Should You Invest in Cryptocurrency?
In the past, investing in cryptocurrencies was limited to researching a few tokens, purchasing one’s top picks, and then hoping these picks would rise in value. These days, investing has become a much more complicated matter.
There are over 7,000 different cryptos to choose from including pure-play cryptocurrencies, stablecoins, and tokens that support different exchanges, platforms, or blockchain use cases. And beyond just buying and holding tokens, investors now enjoy a whole range of different investment vehicles like funds and indices, derivatives, and interest-earning platforms.
In this guide, Crypto Briefing offers readers a broad overview of the different factors to consider when investing in cryptocurrencies.
Cryptocurrencies are notoriously volatile, so understanding one’s appetite for risk is critical.
In the midst of the coronavirus market panic, Bitcoin lost 40% of its value in a single day in March 2020. Although this is an extreme example, it’s indicative of the risks involved.
Another consideration here is that cryptocurrencies often don’t perform as expected. Sometimes Bitcoin’s price moves the same way as other asset classes, and other times it will move against market conditions.
Risk-averse investors must keep this in mind when seeking exposure to such a turbulent market. This could mean simple diversifying a portfolio into stablecoins or using more complex hedging instruments.
Perhaps the best part of the old adage “buy and hold” is that it involves very low activity, so it’s good for passive investors. But investing in crypto caters for everyone these days.
Derivatives and margin trading, for instance, give the opportunity to short sell, plus you can be more active in using instruments such as options to hedge against losses.
However, even the most passive types of cryptocurrency investments can be more active due to the nature of crypto. Blockchain is an emerging technology, and the crypto space is developing rapidly.
For a newcomer, there can be a steep learning curve.
Along with the mind-boggling array of different projects and tokens, diligent investors must also learn about the underlying technology, get up to speed with complex jargon, and familiarize themselves with different exchanges.
Then, of course, comes the rabbit hole that is crypto Twitter. For a curated list of high-quality Twitter accounts, Crypto Briefing has created one here.
In short, crypto can easily become an absorbing hobby, even if your investment strategy is geared towards the passive end.
In the boom of 2017 and 2018, many people were dazzled by the hype of shiny new projects promising to deliver the world on a plate.
In reality, many of those startups folded, and people were left with worthless tokens that they couldn’t sell or get rid of. As a result, regulatory clampdowns now mean that there’s slightly less risk of everyday investors getting sucked in by flimsy ideas written on fancy white papers.
Nevertheless, even the most experienced investor should tread with caution when buying obscure tokens. A crypto exchange can choose to delist tokens at any time, meaning liquidity is reduced, and one’s ability to sell may become compromised.
Before buying in, particularly for smaller tokens, investors must make it part of their due diligence to check the market demand for a token using a service like CoinMarketCap or CoinGecko.
Which exchanges are listing it, and how much volume is being traded? This will help identify the liquidity risks.
Further, it’s important to remember that even the most liquid cryptos such as Bitcoin or Ether aren’t particularly spendable. It may take hours or even days to convert one’s holdings into cash.
As the saying goes, “not your keys, not your crypto.”
Investing in cryptocurrency comes with security considerations that simply don’t exist with stocks or other types of traditional assets. Exchange hacks and phishing attacks are unfortunately still all too common in the cryptocurrency space.
Therefore, you’ll need to think about how you plan to safely store your cryptocurrencies.
Although some exchanges have better security records than others, using a personal hardware wallet is still the best bet. Furthermore, an offline, hardware-based wallet such as a Trezor or Ledger Nano is better yet.
It will involve an initial cost of around $75, and investors must also learn how to keep their private seed key safe. This is particularly important because, in the case of Trezor, the hardware itself has been proven to be fallible.
Though there is a slight learning curve for proper key management, it is an essential part of due diligence.
Once investors have worked through the above considerations, they’ll need to think about how they plan to invest in cryptocurrency.
Most people begin investing in cryptocurrency by buying some Bitcoin or Ether and then perhaps branch out into buying tokens for the particular projects they like.
Although there are various ways of buying crypto these days, many start off by depositing some fiat onto an exchange such as Coinbase or Binance.
From there, investors can buy Bitcoin or Ether, and in turn, start browsing other cryptos and tokens paired with either.
Simply buying and holding cryptocurrencies doesn’t offer any guarantee of returns.
However, investors can put their crypto investments to work by depositing them in many of the interest-earning platforms. There are plenty of companies offering this, including BlockFi, Celsius, or Cred.
Different platforms offer various options. Investors can shop around to find out which platform offers the best interest rates for different assets, using an aggregator such as CoinMarketCap’s Interest feature.
