How Much to Allocate to Crypto?
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Investing in cryptocurrencies has provided many people with huge profits despite a relatively small capital commitment. But there are also those for whom it has brought really serious losses. Cryptofans often see them as money and future property, the embodiment of freedom. But on the other hand, they see Bitcoin itself – the oldest and most important virtual currency – as a store of value or a kind of “digital gold”. So how much should you invest in crypto? Is it profitable to allocate funds in crypto? The answers to these and other questions can be found at the end of the article.
Table of contents
Cryptocurrencies – what are their characteristics?
Cryptocurrencies do not have a physical form, but they have a certain value, so they can be called virtual or digital money. This means that if the seller accepts payment in a certain cryptocurrency, you can pay for goods or services just as legally as with euros, dollars or other fiat currencies.
Importantly, virtual money does not need intermediaries and is not controlled by a central bank or other institutions. Nor can any external organization decide on the amount of crypto emissions or directly influence their operation.
All the above advantages are provided by the cryptocurrency Blockchain, a decentralized and distributed database based on a peer-to-peer model. In this case, network users (miners) are responsible for processing transactions and storing related information. The process by which they verify and add transactions to the public ledger and the mechanism for putting new crypto units into the public network is called mining.
Cryptocurrency exchanges – how to get virtual money
One of the most important ways to buy digital currencies is to use the services of so-called cryptocurrency exchanges. The most popular of these is Binance exchange. Buying and selling cryptocurrencies on this platform is similar to stock trading, so those familiar with this type of electronic trading should not have any major problems with its operation.
Cryptocurrency exchanges mediate transactions between two market parties, i.e. between buyers and sellers. Naturally, an appropriate commission is charged for such a service. An advantage major exchanges like Binance have over smaller brokers is liquidity. This means that the more daily transactions are done on a given platform, the easier it is for us to sell or buy cryptocurrencies.
Another thing is security. For example, in large and well-known cryptocurrency exchanges, we encounter two-step authentication and advanced encryption. On the other hand, smaller exchanges with unknown reputations, although often attractive with offers, can unfortunately bring more investment risk in the end.
How much to reserve in crypto?
Cryptocurrencies attract significant price increases and strong swings, which traders, especially futures traders, are eager to take advantage of. For example, when the market enters a bull market, the value of many digital assets increases at least tenfold in literally a few, several months. In addition, there are days when the prices of some cryptos increase by several hundred or even several thousand percent. No other market offers this kind of profit potential, but remember that they come with high, even higher risks.
So, if you want to share extra funds in cryptos, rationally evaluate your knowledge of this market. Although the prospect of making money is attractive, you must measure your strength against your intentions. On the other hand, the amount of money to be invested should not endanger the household budget. That’s why it’s best to invest enough so that in the event of adverse crypto fluctuations, you can continue living comfortably – you’ll have money for ongoing expenses and payments.