Want to buy a cryptocurrency? Things to consider before investing
If you are planning to buy a cryptocurrency, you should make some initial preparations and figure out the factors influencing the asset’s price, popularity, and reliability. This article includes a step-by-step guide that will help you develop your own investment strategy and buy crypto profitably.
Buying cryptocurrency: where to begin
One of the most common mistakes that inexperienced crypto investors make is buying crypto without understanding how digital assets work in general. Trading without awareness can lead to financial losses.
Start with learning the basics. Every cryptocurrency relies on blockchain technology. First, you have to figure out what it is, how it works, and what types of crypto exist.
Another essential aspect is to be able to differentiate digital assets. First, you learn to differentiate types of crypto (coins and tokens), consensus algorithms (for example, Proof of Work and Proof of Stake), and standards (for example, BEP-20 and ERC-20). Thus, before buying a new crypto, spend some time evaluating the asset’s specificity. Understanding the key principles, functions, and mechanics of digital assets and blockchains is crucial for buying and selling crypto profitably.
After thoroughly analyzing these aspects, proceed to the next step.
Buying and selling cryptocurrency securely
Buying cryptocurrencies is similar to investing in a business. Several criteria will help you estimate how valuable, prospective, and reliable the project is. These are:
- project’s goals and a roadmap;
- maximum and circulating supply;
- price history;
- developer activity;
- community activity.
Let’s discuss them!
Project’s goals and roadmap
Crypto projects are like any other business or startup. Promising companies aim to solve big issues and meet customers’ expectations. Thus, to purchase cryptocurrency that is worthy, check the goals the project sets and the problems it solves.
If you want to buy crypto for a long-term investment, you should find out more about the project’s team and founders. Try to figure out their mission. Define the tools the team is using to reach the desired outcomes. You may also try to catch the overall atmosphere within the project – this can reveal useful information.
After understanding the processes behind different types of crypto, explore the assets meeting your personal goals.
Generally, the information discussed above can be found in the project’s white paper. It is a document that contains the company’s vision, tokenomics, and roadmap. Every crypto project should have one. If there is no whitepaper or it is hard to access, the project is very likely to be fraudulent. Thus, when buying crypto coins from companies that provide little to no info in their white paper, be very careful.
Maximum and circulating supply
The maximum supply of an asset is the maximum amount of coins that can be mined.
According to the basic principle of supply and demand, the price largely depends on quantity. The lower the supply is, the more valuable the asset tends to be.
Cryptocurrencies are highly volatile due to speculations, Pump & Dump schemes, hype, and lack of regulation. Sometimes prices change dramatically in minutes. Analyzing the asset’s price history can give you important insight.
Generally, cheap coins with low supply are more subject to Pump & Dump schemes. Therefore, buying the cheapest cryptocurrency and holding it till it grows in value is pointless and may even be risky.
It is also important to understand that cryptocurrency prices are interrelated. For example, when the BTC price goes up, the prices of altcoins may fall. Traders move their capital from altcoins to BTC when they notice that the latter explodes into action. This can lead to a temporary underperformance of altcoins, as well as their decline in price.
Another essential factor to consider is listings on centralized exchanges. Check whether the desired asset is available on top exchanges. Cryptocoins that are listed only on small platforms and are not planning to go big are not likely to progress. On the other hand, the announcement about the future listing on one of the top-notch exchanges can gain the project sufficient attention and growth.
Understanding why the asset’s price changes in the short run is the key to predicting its future price.
Technology gets better day by day. To keep crypto projects accessible and up-to-date, developers constantly add new features and fix existing bugs. High developer activity speaks of the project’s relevancy and security. The easiest way to track this is to check the company’s activity on GitHub.
A strong community is also an important indicator of a good project. The bigger the community, the more valuable the asset is.
The easiest way to measure the community activity is to check the project’s social media. First, look at how many users follow the company on Twitter. Also, read about the asset on Reddit. Generally, better projects have higher community activity.
Buy cryptocurrency online
To start buying and selling cryptocurrency, you should get a wallet where to store it. Wallets can be either cold (offline) or hot (online). Select a reliable option that supports the chosen asset, then proceed to the purchase.
The most common places to buy coins and tokens are crypto exchangers, P2P platforms, and centralized exchanges. Each option has its pros and cons.
On exchangers, the cryptocurrency buy and sell is conducted faster. There are a lot of platforms with good exchange rates. However, the fees on exchangers can reach 10%. Consider buy-sell rates on several exchangers if you want to use this method. Also, check the platforms’ reputation and the availability of assets. A lot of exchangers have little amounts of crypto in circulation. If you try to buy more than the platform has, technical issues may arise instantly.
Cryptocurrency purchase on P2P platforms is very profitable; however, it may be risky. Here, you buy and sell crypto directly between other users. If you decide on this method, double-check the users you are going to trade with.
Buying cryptocurrency on centralized exchanges is convenient due to various reasons. Firstly, there are large amounts of crypto in circulation. Secondly, there are more purchasing options. Thirdly, the cryptocurrency buy-sell on exchanges is considered more secure, and fees on these platforms are lower. However, you will have to pass KYC (know your customer) verification to withdraw funds in most cases.
Buying crypto on WhiteBIT
Our exchange is a good place to buy crypto quickly and easily. You can deposit most crypto assets fee-free and withdraw up to 2 BTC without passing KYC. Both the mobile app and web version have intuitive, user-friendly interfaces. Here is how to buy crypto coins on our platform:
- purchase fiat and exchange it for crypto;
- buy crypto directly for another crypto;
- make a purchase on Bitcoin Global and transfer the assets to your WhiteBIT account via WhiteBIT Codes.
Purchasing cryptocurrency for investment should be thoroughly planned. The young developing industry provides opportunities that come with risks. Comprehensive preparation and constant alertness will help you distinguish reliable projects and avoid fraudulent startups.