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Investment

Investing in Cryptocurrency – Investopedia

Published

3 years ago

 on


What Is Cryptocurrency?

Cryptocurrency is digital money. This type of currency uses blockchain technology, which is considered secure because it is capable of establishing distributed consensus even among untrustworthy parties. Cryptocurrency blockchains resemble old-fashioned bookkeepers’ ledgers, except that the ledger is electronic, and everyone with access to the ledger can also be the bookkeeper.

Investors worldwide have invested and are starting to invest in cryptocurrency. While Bitcoin is likely the best-known digital money, thousands of cryptocurrencies already exist. Cryptocurrency can be considered as one of the newest and most exciting asset classes that is available to investors.

Key Takeaways

  • Cryptocurrency is digital money that is secured by blockchain technology.
  • Cryptocurrency investing can take many forms, ranging from buying cryptocurrency directly to investing in crypto funds and companies.
  • You can buy cryptocurrency using a crypto exchange or through certain broker-dealers.
  • Investing in cryptocurrency is risky, so it’s important to not invest more money than you can afford to lose.

Understanding Cryptocurrency Investing

When you think of investing in cryptocurrency, you might think about buying and holding one or more crypto coins. Buying cryptocurrency directly is probably the most common way to add crypto exposure to your portfolio, but when it comes to investing in cryptocurrency, you have a few different options:

  • Buy cryptocurrency directly: You can choose to directly purchase and store one or more cryptocurrencies. Your options range from the most established digital currencies like Ethereum and Bitcoin to virtually unknown coins that are newly released in an initial coin offering (ICO).
  • Invest in cryptocurrency companies: You can invest in companies with a partial or total focus on cryptocurrency. Your options include cryptocurrency mining companies, mining hardware makers, companies like Robinhood Markets, Inc. (HOOD) and PayPal Holdings, Inc. (PYPL) that support cryptocurrency, and many others with varying levels of crypto exposure. You can also invest in companies like MicroStrategy Incorporated (MSTR) that hold large amounts of cryptocurrency on their balance sheets.
  • Invest in cryptocurrency-focused funds: If you don’t want to choose among individual cryptocurrency companies, then you can decide to invest in a cryptocurrency-focused fund instead. You have a choice of exchange-traded funds (ETFs), such as index funds and futures funds, in addition to a range of cryptocurrency investment trusts. Some crypto-focused funds invest in cryptocurrency directly, while others invest in crypto-focused companies or derivative securities like futures contracts.

  • Invest in a cryptocurrency IRA: If you want to invest in cryptocurrency and at the same time garner the tax advantages afforded by an individual retirement account (IRA), then you can consider investing in a cryptocurrency IRA. Using the services of a crypto IRA provider can also facilitate more secure storage for your cryptocurrency holdings.
  • Become a crypto miner or validator: Perhaps the most direct way to invest in cryptocurrency is to mine it or act as a validator in a crypto network. Cryptocurrency miners and validators earn rewards in crypto, which they can either hold as investments or exchange for another currency.

How Cryptocurrency Investing Works

If you want to invest in cryptocurrency directly, then you can use a cryptocurrency exchange. Here’s how to buy cryptocurrency through an exchange:

  1. Choose which cryptocurrency exchange you want to use. Your best bet is a reputable, well-known exchange with a large selection of currencies.
  2. Establish an account with the cryptocurrency exchange. You will need to provide your personal information and verify your identity to complete the registration process.
  3. Fund your account with fiat money. Before you can buy any crypto, you need to fund your exchange account with another currency such as U.S. dollars.
  4. Decide which cryptocurrency you want to buy. You can choose to invest in one or many cryptocurrencies. Research your options to help you decide.
  5. Place a buy order for your chosen cryptocurrency. Follow the steps required by the exchange to submit and complete a buy order for one or more cryptocurrencies.
  6. Store your cryptocurrency in a digital wallet. After your purchase is complete, the information that you need to access your cryptocurrency is held in a digital wallet. That crypto wallet can be hosted either by the cryptocurrency exchange or an independent wallet provider.

As an investor in cryptocurrency, you need to decide how much of your portfolio to allocate to digital assets.

A best practice among investors is to periodically review your entire portfolio to perhaps rebalance your holdings. That might mean increasing or scaling back your crypto exposure, depending on your investment goals and other financial needs.

What to Know Before Investing in Cryptocurrency

Investing in cryptocurrency is considered to be risky. The prices of cryptocurrencies, even the most established cryptocurrencies, are much more volatile than the prices of other assets like stocks. The prices of cryptocurrencies in the future could also be affected by regulatory changes, with the possibility that cryptocurrency becomes illegal and therefore worthless.

Many investors are nonetheless attracted to the potential upside of investing in crypto. If you decide to invest in cryptocurrency, it’s important to carefully research any digital coin before buying it. Pay attention to transaction fees when making crypto purchases, as these fees can vary widely among currencies.

The cryptocurrency space is evolving rapidly, so it’s also important to pay attention to new developments that may affect your crypto holdings. Cryptocurrency investors need to understand the tax consequences of using crypto, especially if they purchase something or sell their crypto holdings.

Given the riskiness of cryptocurrency as an asset class, it’s especially important not to invest in crypto more money than you can afford to lose.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

7 days ago

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September 6, 2024

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

2 weeks ago

 on

August 29, 2024

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TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

Published

1 month ago

 on

August 5, 2024

By

Breaking Business News Canada

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.

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