The crypto-derivatives markets have exploded over the last year or two. Traders can buy and sell crypto-backed futures, perpetual swaps, and options at a variety of derivatives exchanges.
Many offer high leverage, along with the opportunity to speculate on a wide variety of underlying crypto-assets.
Investing in cryptocurrency derivatives is a high-stakes game best-suited for more advanced traders and investors who understand the risks involved. It’s also a very active style of investing. Investors will need to be very hands-on with their portfolio if they take this route.
Index funds haven’t yet taken hold in the crypto space in the same way as the other investment vehicles listed above. Nevertheless, there are a few options available, including Bitwise, Crypto20, and Iconomi.
The challenge with index funds for the crypto space is that, unlike an index such as the S&P 500, crypto is heavily-weighted towards Bitcoin.
Although index funds make a great passive investment vehicle for traditional asset types, for crypto, they are somewhat limited. This is because many coins, even major altcoins, tend to follow Bitcoin’s price trends.
That said, if one is looking for a simple way to gain exposure to cryptocurrencies, then index funds may be a solid choice.
This article is intended as guidance only. As with any investment decision, always do your own research.
Disclaimer: Crypto Briefing is sponsored by Cred. The publication was not paid to include them in this article.
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Bitcoin Briefly Topped $10,000; Bitcoin Exchange-Traded Product Now Live, Aye
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Bitcoin kept surging and briefly hit the $10,000 mark this week, continuing a rapid recovery from its precipitous crash to less than $4,000 in early March. Its gains have been fueled by media attention leading into Monday’s halving event—bitcoin’s first two halvings both led to meteoric price rises, though macroeconomic conditions are far more uncertain now than they were in 2012 and 2016.
Some insiders fear that the event may be overhyped; bitcoin researcher Lennard Neo said, “we believe a short-term pullback is highly likely immediately post-halving, as traders begin taking profits.” But the long-term outlook remains bullish for most, especially in conjunction with the anticipation of inflation that may result from the vast stimulus packages signed into law to revive the economy.
Source: Messari. Prices as of 4:00 p.m. on May 8, 2020.
Zooko Wilcox knew he was treading into a legal and moral gray area when he gathered a coalition of people to build a truly anonymous cryptocurrency they called zcash. “I might end up in jail. I might get murdered or extorted. I might go broke,” Wilcox recalls thinking. “But it’s way too important not to do.”
In recent years, it appeared that the Electric Coin Company CEO’s fears were being realized. Zcash use appeared to be on the rise for illegal activity, and several exchanges delisted the currency amid regulatory pressure. In response, Wilcox sought out an unorthodox partnership, commissioning an independent report by a mainstream think tank, the Rand Corporation.
The report released this week showed that zcash actually isn’t used for a large proportion of illicit cryptocurrency transactions at all. Less than 1% of the illegal offerings that mentioned cryptocurrency on the Rand Dark Web Observatory mentioned zcash. More than 50% unsurprisingly mentioned bitcoin.
Toronto-based investment manager 3iQ Corp. completed a $48 billion offering in its Bitcoin Fund traded on the Toronto Stock Exchange, but it isn’t registered to serve U.S. investors. It’s a closed-end fund that behaves much like the sort of exchange-traded fund that has been hotly anticipated among bitcoin investors. The SEC has rejected multiple applications for similar products in the U.S.
The majority of eligible Americans received their CARES Act stimulus checks efficiently last month, but tens of millions were still waiting for their cash weeks after the bill was passed. A bipartisan group of 11 members of Congress, including former presidential candidate Tulsi Gabbard, reacted by sending a letter to Treasury Secretary Steven Mnuchin urging the U.S. Treasury to use blockchain to make payments more efficient.
The Options Clearing Corporation is moving its $72 billion worth of equities on loan across the Americas to the Axcore blockchain built by New York-based Axoni. The partnership marks another big enterprise deal for Axoni three months after Citi and Goldman Sachs conducted a blockchain equity swap on a separate platform it built.
A growing number of decentralized finance enthusiasts are launching self-tokenizing schemes, usually taking the form of an investment in exchange for some predetermined portion of the tokenizer’s future salary. NBA player Spencer Dinwiddie did it in January, selling tokens as a securities offering to accredited investors.
But most of these makeshift schemes don’t fall under the purview of securities law like Dinwiddie’s does, raising red flags that contradict a core tenet for most crypto investors. “the settlement assurances you have are based on trust, so it’s the exact opposite of real cryptocurrencies,” says tokenized real estate executive David Hoffman. “The whole entire system is based on trust in the tokenizer.”
