CRYPTOCURRENCY INVESTING has become enormously popular during the 2020s. Cryptocurrency investing begins by opening an account in an online broker and exchanging euros for cryptocurrencies. Crypto investing has risks involved, but it is possible to prepare for them by making a careful investment plan. Crypto investors are typically divided into three categories based on the person’s risk profile.
Investing in crypto will change significantly in the 2020s due to regulation. A Finnish cryptocurrency broker is a safe option now and in the future. Investing in cryptocurrency is very interesting and rewarding, as long as you keep the risks under control and withstand the volatility.
Investing in cryptocurrency has become enormously popular
Cryptocurrency investing has become enormously popular during the 2020s. Cryptocurrency investing has grown from a hobby of few to a global investment activity. These days there are also publicly listed companies, hedge funds, and other institutions trading cryptos.
According to various estimates, more than 300 million people invest in cryptocurrencies. About half of these people began investing during the crypto boom of 2021. It is estimated that the number of crypto investors will reach a billion people during the next bull market.
Why are so many people interested in investing in cryptocurrency? One big reason is certainly the broader trend of digitalization. Younger generations have been dealing with digital money (in games) throughout the 2000s. Investing in cryptocurrency and using a digital wallet feels natural for young people.
Older age groups and traditional stock investors are more cautious. This population has also become increasingly involved in cryptos in the early 2020s. When talking about professional investors, regulation, custody services, and derivatives are also needed. All of these have become common in recent years.
Even though investing in cryptocurrencies is popular, the industry still has a negative stigma in the eyes of many. For example, banks still scrutinize transactions from or to cryptocurrency exchanges. The bad reputation of cryptos is also affected by numerous hacks and large-scale bankruptcies seen in 2022.
Events like this are part of the crypto sector’s natural growing pains. The industry is developing enormously, and regulation is not keeping up. Too much risk-taking results in huge losses. Over time, responsible operators will remain in the industry, offering their customers safe and reliable services.
This article will give you general-level guidance on investing in cryptocurrencies. This is valuable information for all beginners!
How is cryptocurrency investing done in practice?
Cryptocurrency investing begins by opening an account in an online broker and exchanging euros for cryptocurrencies. Anyone who is used to using an online bank can easily invest in cryptocurrencies.
There are already thousands of cryptocurrency exchanges globally. They can be roughly divided into two groups: global giants and local operators. Binance, Coinbase, and Crypto.com are examples of globally known services. They have tens of millions of customers.
Coinmotion and Northcrypto operate in Finland. Local operators are much smaller than global giants. The advantage of a local operator is customer service in the native tongue and the agility of a small company. An exchange that serves tens of millions of customers is not as easy to contact as a local operator, where you can also reach a person speaking your own language in a matter of minutes.
Below is a picture of the front page of Coinmotion.
You can find beginner’s guides and reviews for all the crypto exchanges mentioned in this article at AboutBitcoin.io.
In this article, we will go through investing in cryptos at a general level. For detailed instructions on how to buy cryptos, read this article: how to buy cryptocurrency.
Investing in cryptocurrency is done more and more through various derivatives or other instruments. This is a result of the growth of the entire asset class and the entry of institutional money into the game.
Norwegian investors can also buy futures, various tracker products, and ETF funds. Many want to just benefit from the price increases of cryptocurrencies without having to worry about storage or hacks. The use of derivatives is more popular among professionals.
Since cryptocurrency is a completely digital form of money, it is managed online. If you buy “real cryptos” from a cryptocurrency exchange, rather than derivatives, storing your coins safely is one of the most important issues. The year 2022 has seen numerous bankruptcies of different crypto services, which have woken up investors.
For example, the collapse of the FTX exchange seen in November 2022 left behind more than a million investors who lost their money. Many beginners may see a cryptocurrency wallet as a scary or strange thing. The truth is that the ability to manage your coins without the intervention of a third party is one of the most important features of cryptocurrencies.
We recommend every cryptocurrency investor learn how to use a cryptocurrency wallet. You can get the necessary basic information from our comprehensive crypto wallet guide.
