What are Cryptocurrencies? What is a Blockchain?
Cryptocurrencies, often referred to as digital currencies, are decentralised forms of currency that leverage cryptographic techniques to secure transactions and control the creation of new units.
Unlike traditional currencies issued by governments and central banks, cryptocurrencies operate on a peer-to-peer network, facilitated by blockchain technology. They are not controlled by any single entity.
Blockchain, the bedrock of cryptocurrencies, is a distributed ledger that records all transactions across a network of computers.
Each transaction, encapsulated in a block, is linked to the previous one through complex cryptographic hashes, creating an immutable chain of information. This decentralised and transparent nature ensures the security and integrity of the cryptocurrency ecosystem, while eliminating the need for intermediaries such as banks.
While transactions are recorded on the blockchain, users are often identified by alphanumeric addresses rather than personal information, providing a degree of privacy.
Cryptocurrencies can be easily sent from one party to another across borders at lower costs and higher speed than using foreign exchange services, allowing anyone with an internet connection to participate in the digital economy. This inclusivity is a key driver of their widespread adoption, with Bitcoin achieving the record of being the fastest financial asset to reach a $1 trillion market capitalisation.
Why Invest in or Trade Cryptocurrencies?
a) Attractive Returns
Cryptocurrencies have demonstrated the potential for astronomical returns over the years.
Bitcoin, the pioneer cryptocurrency, experienced a meteoric rise in value, turning early adopters into millionaires.
For example, if you invested in Bitcoin in January 2013 when the price was $13.30, spending $1 to buy Bitcoin would have increase your investment $1,417 in January 2023, when the price of one Bitcoin was at $18,881. This is a 1417x gain over 10 years! There are no other assets that can give you such enormous returns across history.
While past performance is not indicative of future results, the historical upward trajectory of certain cryptocurrencies has captured the attention of investors seeking substantial returns.
b) Revolutionary & Innovative Growth Potential
Blockchain technology, the backbone of cryptocurrencies, has the potential to revolutionize various industries.
Beyond its application in finance, blockchain is being explored for supply chain management, healthcare, logistics, and more.
Investing in cryptocurrencies is, in essence, investing in the transformative power of blockchain and its ability to reshape how industries operate.
The decentralized and transparent nature of blockchain offers solutions to longstanding challenges. Smart contracts, for instance, enable self-executing agreements without the need for intermediaries, streamlining processes and reducing costs. As blockchain technology continues to mature, its impact on industries could drive further adoption and, consequently, increase the value of associated cryptocurrencies.
c) Hedges against Economic Events
Cryptocurrencies are increasingly perceived as a hedge against economic uncertainties and traditional market downturns.
During times of geopolitical turmoil or economic crises, some investors turn to cryptocurrencies as a store of value that is less susceptible to the traditional financial system’s vulnerabilities.
For example, in March 2013 during the Cyprus banking crisis, Bitcoin rose by 178% to $93 that month and hit a then-record high of $265 in May 2013. Amid the bank shutdowns in Cyprus, holders of Euro and Russian ruble bought Bitcoin in order to diversify their assets.
In another example, in March 2022 during the Russia-Ukraine war, Bitcoin’s price soared by more than 20% within a week.
In another example (reminiscent of the Cyprus banking crisis, in March 2023, when Silicon Valley Bank collapsed, Bitcoin’s price soared from around $20K to $29.5K, almost a 50% gain within a month.
d) Diversification away from Traditional Financial Markets
As the cryptocurrency market matures, its ability to operate independently from traditional market dynamics becomes increasingly appealing to investors seeking a more resilient and diverse portfolio.
Unlike conventional investments, which are often subject to the influence of central banks and traditional financial institutions, cryptocurrencies operate in a decentralized environment. This lack of reliance on traditional financial structures can contribute to diversification benefits for investors.
If the economy is performing poorly causing company earnings to fall, leading to a consequent stock market crash, the cryptocurrency market may still be able to hold up and continue to grow independently without being impacted by the stock market.
Thus, your investment in cryptocurrencies can help you to diversify your investment portfolio through their low correlation with traditional assets.
Risks of Investing in or Trading Cryptocurrencies
Investing in cryptocurrencies is not without its share of risks and challenges. While the potential for high returns is a compelling aspect, it is crucial for investors to approach the market with a clear understanding of the inherent volatility and regulatory uncertainties that characterize the cryptocurrency landscape.
a) Price Fluctuations of Large Magnitude
Cryptocurrencies are notorious for their price volatility.
The market has witnessed instances of rapid and substantial price swings, often driven by factors such as market sentiment, technological developments, regulatory announcements, macroeconomic trends and whale action.
For example, Bitcoin’s all-time-high price was at $69,000 during early November 2022. The price then fell to around $16,000 within a year.
Such a magnitude of a drop is abnormal for traditional assets, but for cryptocurrencies such drops occur across multiple events throughout the years.
As such, investors and traders should be prepared for the possibility of significant price fluctuations, which can present both opportunities and risks.
b) Regulatory Concerns
The regulatory environment for cryptocurrencies varies significantly across different countries and regions. Some nations have embraced cryptocurrencies, providing clear legal frameworks, while others remain skeptical or have implemented stringent regulations. Regulatory uncertainties can impact the market’s stability and influence investor sentiment.
Changes in regulatory policies can have a direct impact on investors and the overall cryptocurrency market. Regulatory developments may lead to increased compliance requirements, affecting the accessibility of certain cryptocurrencies or causing shifts in market dynamics. Investors need to stay informed about regulatory changes and be prepared to adapt their strategies accordingly.
Can I Make Money Investing in or Trading Cryptocurrencies?
Yes it is possible, as the potential returns for cryptocurrencies can be astronomical.
You can make money with cryptocurrencies by trading, investing or just staking your coins or tokens.
However, you will need to employ the right investment and trading strategies –
knowing which coin or token to buy, when to enter, when to exit, and how to manage risks carefully with a well defined trading & risk management plan.
You will need to understand fundamental analysis, cycle analysis, technical analysis and on-chain analysis.
How to Get Started Investing in or Trading Cryptocurrencies?
If you want to start investing in or trading cryptocurrencies, you need to open an account with a cryptocurrency platform.
There are many platforms that you can consider, depending on your own preference.
I am personally using Deepcoin (international) and Luno (Malaysia).
Register for a Deepcoin account: https://www.deepcoin.com/en/register?status=reg&inviteCode=9188385
Bonus:
Deposit $300 and receive a $300 fee deduction bonus
Funded Account Challenge – GenesisX with Deepcoin:
With Deepcoin, you can trade with a funded account using the platform’s capital instead of your own!
Deposit $99 enrolment fee to receive: i) $50 bonus + ii) $10,000 platform funds.
You get to enjoy 80% of the profits that you earn!
Academy: Learn to Invest in & Trade Cryptocurrencies
If you are interested to learn how to analyse the crypto market to make money via investing, trading & staking,
check out the Cryptocurrency Mastery Course:
If you want to improve your technical analysis skills to analyse charts better and trade
using price action techniques, check out The Trader’s Guide: Profit from Price Action ebook:
If you have any questions or want to connect:
i) send an email to: [email protected]; or
ii) send a message via: https://bit.ly/contact-TFF