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Investing in Cryptocurrency

Investing in Cryptocurrency

Dear readers,
Welcome to our first financial newsletter release! We are excited to bring you valuable insights on investment and personal finance. We aim to provide you with informative articles, tips, and resources to help you make informed decisions about your financial future. In this edition, we will explore the hot topic of cryptocurrency and what it means.

Cryptocurrencies have become increasingly popular as a new investment option in recent years. This newsletter aims to provide the knowledge to take you one step closer to being a responsible crypto “investor”. It is mainly seen as a “Get Rich Quick” scheme, which is why most “speculators” end up with losses. So, let’s analyze the world of cryptocurrency, including its benefits, risks, investment strategies, and tips to make appropriate investment decisions.

What is “Cryptocurrency”?

“Cryptocurrency” is a digital or virtual currency that uses cryptography for security and operates independently of a central bank. Cryptography in cryptocurrency refers to using advanced mathematical algorithms to secure and protect transactions and data in a decentralized digital currency system. Unlike traditional currencies, which governments back, cryptocurrencies are not regulated or controlled by any central authority. Cryptocurrencies can be used to purchase goods and services and as speculative investments.

According to CoinMarketCap, there are 9049 cryptocurrencies in the world (We’re sure by hearing that number, you might already be nervous, however here’s a fact: There are over 47,000 stocks of publicly listed companies in the world as of September 2021, according to the World Federation of Exchanges, of which the US has 4266 publicly listed companies and India has approximately 5000 publicly listed companies). The most famous is Bitcoin, which has become synonymous with “cryptocurrency”.

Why Invest in Cryptocurrency?

  1. Decentralization: Cryptocurrencies are decentralized, which means that any central authority, government or financial institution do not control them. This makes them immune to government policies, inflation and other economic factors that might affect traditional investments.
  2. Accessibility: Cryptocurrencies are accessible to anyone with an internet connection, regardless of location, age or financial background - which opens up investment opportunities to people who may not have been able to invest in traditional markets due to high barriers to entry.
  3. Transparency: Blockchain technology, which underlies cryptocurrencies, provides high transparency and accountability. All transactions are recorded on a public ledger, which anyone can view, ensuring no room for fraud or manipulation.
  4. Potential for high returns: While the cryptocurrency market is highly volatile and risky, it also has the potential for high returns. In the past, some cryptocurrencies have seen massive gains quickly, making them an attractive investment option for people looking to make a quick profit. Since it is still moving towards world adoption, being an early and long-term investor may prove beneficial after its adoption.
  5. Diversification: Investing in cryptocurrencies can be a way to diversify your investment portfolio and reduce risk. Cryptocurrencies often have a low correlation with traditional asset classes, meaning they may perform well when other investments are struggling.

Understanding Blockchain Technology

Blockchain technology is the backbone of most cryptocurrencies. It is a decentralized digital ledger that records transactions across multiple computers. It is a public, tamper-proof database that allows users to transact without needing a central authority or intermediary.

Imagine a group of friends playing a game of poker. Instead of one person keeping track of the game, everyone writes down each bet and hands it on a piece of paper. At the end of each round, everyone shares their notes to verify the accuracy of the bets and outcomes - this is similar to how a blockchain works. Each block in the chain represents a group of transactions, and every computer on the network has a copy of the entire chain. When a new transaction occurs, it is verified by multiple users on the network and then added to a new block. Once the block is complete, it is added to the existing chain, creating a permanent and unalterable record.

The key benefit of blockchain technology is that it ensures trust and transparency without a central authority, as every user on the network can access the same information and verify the accuracy of transactions. Blockchain technology has a wide range of applications, from financial transactions to supply chain management and even voting systems and a detailed analysis is available in the following resource - Blockchain Technology

Top 5 cryptocurrencies in the world

The top 5 cryptocurrencies in the world by market capitalization are Bitcoin, Ethereum, Binance Coin, Cardano, and Solana. Each Cryptocurrency Project releases a White Paper, an informational document issued by its company to promote or highlight the features of a solution, product, or service it offers or plans to offer.

