Why buy cryptocurrencies in 2023 ?
There are several reasons why people choose to buy cryptocurrencies.
Firstly, cryptocurrencies provide a way to store value outside of the traditional financial system, offering a unique investment perspective unlike anything we’ve seen before.
Moreover, cryptocurrencies are known for their high volatility, partly due to their low market capitalization (‘market cap’). This can present attractive short-term trading opportunities for experienced investors.
Finally, some believe that cryptocurrencies have a promising future as decentralized digital assets, which can make them appealing for long-term portfolio diversification or simply to be part of a new ecosystem that is being built.
After a year of a “bear market“, the cryptocurrency market in 2023 finds itself in relatively low zones. Indeed, Bitcoin has seen a decline of more than 70% from its all-time high, and some investors see this as an opportunity to enter the market.
Ever since the cryptocurrency market came into existence, it has been driven by cycles:
- Bear market, characterized by significant downturns
- Bull market, where the market reaches new all-time highs
So, could this be the right time to start buying crypto and position oneself for the next bull market ?
What cryptocurrencies to buy ?
Before investing in crypto, it’s important to understand how and, most importantly, which assets to invest in. There are thousands of different cryptocurrencies, and it’s not easy for beginners to know which ones to choose.
If you are new to the cryptocurrency market and want to start investing in virtual currencies, there are several things to know.
We differentiate between :
- Bitcoin : the mother of all cryptocurrencies, which stands in a category of its own and leads the market.
- Altcoins : all cryptocurrencies other than BTC are termed altcoins (alternative coins).
The crypto market is predominantly led by Bitcoin and Ethereum, which is the primary altcoin. Most other altcoins are based on the Ethereum blockchain.
For a beginner investor looking to start buying cryptos, the easiest and safest bet is to stick to these two cryptos: BTC and ETH.
There are several investment strategies detailed later in the article, but a long-term and low-risk method is DCA (Dollar-Cost Averaging). This strategy involves buying a fixed amount on a regular basis. It helps to average out the purchase price and reduce the risk of losses.
What platforms to use for buying cryptocurrencies ?
There are two main types of platforms for purchasing cryptocurrencies : exchanges and brokers. The differences between them are significant, and your choice will depend on your objectives. Whether you wish to buy Bitcoin for the long term, or buy Ethereum for trading purposes, the choice of platform will vary.
Exchanges are trading platforms that allow users to buy and hold cryptocurrencies or tokens in a wallet.
They can be categorized as :
- CEX (Centralized Exchange) like Binance
- DEX (Decentralized Exchange) like dYdX or Curve
DEXs, being decentralized and based on blockchain, operating with smart contracts, tend to be slower and more difficult to use. If you are a beginner investor, exercise caution if you opt for a DEX.
Brokers are platforms that allow the purchase of cryptocurrencies with fiat currencies (like the euro or the dollar). One does not physically hold the cryptocurrency, but rather contracts (CFDs).
Brokers are typically preferred by large portfolios that rely on their liquidity to invest in various types of assets. They are also generally favored by more short-term focused profiles, who do not intend to be exposed to cryptocurrencies over the long term.
Among the main brokers for buying cryptocurrency are eToro, Vantage, and Axi.
What to choose between a Broker and an Exchange ?
The choice of platform depends on the investor’s profile and needs.
For example, some platforms require identity verification (KYC) to use their services, while others offer no-KYC purchase options.
Certain specific scenarios drastically limit the possibilities. For instance, in France or Europe, an investor wishing to buy crypto with their PayPal account must necessarily go through a broker to access the market using fiat currency (euro, dollar, etc).
Similarly, someone wanting to hold cryptos in their wallet to buy NFTs would need to use an exchange platform (CEX or DEX).
Regardless of your choice for buying cryptocurrencies, it is crucial to ensure that the chosen tool is secure and meets your needs.
