The nuts and bolts of cryptocurrency investments are similar to those of other asset classes, like stocks or gold. Cryptocurrencies trade on exchanges (market leaders include Binance, Kraken, and Coinbase), and investments are subject to capital gains taxes.
Owing to their speculative nature, cryptocurrencies are more volatile than, say, the S&P 500. That means higher profits for traders quick on the draw—and bigger losses for most everyone else. And while traditional markets close in the evenings, crypto markets stay open 24/7.
Despite the buzz around crypto, the market remains small. Its market capitalization topped $3 trillion in late 2021 before crashing below $1 trillion in mid-2022. In May of 2023, it stood at $1.2 trillion. For comparison, Amazon alone boasts a market cap of $1 trillion, and the gold market is worth around $11 trillion.
Conservative cryptocurrency investors (ignore the irony) may hold the majority of their funds in the largest coins, Bitcoin and Ethereum, then gamble on minor alt-coins (a.k.a. shitcoins) or riskier DeFi protocols to eke out extra profits. Crypto exchanges like Binance and Coinbase will suffice for most, although their decentralized alternatives can offer exotic bets and ultra-volatile tokens that most centralized exchanges dare not touch.
Familiar investment strategies from traditional markets can generally be applied to crypto. Many investors pursue a strategy of dollar-cost averaging to soften the blow of volatility. This involves regularly investing in crypto, often weekly or monthly, no matter the price, hoping that values rise in the long run.
Others try and time the market, making bets when they believe the next bull market is about to take off. This strategy requires investors to pay closer attention to the market and hedge their bets on future events. If done correctly, timing the market can prove more lucrative than dollar-cost averaging.
Of course, predicting the future is no easy feat. That’s why the most popular approach to crypto investing is to “buy and hold,” or “HODL.” (The invocation stems from traders so overcome with emotion that they misspelled “HOLD.”). The strategy advises that holders must weather downturns and fight the urge to panic sell when prices nosedive.
There are no guarantees that cryptocurrencies will rise in value. Many that were popular in the bull run of 2017 failed to reach new all-time highs when the market swelled again in 2021, and may never do so ever again.
Go deeper:
Bitcoin Dominance
Cryptocurrency Market Cap Calculator
See also:
What is Bitcoin?
What is DeFi?
Staying safe in crypto
Try it:
Coinbase—centralized exchange
Uniswap on low-fee Arbitrum—decentralized exchange