HOW DO YOU INVEST IN CRYPTOCURRENCY FOR LONG-TERM RETURNS?

Investing in cryptocurrencies is risky, but it can make your money work for you in the long run. Compared to traditional stocks, cryptocurrencies are highly volatile and require investors to prepare for all scenarios. Dramatic changes can result in considerable gains and significant losses. Panic selling and buying in fear of missing out do not always help in the long run, and given how uneven the market trends are, it can be helpful to look at the bigger picture.

Investing in cryptocurrencies might seem complicated, but it is simple when we break it down into steps. Two tasks are waiting for you.

First, research and determine which cryptocurrency is the best to invest in. That's always the most challenging part. You'll analyse price history, study the currency's white paper to gauge its market niche, and try to consider government regulations and celebrity approvals. Some investors are looking for cryptocurrencies with a long tradition of return value, while others prefer newcomers to the market because their value could quickly skyrocket. 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've decided to invest in cryptocurrencies and identified which coins and tokens are worth your cryptocurrency investment, it's time to build your portfolio. Fortunately, buying and selling cryptocurrencies through platforms such as Kriptomat is as easy as buying clothes or booking trips online.

Graiscale Investments, one of the world's foremost institutional investors in the blockchain arena, has a portfolio containing many cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Stellar, and XRP, among others. Their digital asset portfolio primarily consists of Bitcoin, which accounts for over $6 billion of AUM's $7.3 billion total. However, owning a mix of BTC and other altcoins is an excellent place to start. Many more people invest large amounts in BTC, the world's first cryptocurrency than in altcoins such as Litecoin and XRP. When an altcoin crashes, yield from Bitcoin or other altcoins can preserve the value of your portfolio. Many altcoin investors transfer funds to Bitcoin when it grows, pushing it even higher as altcoins fall in value.

The crypto market is unpredictable and creates millionaires just as often as it bankrupts them. There is no objectively risk-free way to invest in anything. Only intuition and experience will help you walk away victorious. How much you should invest depends on how much you are willing to lose, and this should give you a fair idea of the level of risk involved in entering the cryptocurrency space. Unlike the traditional stock market, no centralised entities are responsible here. This makes the blockchain industry perfect for fraud attempts, so investing only in projects you think are valuable is crucial. Just because an asset grows in value doesn't necessarily mean it's worth it.

From fraud-prone ICOs to blatant pump-and-dump schemes, there's a lot you need to learn to better understand the crypto market. You cannot have earnings on a project if you cannot identify its value.

Digital assets can be bought, sold, and, in some cases, stored on various cryptocurrency exchanges on the Internet. The two main types are centralised and decentralised exchange.

Easy access: Centralised exchanges (CEXs) work the same way as traditional exchanges, making trading more accessible. The order book shows data on buy and sell orders (bid and ask prices). It is used to pair merchants in real time. The price is calculated based on the supply and demand ratio in the order book.

Alternative approach: Decentralised exchanges (DEXs) have undergone multiple changes over the last decade. Attempts to use the order book system with DEXs  resulted in slow exchanges with very insufficient liquidity. With the introduction of automated market makers (AMM), modern DEXs threaten some established CEXs (centralised exchanges). Instead of using the order book to track supply/demand information, current DEXs lock token pairs in the 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.

Both types of exchanges have advantages and disadvantages. Unlike DEXs, centralised exchanges are reliably fast, with multiple teams of dedicated experts working to optimise the platform for the best possible user experience. In addition, while CEXs are often targets for hackers, they are more likely to compensate you for your losses than exchanges without central government. Most CEXs also have bridges, i.e., fiat-on ramps for exchanging fiat currency for cryptocurrencies, and some decentralised exchanges offer this feature as well.

Among the available altcoins, stablecoins offer cryptocurrency versatility with fiat currency stability. For example, Tether (USDT) is a popular stablecoin whose value is pegged to the US dollar. This allows traders to exit or enter markets immediately without waiting for fiat to convert to crypto. The data shows that there are more than 5,000 altcoins, but not all are worth your money, and most are probably not worth your time. However, the dollar value of an altcoin is not always proportional to how much it is worth. In the case of service tokens, the service you pay for has a greater value than the token itself. It is easy to get lost in technical indicators and trend lines, especially in the case of early projects. Therefore, investing only in suitable projects that can bring value to the market is crucial. Impossible claims are often just that – impossible.

There is no single answer to which cryptocurrencies to invest in.

For long-term investments, many buyers stick to the best coins by market capitalisation, such as BTC, XRP, ETH and others, as shown in the cryptocurrency price table. This will give you a good idea of what the community generally thinks is most valuable and a great way to immerse yourself in blockchain technology. Some new projects will reach the top of the rankings quickly but will disappear just as fast. Therefore, market testing can help determine what is worthless and what is valuable. Investing large amounts in high-risk assets can be tempting, but this can be detrimental, especially to long-term investors. Consistent growth over time shows how much an asset means in the market. This is a fast-growing industry, but it can pay to keep up with the advances.

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

Another popular evaluation method is technical analysis. This includes analysing historical price chart data to detect patterns in market behaviour. This can help to understand traders' behaviour. Additionally, metrics such as daily trading volumes, prominent support and resistance, and specific technical indicators can present a broader picture of its potential.

Although technical analysis is mainly reserved for short-term projections, it is possible to learn much about how it reacts to external events by outlining patterns in the cryptocurrency price chart. This can be particularly useful in the long term and, combined with fundamental analysis, can provide a well-rounded idea of the value of the project. Through quantitative analysis, investors can estimate how an asset will likely behave based on data history. Although past performance is never an exclusive indicator of future value, learning more about the token and the market that invests in it is crucial.

The point of any investment is to make money, and investing in cryptocurrencies can make your money work for you in more ways than one. Created as a solution to the problems of adaptability and energy consumption with Bitcoin's Proof of Work algorithm, Proof of Stake has crept into many blockchain-based projects in recent years. Instead of rewarding miners for performing calculations to validate transactions, the Proof of Stake rewards participants for providing liquidity by locking tokens into a smart contract. Rewards range from the variable APR on the invested token to new tokens that can be further invested. Decentralised finance (DeFi) is a hotbed of staking protocols, and hacker attacks in the last year have led to millions being withdrawn from various DeFi platforms. So, these are not where you'd want your life savings. Some staking programs allow network participants to entrust their stake to validator nodes, balancing security and risk. Others offer rewards for keeping assets in their wallets for a limited time. This ability to pledge offline from a hardware wallet makes things much more appealing to long-term investors, providing security from malicious actors online. The most sensible approach to long-term profiting for most people may be to accumulate a diversified portfolio of cryptocurrencies and periodically rebalance the portfolio. We will explore this topic in future guides.

Staking has led to a wave of people investing in the crypto space, lowering the barrier to entry into the cryptocurrency world, as you no longer need high-end mining machines but just a regular hardware wallet. Although much of the cryptocurrency mining industry has shifted to sustainable energy sources, Proof of Stake is far more energy efficient and environmentally friendly. It also makes 51% of attacks much more complicated to execute because of the cost of acquiring the needed authorisations and permissions. Miners must also address the depreciation value of their machines over time, periodic hardware upgrades, and changes in network mining operating costs. Anyone new to the world of cryptocurrencies has secure access to engage in the complex topic of “staking and rewarding” through the new Cryptomat feature – Savings Account.