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Best way to invest $500 in cryptos?

invest $500 in cryptos

June 4, 2021 | 

JOHN K MWANIKI |  0 Comments| 

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Get Into Cryptocurrency Trading Today

If you have heard about the possibility of making money investing in cryptocurrencies and you don't know where to start, this article is for you. Cryptocurrencies are decentralized currencies native to blockchain networks. They were designed as a form of peer-to-peer exchange to eliminate the middleman (traditional financial institutions), but they have evolved into a type of investment for some people. In this article, rather than teach you the basics of cryptocurrencies, you will learn why and how to invest in cryptocurrencies.

How to invest $500 in cryptos

If you want to invest $500 in cryptocurrencies, you may wonder if it is possible. The two main things to remember before we proceed to how is that there are many cryptocurrencies to pick from, all with different prices and that it's possible to own less than one cryptocurrency unit. For example, it's possible to own a fraction of Bitcoin that costs as much money as you have. With that in mind, here are three ways to invest $500 in cryptocurrencies;

a.    Research the different cryptocurrencies

There are thousands of cryptocurrencies listed in the coin market cap. While you may not be willing to invest in Bitcoin at its currency price, there are still many cryptocurrencies to pick from. Here are a few examples and why you should consider them 

i. Cardano - This blockchains' cryptocurrency is called ADA. Like Ethereum, Cardano has a smart contract system, and unlike Ethereum, they already use the proof of stake consensus algorithm. It is currently the 5th cryptocurrency by Market Cap. 

ii. Polkadot - One of the biggest problems with cryptocurrencies is the lack of interoperability. In simple terms, it's not possible to exchange one cryptocurrency for another as you would fiat currency because they run on different blockchain networks. Polkadot aims to solve this problem by bringing all cryptocurrencies together, therefore, solving the interoperability issue. 

iii.  Ripples - XRP is the Ripple network's native cryptocurrency. One of the goals is to help financial institutions perform cross-border transactions faster and with lower fees. It already has a few financial institutions using it. Its practical value makes it a great investment option

The three cryptocurrencies listed above are just examples of cryptocurrencies you could consider investing in. When choosing which specific cryptocurrency you will buy, here are a few tips to consider;

  • What is the team behind it - You want to pick a cryptocurrency with a capable team. 

  • The technology - You want the cryptocurrency to have a good technological background.

  • The utility - Cryptocurrencies have the value people give them. When it is useful, then people will value it. 

  • The scalability - One of the biggest arguments against many cryptocurrencies like Bitcoin is that they are not scalable. For a cryptocurrency to gain global usage, can it handle thousands of transactions per second? Is it sustainable?

  • Support - You want a cryptocurrency with good community backing as they depend highly on sentimental value. 

b.    Diversify your portfolio

Even if you think that the cryptocurrency you have chosen will be the next Bitcoin, it would be wise to only invest a portion of your capital into it. Because of the volatile nature of cryptocurrencies, you stand to lose your entire portfolio if you do not diversify. A way to do this may be to only invest at most 10% into one cryptocurrency. 

c.    Pick an exchange

If you are looking to trade cryptocurrencies, you may have to get an exchange to help you. There are two main types of exchanges, i.e., centralized and decentralized exchanges. Some exchanges are a hybrid of the two types.  

Decentralized exchanges do not ask you to keep your money with them. Instead, you trade anonymously and only connect your wallet to facilitate the exchange. Centralized exchanges sometimes ask you to store your cryptocurrencies in their wallets. You do not trade anonymously. The choice of an exchange is entirely up to you and your needs.

Why invest in cryptocurrencies

As was mentioned, cryptocurrencies were initially designed to be a form of payment. However, some chose to invest in them for profit. Here are two main reasons you would consider investing in cryptocurrencies. 

a.    They are decentralized 

Cryptocurrencies facilitate direct transactions between two parties. This means that they are not controlled by any institution, and their price cannot be regulated. Couple this with the fact that the world is increasingly becoming a global village, and you would understand why the idea of a currency that transcends governments would seem attractive. 

b.    They experience volatile price swings

Earlier in 2020, Bitcoin, the largest cryptocurrency by market cap, surpassed the $50,000 mark. On March 7, 2020, it traded at $9,160, and on March 13, 2020, at $4,916. These extreme price swings make it a lucrative investment option for investors with high-risk appetites as they can get large profit margins quickly. The caveat is that they can also lose large sums of money in just as much time. 

Conclusion

It may appear too late to invest in Bitcoin right now, or it may seem that the price is too high, and your $500 would not give you any substantial stake. That should not stop you from investing in other altcoins. Because we are the ones that give cryptocurrencies value (supply and demand rule), other cryptocurrencies may be able to compete with Bitcoin eventually. Do your research, select your cryptocurrency, pick an exchange and start trading. 

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