Risks associated with investing in cryptos
Crypto investing has risks involved, but it is possible to prepare for them by making a careful investment plan. Of course, there is no such thing as a risk-free investment. The point we are making is that cryptocurrency investing contains risks that are not encountered in traditional investing.
Investing in cryptocurrency involves the following risks:
- Getting scammed
- Hacking and bankruptcies
- Volatility of prices
- Your own negligence
The first of the risks concerns novice investors and stems from the unregulated nature of the market. Many amateurs have stumbled into crypto exchanges that are complete scams. People are attracted to these services via social media, for example, Facebook & Instagram.
In addition to this, the cryptocurrency market is full of scams. Many of these coins have been created in cooperation with social media influencers, who create hype for the coin on Youtube or TikTok. A gullible newbie rushes in and loses his money.
The best way to prepare is to invest only in the biggest cryptos on the market (e.g. Bitcoin and Ethereum) and to trade on well-known exchanges that have been on the market for a long time.
Hacks of crypto exchanges haven’t been a major threat for years. A much bigger threat is the various bankruptcies we have witnessed in 2022. They can also hit the most popular services on the market. The number of customers alone is not proof of the vitality of the service.
Below is a picture from Coindesk from November 2022. It is an example of a case where the bankruptcy of the FTX exchange also led to the bankruptcy of the loan service BlockFi.
The best way to prepare for bankruptcies and such exchange-related incidents is to store cryptos in your own wallet. Transfer money (or crypto) to an exchange for trading only. Once you are done, transfer everything back to your own wallet. Another option is to spread your investments across several exchanges.
Volatility is also a risk. Many beginners imagine that they can cope with 80-90 percent declines, but the truth is different. Almost everyone overestimates their own perseverance. Start investing in cryptocurrency in small amounts until you have gone through at least one big down cycle.
Your own negligence is also a risk. If you store cryptos in your own wallet, you must take good care of the backup codes. Even experienced investors can also become a target of phishing attacks. This can lead to a disaster where you lose all your crypto holdings.
Investing in cryptocurrencies has lots of risks involved. This is then counterbalanced by exceptional profit potential.
Three different crypto investor profiles
Crypto investors are typically divided into three categories based on the person’s risk profile. In addition to the different risk profiles, investing in cryptocurrencies can be seen as both a hobby and a professional investment activity.
Three typical crypto investor profiles are as follows:
- Buy & hold investor
- Trader
- Traditional investor
The first group has a medium-low risk profile and includes the majority of investors. Cryptocurrencies can be seen as a way to get rich, but buy & hold investors don’t want to take too high risks in achieving this dream.
Buy & hold investors make often weekly or monthly purchases. For example, they might Ethereum with a certain amount after each payday. Many have a fairly limited crypto portfolio consisting mainly of Bitcoin and Ethereum, but there is also diversification here.
A buy & hold investor doesn’t actively trade and doesn’t try to optimize purchases by timing the market. An investor like this sells or buys more coins during the biggest market movements. The number of transactions is moderate on an annual basis.
The second group is numerically small but vocal. It includes both professionals in amateurs, which could be also called gamblers. This group chases 10x and 100x returns and uses often leverage. They are only interested in making money and don’t care about the fundamental reasons.
Traders also rush into unknown projects that can only be traded in decentralized exchanges. Many amateurs are after meme coins like Dogecoin or Shiba Inu. Professionals are mostly trading the top 20 cryptocurrencies but leverage their bets.
The image below shows the front page of PancakeSwap. It is a popular decentralized exchange from which risk investors acquire so-called meme coins.
The third group includes traditional stock investors who want to dip their toes in the water as well. For them, investing in cryptocurrency usually means putting one to five percent slice of the portfolio into Bitcoin or Ethereum. This group is very conservative and cautious.
Many traditional investors buy ETFs or other derivatives. They are not interested in holding cryptocurrency or the advantages offered by the technology. This group wants to include cryptocurrencies in their portfolio easily and safely.
