How to invest in crypto currency and which mistakes to avoid

If you want to invest in crypto currency, you should know the procedure to follow, but especially the possible pitfalls to avoid.

More and more investors are interested in cryptocurrency and for good reason. Virtual currencies are taking an important place in the financial market due to their high volatility. 

Even if constant fluctuation in value implies certain risks, it also has real advantages. Continuous price variation allows you to generate performance, provided you diversify your portfolio well and follow money management rules. Want to know how to invest in cryptocurrency? Follow our guide. 

How to invest in cryptocurrency via a broker

Contrary to popular belief, trading virtual currencies is not that difficult. If you use an experienced broker and follow a few basic steps, it can be pretty straightforward.

How does investing in cryptocurrency work ?

People wishing to invest in the virtual currency market can use the services of an online broker. The broker needs to offer crypto trading services as well as derivatives such as CFDs. Note that with CFDs on crypto assets, your leverage will be limited to two. 

Since January 2021, French traders can invest on the Paris Stock Exchange (Bitcoin and Ethereum) via listed index products. These ETPs (Exchange Traded Products) are financial products similar to ETFs (Exchange Traded Fund) and track the price progression of Bitcoin or Ethereum. 

Start off by choosing a broker 

To make successful investments, first of all put all the chances on your side by finding a good crypto trading broker. There are a multitude of exchange platforms that enable you to acquire or exchange virtual currencies, between which it can be difficult to choose. 

A broker can advise and direct you on what tools to use or what trading courses to take for affordable commissions. Their recommendations will also help you avoid scams when buying assets. Check the following criteria before choosing financial intermediary: 

  • Registration with the AMF (Autorité des Marchés Financiers) 
  • Not on the AMF blacklist 
  • Digital asset services and facilities based in your country

Whatever the nature of your request, call on the expertise of your broker for further advice or information. 

Investing in cryptocurrency via an online platform

On crypto trading platforms like eToro, Coinbase or Kraken, you can trade different types of digital currencies (Bitcoin, Ripple, Ethereum and Cardano, Bitcoin Cash, Litecoin...), without going through a middleman. 

In general, the process is pretty simple. While interfaces and features differ from one platform to another, the steps remain more or less the same. 

Open a trading account and add funds

To take your first steps into crypto, you need to : 

  • Go to an exchange platform
  • Open an account
  • Deposit some capital 
  • Open a position 

To register, you must fill out a form and enter some personal data. A validation email, indicating a link to follow, will be sent to your email address to authenticate the account. 

A minimum deposit (between 200 and 500 USD depending on the platform) will be required when opening the account. French traders' accounts are held in US dollars (USD), as this is the current exchange rate. 

You then have to choose a payment method. To simplify transactions, there are usually several payment solutions, such as credit cards (Visa and MasterCard), PayPal, Neteller or Skrill. On some platforms, it is possible to credit your account via bank transfer. Funds will become available after 24 hours (or 78 hours at the latest). 

Open a cryptocurrency position

Once your account is active, you can buy the virtual currency of your choice for cash. First choose the cryptocurrency you want to position yourself on. Between the most famous ones like Bitcoin, Ethereum or XRP and the most promising ones such as Cardano or Dogecoin, you will be spoilt for choice. In any case, positioning yourself takes a few clicks. 

If you want to buy Bitcoin, for example, go to the trading interface and search for available markets, then "crypto" and then "Bitcoin" or "BTC". You can then choose which action to take, buy or sell, before entering the amount to invest. 

To finalize the transaction, press "Buy" and do not change any settings. Within seconds, your purchase will be completed and the Bitcoin will be available in your account. 

How to make the right strategic choices

Before any virtual currency purchase, get acquainted with the leading cryptocurrencies on the market as well as their value and prices. 

What digital currency should you opt for in 2022 ? What are the investment strategies ? What are the best crypto trading platforms ? You’ll find the answers to these questions below. 

What is the best cryptocurrency for a profitable investment ?

It’s true that virtual currencies present a high risk due to their extreme volatility. Nevertheless, they continue to appeal to investors determined to bet on the market capitalization, on the rise for the year 2021. Besides the timeless Bitcoin, its derivatives can be found among the most promising crypto assets on the market. Here is a summary that can explain the value of digital currencies in numbers: 

  • Bitcoin (BTC) : 750 billion € capitalization for 18.9 million bitcoin in circulation
  • Ethereum (ETH) : + €341 billion for 117 million in circulation
  • Ripple (XRP) : + €40 billion for 46 billion in circulation
  • Tether (USDT) : + €55 billion for €68 billion in circulation
  • Bitcoin Cash (BCH) : + €10.5 billion for 119 million in circulation
  • Bitcoin SV (BSV) : +€2.6 billion for 66.5 million in circulation

Now a financial market staple, crypto-currencies can be a profitable, but still risky investment. This is a fact! The capital invested in active cryptos are funds that you need to be prepared to to lose. Since the price of virtual currencies is very volatile, their value can drop significantly from one day to the next. However, this does not make them any less appealing. 

Nevertheless, if you are considering investing in this sector, whether for the short or long term, it is best to choose the market leaders. Seek expert advice to guide your decision. 

What are the most promising crypto assets ?