Bitcoin Is Staging a Comeback Reminiscent of 2017 Bubble Frenzy [Bloomberg]
Bitcoin Halving: How It Works and What It Means [Investopedia]
Author: Crypto Confidential
Top 5 Cryptocurrencies to Watch This Week: BTC, ETH, XTZ, ADA, NEO
Bitcoin (BTC) rallied above $10,000 on May 7 and just when everyone was getting ready for the long-anticipated halving surge the top-ranked cryptocurrency on CoinMarketCap plunged over 15% to hit a low of $8,130.58.
However, the sharp fall in price did not attract further selling, which suggests that traders are not panicking and dumping their positions. This indicates that the sentiment is to continue buying on the dips.
Crypto market data daily view. Source: Coin360
When Bitcoin plummets, it drags most cryptocurrencies along with it, but it is also important to remember that several major cryptocurrencies have been in an uptrend for the past few weeks.
Corrections in an uptrend offer a buying opportunity to the traders who had missed the bus earlier. With the Bitcoin halving less than two days away, volatility is likely to remain high. Therefore, in the next few days, traders might consider reducing their position size to keep their risk under control.
Let’s see which five major cryptocurrencies offer attractive trading opportunities in the short-term.
Bitcoin (BTC) broke above $9,200 on May 7 and hit a high of $10,058.52 on the same day. However, the $10,000 level proved to be a tough hurdle to cross.
BTC-USD daily chart. Source: Tradingview
After a minor correction on May 8 and 9, the BTC/USD pair plummeted on Saturday evening. The failure of the bulls to sustain the price above the previous resistance turned support at $9,200 could have led to selling by the bulls and initiation of short positions by the bears.
The pair is currently trading inside an ascending channel where the price moves between the support line and the resistance line of the channel.
$10,000 was close to the resistance line of the channel and from there the pair fell to $8,130.58, which is just above the support line of the channel. The strong bounce off this level, as seen from a long tail on the downside, is a positive sign.
This suggests that the bulls did not panic but used the drop to the support line of the channel to buy. As long as the price remains inside the channel, the trend remains up and strong declines to the support line of the channel can be purchased.
The first sign of weakness will be a drop below the channel. If that happens, long positions should be avoided until a new buy setup forms once again.
BTC-USD 4-hour chart. Source: Tradingview
The 4-hour chart shows that the price dropped sharply within a short time frame (shown via the blue arrow on the chart). If the traders watch the 30-minute chart, they can see that the pair dropped from $9,566.52 to $8,130.58 within 30 minutes. Such a fall usually suggests liquidation by a large player.
However, a positive is that the price recovered sharply from $8,130.58 and since then has been trading above the $8,500 levels. The recovery might face stiff resistance between $8,960.97 and $9,156.94, which corresponds to 50% and 61.8% Fibonacci retracement levels of this leg of the fall.
If the pair bounces off $8,500, it could be a good entry point for the traders with a stop-loss placed just below the channel. The target objective on the upside is $9,600 and then $10,000.
Conversely, if the next drop breaks below $8,500, traders can wait for the price to bounce off the support line of the channel, which can offer another buying opportunity with stops placed just below the channel.
If the bears sink the price below the channel, it will be a huge negative as it will signal a possible change in trend. Therefore, bottom fishing should be avoided if the pair sustains below the channel.
Although Ether (ETH) broke above the resistance line of the ascending channel on April 29 and 30, the bulls failed to sustain the higher levels. That resulted in a correction, which found support at the 20-day simple moving average ($204) on May 7.
ETH-USD daily chart. Source: Tradingview
However, today, the 2nd-ranked cryptocurrency on CoinMarketCap turned down sharply and plunged below both moving averages and the support line of the ascending channel.
Due to this, the 10-day exponential moving average ($203) has turned down marginally and the relative strength index has slipped into the negative territory. This suggests that the bears are attempting to make a comeback. The price should sustain below the channel to confirm a change in trend.
Currently, the price has bounced off the support line of the ascending channel, which is a positive sign. This suggests that the bulls view the dips as a buying opportunity. The pair is likely to pick up momentum on a break above the downtrend line.
ETH-USD 4-hour chart. Source: Tradingview
The ETH/USD pair is attempting to reverse direction from the support line of the ascending channel. However, the bears are defending the 38.2% Fibonacci retracement level of the most recent leg of the decline, which is at $193.946.
If the price turns down and plummets below $181.40, it will signal weakness and could result in a decline to $167 and below it to $150. Therefore, traders can initiate short positions below $181 with stops placed just above $194.
Conversely, if the price turns up from the support line of the channel, it will signal buying on dips. Therefore, the bulls can buy the bounce off the channel with the stops placed at $181. If the bulls push the price above $197.821-$201.696 resistance, a rally to the downtrend line is possible.
As the markets are volatile, traders should keep trailing their stops higher to reduce their risk.
