Since the creation of Bitcoin in 2009, cryptocurrencies and digital assets have soared in popularity. In fact, a recent poll found that 21% of American adults have invested in cryptocurrency, a figure that’s likely to increase in the year ahead.
Created by the pseudonymous developer Satoshi Nakamoto, Bitcoin (BTC) is the most popular cryptocurrency, with its total value at times exceeding $1 trillion. One important benefit of Bitcoin and other cryptocurrencies is that they are a unique asset class that can offer the opportunity for diversification.
If you’re interested in adding cryptocurrency to your portfolio, understanding the different types of coins and their historical performance can help you become more confident in your investment decisions. Below, we share some of the key things to know about cryptocurrency investments—and how to make them work for you.
Understand the Risks and Benefits of Crypto Investing
One of the reasons cryptocurrencies are gaining popularity is the ease with which they can be traded. Unlike the stock market which is only open at specific hours, crypto can be traded anywhere, any time, 24 hours a day, 7 days a week, 365 days a year. This has made them increasingly appealing and accessible to all types of investors.
Like other types of assets, cryptocurrencies carry both risks and benefits. One of the risks is volatility. Due to their decentralized nature, cryptocurrencies can experience significant price swings. For example, the price of Bitcoin has increased from approximately $10,000 in May 2020 to more than $38,000 in May 2022, after reaching a peak of just over $68,000 in October 2021. While Bitcoin prices have increased and fallen during that time, Bitcoin’s overall performance has been on an upward trajectory, leading to significant returns for some investors.
While crypto investing does involve some risks, it can also come with significant benefits. These include increased diversification which can increase portfolio performance in the long term and even the possibility of offsetting some of the negative effects of inflation. Understanding these risks and benefits can help you determine which crypto investments may be best for you.
Focus on Both the Short and Long Term
While crypto is new for many investors, it can be used in two very different ways: to achieve both short- and long-term goals. For short-term goals, the trading process is more involved and hands-on. One of the most popular short-term investment strategies is to use perpetual futures to bet on where the price of cryptocurrency is likely to move next. These strategies can be lucrative but require more advanced knowledge and should only be explored by more sophisticated investors.
On the other hand, if you have long-term goals in mind, it’s best to diversify your portfolio and limit risk wherever possible. Long-term holders of an asset like Bitcoin remove concern about short-term volatility. One popular strategy for this type of investor is dollar-cost averaging—buying a consistent amount of an asset like Bitcoin or Ethereum at a predictable schedule such as daily or weekly.
Depending on your risk tolerance, many financial experts have suggested an allocation anywhere between 1% and 5% of your portfolio to alternative investments such as cryptocurrency.
Choose the Right Trading Platform
While investing in crypto has historically been considered to be relatively high risk, the growing popularity and interest in understanding the market have significantly changed this. Many trading platforms provide you the ability to invest depending on your goals and individual risk tolerance. However, not all trading platforms allow you to trade a large variety of digital assets.
As a trusted platform built by traders, for traders, FTX can help. With FTX’s trading platform, you can trade new and popular cryptocurrencies like Bitcoin, Ethereum, Solana, and Dogecoin with trading fees up to 85% lower than their competitors. Creating an account is simple and you can get a free coin with every trade over $10. What’s more, FTX lets you discover, buy, sell, and even create NFTs in just a few clicks.
Although the crypto market may seem complex, knowing the basics can equip you to align your goals with your investment strategy. With the right trading platform, you can grow more confident in your investment decisions and trade like a pro.