Each of these groups has profitable and non-profitable investors. Beginners should start as cautiously as possible and with small stakes.
Cryptocurrency investing and regulation
Investing in crypto will change significantly in the 2020s due to regulation. This has become clear during 2022. Large-scale bankruptcies, scams, and hacks have accelerated the activity of regulators, especially in the United States and Europe.
Investing in cryptocurrencies takes place in a largely unregulated market. Of course, some regulation already exists. For example, in Norway, the Financial Supervisory Authority supervises cryptocurrency trading places. In the US, there is also state-by-state control.
For Europeans, the biggest change will come through the EU’s MiCa framework. It was concluded at the end of 2022 and will be written into law in 2023. After this, there will probably be a transition period of one or two years.
The United States has become the world’s leading country when it comes to cryptocurrencies. In the US, the concept of security causes great confusion. Are cryptocurrencies securities or not?
Cryptocurrency investing could change massively if most of them are classified as securities. Such products can only be offered by exchanges and banks with a securities license. Current crypto exchanges do not have a securities license. In addition to this, every cryptocurrency with security status would be an illegally issued security.
In the United States, there is also a dispute about which state agency will supervise cryptocurrencies. Currently, investors have been tormented by the SEC led by Gary Gensler.
An ordinary investor may not notice major changes due to regulation. Probably the most visible changes will come in the form of increased KYC/AML monitoring, which may also be extended to transfers to own wallets.
A Finnish cryptocurrency broker is a safe option
A Finnish cryptocurrency broker is a safe option now and in the future. Although the global regulation of cryptocurrencies is still developing, Finnish brokers are already under strict supervision by FIN-FSA. The Financial Supervisory Authority takes care of sufficient security, e.g. in terms of customer assets.
Another important point about Fiva’s regulation is related to the storage of cryptocurrencies. Finnish regulation ensures that the services must use extremely high standards for storing customer funds. It’s no wonder that Finnish exchanges have never been hacked.
Consumer protection is also at a high level in Finland. Finnish crypto brokers must always keep customer funds separate from the company’s own funds. Even if the services went bankrupt, the customers would always get their money back. This has not been the case in bankruptcies seen abroad. The assets of millions of people have disappeared into bankruptcy courts in 2022.
The image below shows the front page of Northcrypto. It is a Finnish cryptocurrency broker.
A Finnish cryptocurrency broker is also suitable for beginners because of the Finnish language. Some foreign stores may have a Finnish-language user interface, but customer service is not available in Finnish. This is a big problem for many, as there is a lot of technical slang associated with cryptocurrencies that are unfamiliar to beginners.
AboutBitcoin.io recommends beginners start with their local service providers.
The summary: investing in crypto
Investing in cryptocurrency is very interesting and rewarding, as long as you keep the risks under control and withstand the volatility. This is how cryptocurrency investing can be summarized in the big picture.
Anyone who reads the mainstream media has noticed the negative news about cryptocurrencies. There are plenty of terrifying headlines, especially during a bear market. The problems of the crypto sector are also exaggerated on purpose because drama sells, and news media sites want clicks.
The fact is, however, that investing in cryptocurrency has become enormously popular in recent years. It is already done by hundreds of millions of people. For some, it’s also a profession. There are thousands of different services related to cryptocurrencies in the world. The industry also employs hundreds of thousands of people around the world.
Despite the growth, cryptocurrencies are still very young projects, and the entire sector has only existed for a good ten years. Stocks have been traded for hundreds of years, and gold is a 5,000-year-old investment. It’s no wonder that there are plenty of growing pains with cryptocurrencies. There have been similar pains with other asset classes too in history.
Cryptocurrency investing is, at best, a very interesting and educational activity. It also offers small investors a real chance to beat the whales of Wall Street and find huge profit potential. However, remember to start with small stakes and manage the risks.
Every crypto investor will make mistakes and also suffer big losses. It is impossible to avoid them in such a volatile investment class. You should focus on learning from your mistakes. With a few years of experience, you are already a significantly better investor!