Cryptocurrencies are relatively new investments, but they can provide great returns for smart investors. Thanos Papasavvas, the founder of ABP Invest, notes that more people became interested in cryptocurrencies because they believe that their value will continue to rise rapidly. Cryptocurrencies captured the attention of a large numbers of investors in 2017, when their prices grew as much as 900%.
These digital assets still have high valuations in 2022, but beginner investors need to understand these investments to increase their profits and minimize their losses.
What are Cryptocurrencies?
Cryptocurrencies are digital assets that are secured on a decentralized blockchain technology. These digital assets rose in popularity because they support online payments without the intervention of intermediaries, while offering security due to the cryptography settings. The five most popular cryptocurrencies, based on market caps, are the following:
- Bitcoin (BTC)
- Ethereum (ETH)
- Ripple (XRP)
- Bitcoin Cash (BCH)
- EOS
How Can You Make a Profit from Cryptocurrencies?
Crypto mining
Popular cryptocurrencies like Bitcoin cost thousands of dollars, so they’re hard to acquire for those with minimal capital. Instead of purchasing these digital assets, you can invest in Antminer l3+ machines which can mine numerous altcoins, including dogecoin and litecoin. Using these crypto mining machines, you can verify digital currency transactions by solving mathematical equations then updating the blockchain database. Once you finish the process, you’ll be rewarded with cryptocurrency assets.
Buy and hold
Investors who don’t have time to mine can simply buy cryptocurrencies and hold their assets in digital wallets over a long period of time. This is a passive investment strategy that encourages you to ride through short-term market fluctuations so that your assets can continue to increase in value after many years.
Yield farming
If you’re looking for another passive strategy, yield farming is a more profitable option you can try. Rather than waiting for cryptocurrency values to rise, a feature on yield farming by FXCM states that you can pledge your assets to a platform to earn more profit. This is similar to allocating funds into a savings account because you’ll gain interest rate profits or additional coins by placing your assets in a lending or trading decentralized finance (DeFi) platform.
How to Minimize Your Losses from Crypto Investments
Educate yourself
Cryptocurrency investments are not that simple, so you’ll need to educate yourself about these assets. You can do this professionally by getting a CFA Level 1 course, which tackles quantitative analysis, equity investments, and more. This course will give you an edge in crypto investments, since you will learn how to calculate the value of assets and even conduct risk management.
Consider your goals
Apart from educating yourself, certified financial planner Douglas Boneparth told CNBC that you should consider where crypto investments fit into your financial strategy. In this case, you’ll need to assess how you should trade your crypto assets so that you can achieve your long-term financial goals. This will help direct you towards the safest investment strategy for your purposes.
Look into safer options
Cryptocurrencies tend to be volatile, so you’ll have to establish a safety net in case your digital assets’ prices dip. Given that cryptocurrencies rapidly go up and down in value, financial experts recommend investing in more stable assets, like alternate cryptocurrencies. This diversification technique balances your investments, since they won’t be affected by the same events.
Cryptocurrencies can be promising for beginner investors who want to gain high returns for their assets. But since these assets are quite volatile in nature, you’ll need to create the right strategies to maximize your returns from crypto investments.