Crypto Investment Strategies
There are many different types of investments for cryptocurrencies, such as :
- DCA (Dollar-Cost Averaging)
- HODL (Hold On for Dear Life)
Trading : The Option for Short-Term Investors
Trading involves buying and selling cryptocurrencies based on price fluctuations. Traders usually establish a trading plan based on technical analysis before entering or exiting the market.
It is possible to trade cryptocurrencies on exchanges, especially in futures using stablecoins, or on brokers like eToro.
DCA (Dollar-Cost Averaging) : The Strategy for Long-Term Investors
DCA involves regularly purchasing cryptocurrencies over a defined period of time, rather than buying the entire asset at one single moment. The aim of this technique is to minimize the risk associated with purchasing at a time when prices are high, thereby averaging out the buying price.
DCA is particularly appealing for investors looking to buy cryptocurrencies on a regular basis, without worrying about short-term price fluctuations.
HODL : Hold On for Dear Life
HODL is an acronym for “Hold On for Dear Life“. It’s a cryptocurrency investment strategy that involves buying and holding assets over an extended period, rather than selling them quickly in response to short-term price fluctuations.
The practice of HODL is often adopted by investors who believe in the blockchain technology behind cryptocurrencies and anticipate that their value will increase in the long term.
Staking : The passive income strategy for investors
Staking essentially involves locking up cryptocurrencies in a wallet to participate in the validation of transactions on a blockchain, thereby earning interest. To participate in transaction validation, one must delegate their cryptos to a validator on a blockchain that uses Proof-of-Stake as its consensus mechanism.
This is a long-term investment option, as users need to hold the tokens for a specific period of time to be eligible for the interest.
Mining : For long-term investors unafraid of electricity bills
Mining is characterized by providing computer resources to validate transactions on a blockchain and earn cryptocurrency rewards.
Miners use powerful computers to solve complex mathematical calculations, thereby validating transactions and adding new blocks to the chain.
However, mining certain cryptocurrencies may require significant investments in computer hardware and electricity to be profitable.
Today, mining is done on Proof of Work (PoW) consensus mechanisms.
Cloud Mining : An interesting compromise in mining
Cloud mining is a cryptocurrency mining method that allows users to rent computing power without having to purchase or manage their own hardware.
Users pay a monthly subscription or a package to a cloud mining service to use the computing power of a data center, thereby mining their own crypto.
Cloud mining can offer a more accessible and less expensive alternative for users who cannot invest in their own mining hardware.
How to store your cryptocurrencies ?
In terms of preserving cryptocurrencies after purchasing tokens, it’s important to store them securely in wallets. There are several options available :
- Cold Wallet
- Hot Wallet
- Custodial Wallet
The Cold Wallet
Cold wallets are storage wallets disconnected from the Internet.
They are typically used to store significant amounts of cryptocurrencies for the long term, as they offer additional security against cyberattacks and online theft.
The most recognized cold wallets in the market are those from the French company Ledger.
The Hot Wallet
Hot wallets are storage wallets for cryptocurrencies that are connected to the Internet.
They are typically used to store smaller amounts of cryptos for the short term, as they provide greater flexibility to access and manage tokens. However, they are less secure than cold wallets.
Examples of hot wallets include Metamask, Phantom, and ZenGo.
The Custodial Wallet
Custodial Wallets are storage wallets managed by a third party. They offer a level of security that is intermediate between cold and hot wallets.
Custodial wallets are often used for cryptocurrency investments where users do not want to manage their private keys and the security of their funds themselves. Users can delegate these tasks to a company that has the expertise and resources to manage them effectively.
Our conclusion on buying cryptos
Buying and storing cryptocurrencies can seem complex given the plethora of options available to buyers who want to get started.
It’s necessary to do your own research on the various investment platforms, existing strategies, and available storage options before making a purchase decision.
It’s also important to always invest only what you can afford to lose and stay informed about the latest trends and regulations, to make the best decisions for your cryptocurrency investments.