Let’s take a closer look at each of them:

  1. Bitcoin (BTC): The first and most well-known cryptocurrency, Bitcoin has a market capitalization of over $500 million as of 19 March 2023. Its primary use case is as a store of value but it can also be used for peer-to-peer transactions. For more details, feel free to read the Bitcoin White Paper.
  2. Ethereum (ETH): The second-largest cryptocurrency by market cap, Ethereum is known for its smart contract functionality, which allows developers to build decentralized applications (DApps) on top of its blockchain. For more details, read through the Ethereum White Paper.
  3. Binance Coin (BNB): Binance Coin is the cryptocurrency of the Binance exchange, the largest cryptocurrency exchange by trading volume. It can be used to pay for trading fees on the exchange and has a wide range of other use cases. For more details, view the Binance White Paper.
  4. Cardano (ADA): Cardano is a proof-of-stake cryptocurrency that aims to provide a more efficient and secure platform for building decentralized applications. For more details, view the Cardano White Paper.
  5. Solana (SOL): Solana is a high-performance blockchain designed for decentralized finance (DeFi) and other high-throughput applications. Its low transaction fees and fast transaction times make it attractive to developers. For more details, view the Solana White Paper.

How to Invest in Cryptocurrency?

There are numerous ways to invest in cryptocurrency, including buying and holding, trading, and mining. Here are some methods, strategies, and ways to profit:

  1. Buy and Hold: Buying and holding cryptocurrency is a popular investment strategy. This strategy is based on the belief that cryptocurrency has the potential to become a mainstream asset class, and the prices will increase significantly in the future. HODL is a popular term for “Hold On for Dear Life” in the cryptocurrency community. HODLing is referred to holding onto a cryptocurrency for a long time, regardless of price fluctuations. This strategy is best suited for investors who believe in the long-term potential of cryptocurrency.
  2. Trading: Trading cryptocurrency involves frequently buying and selling cryptocurrencies to profit from short-term fluctuations. This strategy best suits investors with a high-risk tolerance and who are comfortable with volatility.
  3. Dollar-Cost Averaging: Dollar-cost averaging involves investing a fixed amount of money in a cryptocurrency at regular intervals. As a long-term investor, this strategy helps reduce the impact of market volatility and can be an excellent way to build a diversified cryptocurrency portfolio.
  4. Diversification: Diversification involves investing in multiple cryptocurrencies to reduce risk and increase potential returns. This strategy best suits investors who want to spread their investments across different cryptocurrencies and reduce their exposure to any particular cryptocurrency.
  5. Mining: Mining involves using computing power to verify transactions on the blockchain and earn new coins as a reward. This requires a significant investment in hardware and electricity costs. Take a closer look at Crypto Mining here.

To prevent losses, following some basic principles, such as diversifying your portfolio, only investing what you can afford to lose, and doing thorough research before investing in any cryptocurrency, is essential.

Where to buy cryptocurrency?

Cryptocurrency can be bought and sold via cryptocurrency exchanges. A few of the widely used cryptocurrency exchanges are:

  1. Coinbase: This is one of the most popular and user-friendly exchanges, with a wide range of supported cryptocurrencies and a strong focus on security.
  2. Binance: A large and highly liquid exchange that supports a wide range of cryptocurrencies and offers advanced trading features.
  3. Kraken: A well-established exchange with a strong reputation for security and reliability, supporting a wide range of fiat currencies and cryptocurrencies.
  4. Gemini: A regulated exchange that prioritizes security and compliance, offering a user-friendly interface and a range of supported cryptocurrencies.

Risks and Challenges of Investing in Cryptocurrency

Cryptocurrency investments come with several risks and challenges. The market’s high volatility can lead to significant gains or losses in a short period. Additionally, the lack of regulation and the prevalence of scams and fraud in the industry can lead to investors losing their money.

Investors should also be aware of the environmental impact of cryptocurrency mining, which requires a significant amount of energy and contributes to carbon emissions. However, many crypto projects are working towards making their cryptocurrency environmentally sustainable.

