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Crypto101: Everything You Need to Know About Crypto & Factors Involved in Investing in Cryptocurrencies

You have most likely heard out about cryptocurrencies like Bitcoin, Ethereum, and Ripple. Cryptocurrencies are progressively well-known alternatives for online payments. Before you convert your fiat money (dollars, euros, pounds, or other conventional monetary currencies) into Bitcoin and invest your hard-earned money into it, you must understand what cryptocurrencies are, what the risks are in using cryptocurrencies, and how to protect your capital. So, let’s dive into it!

What Are Cryptocurrencies?

Cryptocurrencies are digital assets created with the help of networking software that empowers secure exchanging and proprietorship. These digital currencies are backed by a technology known as the blockchain, which keeps a tamper-proof record of all the transactions and monitors who possesses what.

Individual units of cryptocurrencies can be called coins or tokens, depending upon how they are utilized. Some are planned to be a form of trade for goods and services, others are simply of significant worth.

Fundamentals of Cryptocurrency Investing

Before you go ahead with buying a few coins or tokens just because someone said it's a lucrative option, it’s always imperative to do some research.

As a matter of fact, it's important to understand that buying a cryptocurrency isn't similar to buying a stock. A stock addresses the proprietorship in an organization that makes creates value for its investors or if nothing else can possibly do as such. Owning a cryptocurrency addresses the proprietorship in a digital asset with zero intrinsic value.

What makes a cryptocurrency increase or decrease in cost is basic market interest. Assuming there's an increased demand and a limited supply, the cost goes up, and vice versa. In this way, while assessing a cryptocurrency, the main questions to answer are how the supply increases, and what will create demand for the coin to go higher.

You can answer these questions by referring to the white paper that a cryptocurrency team publishes online to draw interest in their venture. Go through their roadmap for a project and check whether anything could fuel the price higher. Research the team behind the project and check whether they have what it takes to execute their vision. Try to find out a community of cryptocurrency investors and gauge their opinion.

Key Factors That Influence Cryptocurrency Value

  • Crypto Exchanges: Assuming a token is available on numerous crypto exchanges, it expands the number of people having access to and buying that token.
  • Government Regulation: Certain governments don't like the value of cryptocurrency's decentralized and unregulated nature, so search for ways of controlling the crypto market. Any news related to a specific government responding to cryptocurrencies can be a catalyst to drive its price lower or higher.
  • Scarcity: Hypothetically, assuming there's a limited cryptocurrency supply, the cost will go up as fewer coins are accessible to purchase. However, if 40% of the coins are available for use and the remainder of 60% is held back, the cost might reduce when more coins become available for buyers.
  • Social Media Influence: Cryptocurrency value is subject to change because of social media publicity. Also, it works both ways, as the news can lower or raise prices. There is also the effect made by influential personalities in the crypto communities, for example, Elon Musk, who has affected the DOGE coin price a few times, whether or not meant to.

Final Thoughts

Thus, while this asset class is moderately new and is continually developing, it's essential to get to know the nitty-gritty of this market. Obviously, cryptocurrencies aren't going anywhere, and the sooner you have the tools to get what cryptocurrency is – and the thought process connected with investing in it – the more informed you'll feel discussing it, and at last investing (possibly), in case you wish to do so.

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