Investor sentiment has largely contributed to the rise and fall of the cryptocurrency market because their value is not based on anything tangible. Unlike stocks and shares, there are no earnings reports, profits or revenues to use as a basic measure of value.
Patience and long-term investment are usually the keys to making money through cryptocurrencies. People hold bitcoin in the hope that someone else will come along and pay more for it in the future.
April 2011. One bitcoin is worth about $1 (72 pence).
November 2021: A bitcoin peaks at $69,044
March 2022: Back down to $47,000
May 2022: further plunge to $29,000 (£24,000); and as of early July, the price was around $21,300
If you bought 100 bitcoins in April 2011 for $100 and held them for ten years, your shares would be worth $6,904,400 in November 2021 when bitcoin hits an all-time high.
Currently, the same 100 bitcoins would be worth $2,130,000 – still not a bad investment, but highlighting the volatility of digital currencies.
How to Start Investing in Cryptocurrencies
In order to start buying and selling cryptocurrencies, you can trade with centralized cryptocurrency exchanges (“CEX”), decentralized exchanges (“DEX”), and through cryptocurrency brokers. Popular cryptocurrency exchanges include Coinbase, Crypto.com, Gemini, and Binance.
We have also seen standardized futures markets for Bitcoin and other more liquid cryptocurrencies such as ethereum. These futures markets allow institutional investors to buy and sell cryptocurrencies on agreed dates through established exchanges that trade contracts or agreements in a developed and transparent manner.
There is also the option to invest in cryptocurrencies through specialized exchange-traded funds, or ETFs, which invest exclusively in bitcoin and other cryptocurrencies. ETFs are somewhat like mutual funds, but are bought and sold through exchanges, so they have good liquidity.
Investing in cryptocurrency companies involved in the broader decentralized finance (DeFI) space is another way to indirectly invest in cryptocurrencies, such as Bitcoin. As the underlying cryptocurrency performs well, these companies, may create new blockchain protocols, act as intermediaries (such as CEX), or even build specific mining products, which can be very lucrative and profitable.
For more sophisticated investors, there are specialized hedge funds that specialize in cryptocurrency, digital asset and/or DeFI investments that professionally manage money on behalf of investors. Such funds typically require larger minimum investments, in excess of $100,000.
These firms may invest in single digital coins, cryptocurrency startups, exchanges, initial token offerings, initial exchange offerings and other blockchain assets.