breakout altcoins with metaverse underpinning

Bitcoin and Ether ETFs are also gaining traction, but they might come with the same risk because in ETFs too, the underlying asset is a crypto. ProShares Bitcoin ETF explicitly warns its investors that 'value of an investment in the ETF could decline significantly and without warning, including to zero'.

Bottom line

Investing in cryptocurrencies is a personal choice, and it depends on the risk appetite of any investor. Any investor should at least know the services that any particular crypto project is promising to provide before making an investment decision.