Investing in Crypto

How to Invest in Cryptocurrency? A Complete Guide

Investing in cryptocurrency is one of the hottest topics in the most recent decade. However, for people who are new to the space, it can be a bit scary. When is a good time to buy cryptocurrency? What cryptocurrencies to invest in? How much should one allocate to cryptocurrency? These are some of the common questions asked. Here, we provide a guide to answer all these questions.

Invest in Cryptocurrency: When Should I Buy?

The cryptocurrency market, like many other markets, is driven by supply and demand. When there is more demand than supply for cryptocurrency, price will increase. This is evident in the Bitcoin bull run in 2020. Institutional buyers such as Grayscale and MicroStrategy are buying so much Bitcoin, which means the newly mined Bitcoin isn’t enough to cover the increased demand. As a result, the price of Bitcoin increased significantly.

So what caused the massive buying from institutions? The answer is macroeconomics. In 2020, due to COVID19, there is unprecedented ‘money printing’ by central banks around the world. As such, investors flock to Bitcoin as a hedge against inflation.

Therefore, one way to ‘time’ your purchases in cryptocurrency is to follow the news closely and pay attention to what the big players are doing.

If the above sounds too complex for you, don’t worry. There is a much simpler way in getting the timing right: you don’t worry about timing at all! One popular way to invest in cryptocurrency is called ‘dollar cost averaging‘ (DCA). DCA is an investment technique not just for cryptocurrency, but widely applied for other investment assets as well. It is simple: setting aside a fixed amount (e.g. $100) at a regular interval (e.g. weekly) and automatically buy cryptocurrency at the prevailing market rate. The advantage of this technique is it becomes passive, negates market fluctuations and takes away emotions.

Invest in Cryptocurrency: Which Crypto to Buy?

Choosing the right cryptocurrency is harder than ever, with more than 2,000 cryptocurrencies on the market at the time of writing. However, there are a few things to look out for when deciding in which crypto to buy.

Does the cryptocurrency have a reputable history? Normally, one should do thorough research regarding the history of a cryptocurrency before investing. Some newly-formed cryptocurrencies are likely to be Ponzi schemes. The founders of the cryptocurrency will have a lot of ‘pre-mined’ tokens, only to dump them on the market when the price rises. In contrast, top 10 cryptocurrencies are mostly decentralised and do not have the same problem.

Does the cryptocurrency have a ‘use case’ and the team to make it a reality? During the height of the ICOs in 2017, people created a lot of cryptocurrencies with zero intention to make them useful. These cryptocurrencies are essentially worthless tokens, with the aim to solely benefit the issuer, at the cost of investors / speculators. Further, some cryptocurrencies have a strong story but lacks the intention or resources to make its story a reality. When investing in these cryptocurrencies, one must do their research thoroughly.

Some argue that when investing in cryptocurrency, one should diversify their holdings. Some argue that diversification is not ideal for crypto. Both arguments have their merits. Whilst diversification reduces one’s risk to a particular type of cryptocurrency, it doesn’t normally serve the purpose of diversification in traditional financial assets. This is because most cryptocurrencies tend to rise together and fall together. Therefore, to keep things simple, one can simply invest in the top cryptocurrencies or even just in Bitcoin itself.

How Much to Allocate to Cryptocurrency?

This is probably one of the most common questions that investors have. How much should one allocate their wealth to cryptocurrency? There is no short answer to this. However, as a general rule of thumb, cryptocurrency is still a high-risk-high-return asset. Therefore, one should be exposed, but not overly exposed to it.

Ultimately, everyone has a different risk appetite. An affluent senior executive in his / her 40s on a six-figure salary should have a completely different risk appetite to a middle-class retiree. The senior executive may be willing to take on a lot more risks and, as a result, allocate more of his / her wealth to crypto.

In the Bitcoin bull run in 2020, we are observing that institutional investors and billionaire investors are starting to follow the 1% rule. Allocating at least 1% of the total wealth to cryptocurrency seems a reasonable approach accepted by most.

Looking to Buy Crypto with AUD?

Look no further, Coinstash is one of the Australian platforms that allows its users to buy crypto with AUD. We have deep liquidity into USD markets, therefore the ability to provide our users with some of the best prices available.

About Coinstash

Coinstash is a registered digital currency exchange based in Australia. Our customers praise Coinstash as one of the most user-friendly, educational and supportive platforms. Through its live support 7 days a week, Coinstash has accumulated numerous positive reviews from its customers. Coinstash is also one of the only digital currency trading platforms that participated in Australian government Austrade’s landing pad program.

Note nothing in this article should constitute general or specific financial advice. Coinstash does not take into account your circumstances when publishing articles. Any content on Coinstash.com.au or related domains are informational only.