Recently, we have seen the emergence of some interesting new crypto-currencies that are ideal for investing in 2022. Some of the most promising include Tezos (XTZ) offering returns of up to 6.5% on the year and Cosmos (ATOM). Although still in its infancy, ATOM's performance is already promising from a technical perspective. 

Other virtual currencies are also worth knowing about because of their profitability, which could be significant in 2022: 

  • Stellar Lumens (XLM) : real-time positioning, universal payments, low commissions
  • Kleros (PNK), which offers decentralized arbitration, enabling you to make money from it in case of conflicts. 

Which platforms can you buy crypto currencies on ?

Buying virtual currencies online requires a lot of caution to avoid scams. It is highly recommended that you go to official, renowned crypto trading platforms. Some of the most well-known ones include: 

  • Coinbase, which offers high commissions and payment flexibility 
  • eToro, which offers average fees and a dozen active cryptos
  • Kraken, which offers low commission rates and a wide selection, but limited payment options
  • Binance, with over a hundred cryptocurrencies and low commissions, but virtual currency transactions only
  • Coinhouse, with medium fees, Bitcoin and Ethereum and various payment options.

For investors living in the Paris area, Coinhouse provides a physical exchange location. 

What to do with your active cryptos

Developing a strategy is essential for successful investing in any field. In terms of crypto-currency, the different ways of using them can be complex. 

Once you are on the trading platform and have followed the registration steps, you can safely buy your active cryptos. What you do with them afterwards is up to you: 

  • The hold strategy, ie letting cryptocurrencies grow over several years
  • The trading strategy, ie buying and selling quickly depending on price volatility

This second option is particularly suitable for active independent traders who wish to continuously position themselves on various products. 

How much money should you invest in virtual currencies? 

Many investors wanting to get into cryptocurrency often ask themselves this question: a perfectly normal reaction knowing that the amount committed will be quite substantial. 

In reality, there is no precise answer. The amount of money you should bet depends on several criteria and first and foremost on your trading skills. To avoid any risk of losing your savings, determine the funds to use according to your knowledge of the market: 

  • New trader : between 5 and 10% to minimize losses in case of error
  • Beginner trader : with experience, go up to 10-20%
  • Intermediate trader : with the ability to analyze the market, you can invest up to 25% of your savings
  • Advanced trader : under 45%.

If you are an experienced trader, you can even go as high as 50%, but don't bet all your money on cryptocurrency. This is because although the risks are low in this sector, they are not completely zero. 

What are the mistakes to avoid ?

Once you know how to invest in cryptocurrency, it is worth knowing the possible pitfalls that you may encounter. In the cryptocurrency world, it often happens that newbies make mistakes and lose their money unnecessarily. Indeed, these mistakes can be avoided and are usually related to a lack of knowledge of the market and trading tools. 

Security blunders

Security is undoubtedly one of the key points for a successful investment in cryptocurrency. Indeed, it can be the source of many losses. In the digital world, no one is safe from a cyber-attack or a hack. That's why you need to think of several simple methods to protect your accounts. 

Often, untrained traders opt for a password that is simple to remember. This will make it easier for malicious people to take control of your funds. 

Therefore, it is better to use a long and complex password composed of 16 characters including capital letters, small letters, numbers and punctuation. It is also important to change it regularly. For optimal security, set up a double authentication (2 FA) with apps like Google Authenticator. 

Not implementing Portofolio Management

Seemingly trivial point: track your positions. Many traders may abandon the crypto assets they have invested in, deemed unprofitable, over a long period of time. Again, this is another mistake. 

In general, it is not necessary to follow up on a daily basis. However, you should keep yourself informed of price changes. To manage your investment, consider setting a limit on the amount of money you can invest beforehand. This way you can avoid losses. 

Moreover, this follow-up will allow you to guide your future decisions. Indeed, hasty transactions are not always rational. They are even a source of many errors.

Not taking risks

Be aware that opportunities to make maximum profits are often associated with high risk. In other words, the more risk you take, the more you can increase your profits. But conversely, the probability of losing the amount invested will also be high. 

Be smart !

Most first-time traders get started with cryptocurrency thinking that they will be able to become millionaires. This is a preconceived notion that you will have to forget. Patience will be your keyword. 

While crypto assets are booming, the market is rife with scams. If an offer promises you staggering returns without an adequate level of risk, beware. A serious intermediary will always tell you what loss margins to expect, but never guarantee gains. 

Beware of Ponzi schemes

This form of network marketing (MLM) is popular in crypto scams. Basically, it is based on a referral scheme through which capital provided by new members is used to pay off the earnings of previous users. The pyramid can then collapse when there are no more new investors to pay off the previous users. 

FYI, not all MLM schemes are scams, but if you are going to position yourself on them, make sure you choose the assets you buy. 

In a nutshell ...

While the cryptocurrency market was once reserved for geeks, it is now accessible to all independent traders. However, to minimize your risk of loss, you need to make strategic and thoughtful choices, but most importantly spread your investments. According to the experts, you should not be content to invest your savings in a single digital currency. Vary the currencies to mutualize the risks.  

Finally, it is important to know that crypto trading platform administrators have implemented the stop-loss feature. This tool is actually used to divide the losses under certain circumstances. This way, it becomes possible to pull out when the situation becomes critical. Without the stop-loss, you may find yourself stuck on a product, potentially tying up a large portion of your funds.