Future Use Cases of Cryptocurrency and Blockchain Technology

Cryptocurrency and blockchain technology can potentially revolutionize several industries, including finance, healthcare, and supply chain management. Some potential future use cases include:

  1. Decentralized finance (DeFi): DeFi is a new ecosystem of financial applications built on blockchain technology. It aims to provide transparent and accessible financial services to anyone with an internet connection. Take a closer look at DeFi through Decentralized Finance (DeFi) by ethereum.org
  2. Non-fungible tokens (NFTs): NFTs are unique digital assets verified on a blockchain. They are used in art, music, and gaming to provide proof of ownership and authenticity. Take a closer look at NFTs through Non-Fungible Tokens (NFT) by ethereum.org
  3. Supply Chain Management: Blockchain technology can be used to create transparent and secure supply chain networks, allowing stakeholders to track products from origin to destination, which can help reduce fraud, increase efficiency, and improve accountability.
  4. Real Estate: Cryptocurrency can be used to facilitate real estate transactions, allowing for faster and more secure transactions. Blockchain technology can also be used to create smart contracts, which can automate the buying and selling process and reduce the need for intermediaries.
  5. Healthcare: Blockchain technology can be used to create secure and private health records that patients and healthcare providers can access. This can improve patient outcomes, reduce costs, and enhance medical research.
  6. Voting: Blockchain technology can create a secure and transparent voting system, allowing voters to cast their ballots remotely and confidently so that their votes will be counted.
  7. Energy: Blockchain technology can be used to create decentralized energy grids, allowing individuals and communities to generate and sell their own energy, reducing dependence on centralized utilities. This is called Peer-to-Peer Energy Trading.
  8. Smart Contract: A smart contract is a self-executing program that is encoded on a blockchain. It contains a set of rules and conditions that govern the terms of an agreement between two or more parties. Once the contract conditions are met, the program automatically executes the terms of the agreement without the need for intermediaries such as banks or lawyers. Simply put, it is like a digital agreement that can be programmed to perform actions once certain conditions are met automatically.

Tips for Investing in Cryptocurrency

Now that we’ve covered the basics of cryptocurrency let’s dive into some tips for investing:

  1. Do Your Research: Before investing in any cryptocurrency, it is crucial to do your due diligence. Research the project’s background, the team behind it, its use case, and its competition. You should also check its white paper, GitHub repository, and social media activity. All of these will help you make informed decisions.
  2. Diversify Your Portfolio: As with any investment, it’s essential to diversify your portfolio. Don’t put all your eggs in one basket. Spread your investments across different cryptocurrencies and different investment strategies.
  3. Keep Your Emotions in Check: Cryptocurrency markets can be highly volatile, leading to emotional decision-making. It’s essential to keep your emotions in check and avoid making impulsive decisions based on fear or greed.
  4. Stay Up to Date: Cryptocurrency markets move fast, and staying up to date with the latest news and developments is essential. Follow cryptocurrency news sources and social media channels to stay informed about the latest updates.
  5. Have a Long-Term Mindset: Cryptocurrency investing should be approached with a long-term mindset. While it’s possible to make quick profits from short-term trading, losing a lot of money is also possible. Instead, focus on investing in solid projects that have a long-term vision and a strong team.

Conclusion

Investing in cryptocurrency can be a high-risk, high-reward investment opportunity. Understanding the benefits, risks, and challenges before investing is essential. By diversifying your portfolio, doing thorough research, and following fundamental principles, you can minimize the risks and potentially reap the rewards of investing in cryptocurrency.

As a relatively new and emerging asset class, you must do first-hand due diligence on the viable cryptocurrency projects you wish to invest in. It is like Warren Buffet said for stock market investing, “Never invest in a business you cannot understand.” Invest in what you believe and understand.

Why gain knowledge alone? Fuel the growth of the investing society by sharing this article with your family and friends.

Remember, the growth in investing society benefits you like the growth of stocks in your portfolio: The More, The Merrier.

We hope this newsletter has provided valuable insights into cryptocurrency investing.

Happy investing!

Learning Resource Hub

Blockchain

Cryptocurrency

Decentralized Finance (DeFi)

Crypto-mining

Non-Fungible Tokens (NFTs)

Smart Contracts

Disclaimer: Please note that Orelia Capital is not a financial advisory service and does not provide personalized investment or tax advice. The information presented in our newsletter is for educational purposes only and should not be construed as financial advice. Readers should always consult with a qualified financial advisor or tax professional before making any investment decisions.