Investing in cryptocurrencies is risky, but making your money work for you is extremely profitable in the long run. Cryptocurrencies allow for significant fluctuations in both growth and decline, leading to either incredible gains or losses as a result of these changes. Compared to traditional stocks, cryptocurrencies are extremely volatile and require investors to prepare for all kinds of scenarios. Panic selling and buying out of fear of missing out do not always help in the long run, and given how inconsistent market movements can be, it may be helpful to take a broader view.

If you are looking for advice on how to invest in cryptocurrencies long-term, you have come to the right place. We will not recommend any specific coin or token as the best cryptocurrency for investment, but we can share some general principles for building a portfolio for long-term profit.

How to invest in cryptocurrencies: A short guide

Investing in cryptocurrencies may seem complicated from the outside, but if we break it down step by step, you will see that it is quite simple. There are two tasks ahead of you.

First, do some research and determine which is the best cryptocurrency for investment. This is the hardest part. You will analyze price history, study the currency’s whitepaper to assess its market niche, and try to take into account events such as government regulations and endorsements by well-known figures. Some investors look for cryptocurrencies with a long track record of returns, while others prefer newcomers to the market because their value could skyrocket quickly. Deciding which cryptocurrency to invest in is both an art and a science. There is a reason why even the most experienced professionals lose money on some investments.

Once you decide to invest in cryptocurrencies and identify which coins and tokens are worth your cryptocurrency investment, it is time to build your portfolio. Fortunately, you are on the Kriptomat platform, where buying and selling cryptocurrencies is as easy as buying clothes or booking a trip online.

Will Bitcoin maintain its value in the long term?

Bitcoin has a fixed supply limit of 21 million BTC, which is given as a reward to miners for securing the network. Approximately every four years, the supply rate is halved, making BTC increasingly scarce over time. BTC is not the only cryptocurrency with this type of periodic supply reduction. Various altcoins also follow a deflationary supply schedule. Since only a limited number of BTC will ever exist, even lost coins contribute to the asset’s scarcity.

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Cryptocurrencies offer an impressive value proposition where you can invest small amounts and potentially achieve significant profits, but that does not mean there is no risk. In fact, most cryptocurrency investors minimize risk by diversifying their portfolios across multiple assets.

Should I invest in altcoins?

Grayscale Investments, one of the world’s most prominent institutional investors in the blockchain space, has a portfolio that includes many cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Stellar, and XRP, among others. Their digital asset portfolio is primarily made up of Bitcoin, which accounts for over 6 billion dollars out of a total 7.3 billion dollars AUM, but holding a mix of BTC and other altcoins is a good starting point. Far more people invest large amounts in the world’s first cryptocurrency than in altcoins such as Litecoin and XRP. When altcoins crash, gains from Bitcoin or other assets can help preserve the value of your portfolio. In fact, many altcoin investors shift funds into Bitcoin when it starts to rise, pushing Bitcoin even higher while altcoins decline in value.

How risky is investing in cryptocurrencies?

The crypto market is highly unpredictable and creates millionaires just as often as it bankrupts them. There is no objectively risk-free way to invest in anything, and only intuition and experience can help you come out as a winner. How much you should invest depends on how much you are willing to lose, and that should give you a fair idea of the level of risk involved in entering the cryptocurrency space. Unlike the traditional stock market, there are no centralized entities responsible for oversight. This makes the blockchain industry perfect for scam attempts, so it is crucial to invest only in projects that you believe are truly valuable. Just because an asset is increasing in value does not necessarily mean it is actually worth it.

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From ICOs (Initial Coin Offerings) prone to scams to obvious pump-and-dump schemes, there is a lot you need to learn in order to better understand the crypto market. You cannot make a profit from a project if you cannot identify its value.

Where can I buy cryptocurrencies?

Digital assets can be bought, sold, and in some cases stored on various cryptocurrency exchanges on the internet. The two main types are centralized and decentralized exchanges.

Simple approach: Centralized exchanges operate in the same way traditional exchanges facilitate trading. An order book is used to collect bid and ask data and match traders in real time. The price of an asset is calculated based on supply and demand in the order book.

Alternative technical approach: Decentralized exchanges have gone through several iterations over the past decade. Attempts to use order book systems with DEXs (decentralized exchanges) resulted in slow exchanges with very little liquidity. Lack of incentives for market makers. With the introduction of automated market makers (AMMs), modern DEXs pose a challenge to some established CEXs (centralized exchanges). Instead of using an order book to track bid/ask information, current DEXs lock token pairs into a liquidity pool. The ratio of tokens in the pool determines their price, and liquidity providers are rewarded for staking and contributing to the liquidity pool.

Kriptomat provides a mobile and desktop application with an extremely simple interface for securely buying, selling, and storing cryptocurrencies.

What type of exchange should I use?

Both types of exchanges have advantages and disadvantages. Unlike DEXs, centralized exchanges are reliably fast, with multiple teams of specialists working to optimize the platform for the best possible user experience. In addition, although CEXs are larger targets for hackers, they are more likely to reimburse you for losses than exchanges without a central authority. Most CEXs also have built-in fiat-to-crypto on-ramps, although some decentralized exchanges offer this feature as well.

Where should I store my digital assets?

Another critical aspect of long-term cryptocurrency investing is storage. Although exchange wallets are relatively safe, keeping your assets online carries a risk that is fairly easy to reduce. Whether it is a spare phone you keep somewhere or a dedicated hardware wallet, keeping your funds offline is much safer and quite easy to set up. Make sure to save your wallet seed phrase so you always have access to your tokens. Losing this information can result in the depreciation of your entire portfolio because your funds become inaccessible. Kriptomat cryptocurrency wallets make this process as easy as possible, while maintaining modern security standards through password protection and two-factor authentication.