Tezos (XTZ) has been trading inside an ascending channel, which shows that the trend is up. However, the bears have been aggressively defending the $3 levels for the past few days. Although the bulls broke above this level on April 29 and 30, they could not build up on the breakout.
XTZ-USD daily chart. Source: Tradingview
On May 9, the 10th-ranked cryptocurrency on CoinMarketCap turned around from just below $3 levels. The selling intensified today as the price slipped below the strong support of $2.55.
Although the bears broke below the support line of the channel, they could not sustain the price below the channel. The long tail on the candlestick shows that the bulls are aggressively defending the support line of the channel.
The 10-day EMA ($2.72) has turned flat and the RSI has dipped to just above the midpoint, which suggests a balance between the bulls and the bears. If the bulls can keep the price above $2.55, it could offer a buying opportunity.
XTZ-USD 4-hour chart. Source: Tradingview
The XTZ/USD pair is likely to face resistance in the $2.6015-$2.0686 zone, which corresponds to the 50% and 61.8% Fibonacci retracement levels of the most recent leg of the fall.
If the price turns down from this resistance zone, a fall to $2.50 and below it to the support line of the channel is possible. The bulls are likely to defend this zone aggressively. If the price bounces off the zone, it could offer a buying opportunity to the traders.
The stops for this trade can be kept just below $2.20. On the upside, a rally to $2.70 and then to $3 is possible. The traders can trail the stops higher as the price moves up.
This bullish view will be invalidated if the next dip breaks below the support line of the channel and sustains below $2.240. If this level cracks, long positions can be avoided until a new buy setup forms.
Cardano (ADA) has been facing stiff resistance at the overhead resistance at $0.0522712 while the bulls have been buying the dips to the support at $0.0468137. This tight range trading suggests a balance between buyers and sellers.
ADA-USD daily chart. Source: Tradingview
The 13th-ranked cryptocurrency on CoinMarketCap plunged to a low of $0.0427299 today but the sharp recovery from the lows shows aggressive buying by the bulls. If the bulls can sustain the price above $0.0468137, it could offer a buying opportunity.
Conversely, if the price again slips back below $0.0468137, it will signal weakness. Below this level, a retest of $0.0427299 is possible. If this support also cracks, a deeper correction will be on the cards.
ADA-USD 4-hour chart. Source: Tradingview
The 4-hour of the ADA/USD pair shows that the price is stuck in a $0.0543484-$0.0461143 range. Though the price dipped below this range, the bulls could not sustain the lower levels. This resulted in a sharp pullback, which shows strong buying on dips.
However, the recovery is facing resistance in the $0.0477515-$0.0489368 zone, which corresponds to 50% and 61.8% Fibonacci retracement levels of the most recent fall.
If the bulls buy the next fall to the $0.0468137-$0.0461143 support zone, it will indicate demand at lower levels. Therefore, traders can buy the bounce off this zone with a target objective of $0.053.
This bullish view will be invalidated if the bears sink and sustain the price below $0.0461143. If that happens, a deeper fall is likely, hence, traders can avoid bottom fishing below this level until a new buy setup forms.
NEO has been trading inside the ascending channel for the past few weeks. Though the bulls broke above the resistance line of the channel on May 8, they could not sustain the breakout.
NEO-USD daily chart. Source: Tradingview
As a result, the 20th-ranked cryptocurrency on CoinMarketCap again dipped back into the channel. However, with both moving averages sloping up and the RSI in the positive territory, the advantage is with the bulls.
Today, the bulls purchased the dip to the 10-day EMA ($9.8), which is a positive sign. This shows that the bulls are not waiting for a deeper fall to enter long positions. The trend will remain positive as long as the price remains inside the channel.
The first sign of weakness will be if the bears sink the price into the bottom half of the channel. A break below the support line of the channel will signal a change in trend.
NEO-USD 4-hour chart. Source: Tradingview
The 4-hour chart shows that the failure of the bulls to sustain the price above the resistance line of the channel attracted profit booking. That dragged the price to just below the centerline of the channel.
However, strong buying close to $9.64 levels has pushed the NEO/USD pair back into the top half of the channel. This is a positive sign. If the bulls can scale the price above $10.50, a rally to the resistance line of the channel at $11.30 is possible Therefore, traders can buy at $10.50 with a stop-loss below $9.60.
On the other hand, if the pair dips below $9.63378, a drop to the support line of the channel is possible. A bounce of this level can also offer a low-risk buying opportunity.
In this case, the stop-loss can be kept just below the channel because if the price sustains below the channel, a deeper correction is likely.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, you should conduct your own research when making a decision.
The market data is provided by the HitBTC exchange.
Author: Rakesh Upadhyay