As cryptocurrencies gain ground and earn widespread social acceptance, investors of all ages are looking for the best ways to get in on the action.
Investing in cryptocurrencies can feel novel and risky to new investors, but the reality is that digital currencies are just that, currencies in digital form. In almost all ways, they can be invested and managed in portfolios very close in form and function to how investors to grow their assets in any other currency. Which methods and strategies will be most attractive to a given investor will depend almost entirely on his or her individual digital coin holdings and personal level of risk-aversion. Still not sure where to begin? Start with a tried-and-true method of stockpiling or angel investing.
Since early 2014, the official position of the IRS has been that cryptocurrencies are a form of property rather than a type of money. This is becoming increasingly less true every day as new apps allow investors to set up digital debit cards linked to their cryptocurrency wallets and ever more retailers are accepting Bitcoin (and altcoins of all kinds) as payment for goods and services. However, it does offer investors a solid starting point for their investment strategies.
Like gold, silver and other assets that walk the line between normal, highly spendable currency and property-like assets, cryptocurrencies can easily be stockpiled. One of the easiest and most direct ways for individuals to begin investing with cryptocurrency is to collect and hold various currencies using the traditional “buy low, sell high” approach. Under this investment ideology, investors bank on the promise of demand for cryptocurrencies rising as more people recognize their value and seek to buy their way into the digital currency market.
Right now, the digital currency market still finding its footing and demand is relatively light. This creates a prime opportunity for investors to search out low-cost coins or tokens and buy them in large quantities. By holding onto those coins as the market expands, investors set themselves up for success in two ways.
As demand increases, the value of those coins will rise relative to both other forms of currency and to purchasable goods and services. Investors will, down the line, be able to either “sell high” or “spend high.” Selling high is exactly what it sounds like. For example, investors can sell coins they bought for $3 (fiat currency) each for $10 or more apiece. This “cashing out” provides investors with a hefty return on investment in some other form of currency. Alternatively, investors may wait until their cryptocurrency tokens have increased in value and then spend them directly on goods and services. Again, for example, an investor might spend $200 of fiat currency buying cryptocurrency right now. Once the value of the purchased currency has matured, the coins or tokens originally purchased for $200 might be worth $800 in the original fiat currency, giving the investor $800 worth of purchasing power for no additional investment or cost.
Investors with a little more tolerance for risk, or who desire to build financial portfolios that also invest in social change, can choose to put their cryptocurrency holdings to work through digital Angel Investing or crowd-sourcing scenarios. Both of these investing formats work in almost the same ways as their traditional, fiat-currency counterparts.
As with any investment opportunity, it is essential that investors carefully review the cryptocurrency landscape before jumping into a particular opportunity. Standard investment rules apply. In fact, basic investment guidelines may become doubly important when investing in cryptocurrencies due to the notorious volatility of the market and the comparative lack of regulation.