What types of cryptocurrencies exist?

Among the various altcoins available for purchase, stablecoins offer the versatility of cryptocurrencies combined with the stability of fiat currencies. For example, Tether (USDT) is a popular stablecoin whose value is pegged to the US dollar. This allows traders to exit or enter markets instantly without waiting for fiat-to-crypto conversions. Data suggests that there are more than 5,000 altcoins, but not all of them are worth your money, and most are probably not worth your time. However, the dollar value of altcoins is not always proportional to their true value. Many utility tokens are more valuable for the services they enable than for their actual price. It is easy to get lost in technical indicators and trend lines, but especially in the case of early-stage projects, it is crucial to invest only in real projects that can deliver value to the market. Unrealistic claims are often exactly that—unrealistic.

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Do your own research before allocating any portion of your portfolio to cryptocurrencies, and avoid anything that even remotely resembles a multi-level marketing scheme. Visit the cryptocurrency price page to see all coins currently available through the Kriptomat account.

Which cryptocurrencies should I invest in long term?

The question of which cryptocurrencies are best for investment does not have a single answer.

For long-term investments, many buyers choose to stick to top coins by market capitalization, such as BTC, XRP, and ETH, among others as shown in the cryptocurrency price table. This will give you a good idea of what the community generally considers most valuable and is a great way to enter the world of blockchain technology. Some new projects will enter the top rankings just as quickly as they leave them, and this market testing can be useful in determining what is worthless and what is valuable. It can be tempting to invest large amounts in high-risk assets, but this can be harmful, especially for long-term investors. Consistent growth over time shows how much an asset matters to the market. This is a rapidly evolving industry, but it can pay off to follow it.

How do I know if a cryptocurrency is worth investing in?

Investing in anything requires analysis. For long-term ventures, investors use three main methods to measure the advantages and risks of a particular asset. Fundamental analysis evaluates the intrinsic value of a token or project in the context of the current market and its prospects. Most projects publish a whitepaper before a token sale, and studying this document can provide deeper insight into what the asset offers. Be sure to review economic factors and other crypto-specific events such as Bitcoin halving every four years.

What other forms of analysis can I use?

Another popular evaluation method is technical analysis. This involves analyzing historical price chart data to identify patterns in market behavior. This can help understand trader behavior, and metrics such as daily trading volume, key support and resistance levels, and specific technical indicators can provide a broader picture of its potential.

Although technical analysis is mostly reserved for short-term projections, it is possible to learn a lot about how it reacts to external events by mapping patterns in cryptocurrency price charts. This can be especially useful in the long term and, when combined with fundamental analysis, can provide a well-rounded view of a project’s value. Through quantitative analysis, investors can assess how an asset is likely to behave based on historical data. While past performance is never a definitive indicator of future value, it is crucial to learn more not only about the token itself but also about the market investing in it.

How can I make money from cryptocurrencies?

The purpose of every investment is to make money, and cryptocurrency investments can make your money work for you in more than one way. Created as a solution to scalability and energy consumption issues with Bitcoin’s Proof of Work algorithm, Proof of Stake has been adopted by many blockchain-based projects in recent years. Instead of rewarding miners for performing computations to validate transactions, Proof of Stake rewards participants for providing liquidity by locking tokens in a smart contract. Depending on the token, rewards range from a variable APR on staked tokens to entirely new tokens that can be further staked. Decentralized Finance (DeFi) is a hotspot for staking protocols, and hacks in the past year have led to millions being drained from various DeFi platforms—this is not where you want to keep your life savings. Some staking implementations allow network participants to delegate their stake to validator nodes, achieving a balance between security and risk. Others offer rewards for simply holding assets in their wallets for a certain period of time. This off-chain staking capability from a hardware wallet makes things more attractive for long-term investors, providing protection against malicious actors online. The most sensible approach to long-term profitability for most people may be accumulating a diversified cryptocurrency portfolio and periodically rebalancing it. We will explore this topic in future guides.

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Is staking more profitable than mining?

Staking is not only useful for individual investors; it has also led to a wave of people entering the crypto space, lowering the barrier to entry from requiring high-end mining machines to simply using a standard hardware wallet. Although much of the cryptocurrency mining industry has shifted toward sustainable energy sources, Proof of Stake is far more energy-efficient and environmentally friendly. It also makes 51% attacks significantly harder to execute due to the sheer cost of acquiring enough control.

Miners also have to deal with the depreciation of their machines over time, periodic hardware upgrades, and other operational costs of maintaining mining infrastructure. Anyone new to cryptocurrency can gain exposure to this complex topic of “staking and rewards” through Kriptomat’s new feature – the Savings Account.

Now you know how to invest in cryptocurrencies

Cryptocurrency investments can experience impressive growth over short periods, but it is essential to have a thorough understanding of how a project works before risking any capital. Short-term investments may seem like an easy way to make quick money, but trading on shorter timeframes requires experience, intuition, and precision. Volatile markets can trigger all kinds of emotions in inexperienced traders, and what may seem like the right decision in the moment often turns out to be harmful in the long run.

Blockchain takes control away from centralized institutions and empowers the individual investor.

Bitcoin has given us decentralized money, and altcoins have given us a decentralized economy. The industry may still be young, but it is already on its way to widespread adoption. As more people enter the space, cryptocurrencies may soon become less of a blockchain investment and more of an investment in the future economy.