Prices are rising, the media is hyping and cryptocurrencies are on everyone’s lips. This is why we offer a crash course introduction and instructions below, with which responsible investments in cryptocurrencies can be made as quickly as possible in five steps, without having to deal with the subject too intensively.
We ourselves are not experts (or even financial advisors), but would like to report on our own experience and recommend strategies. It is therefore essential that you understand the principles and functioning of virtual currencies. Furthermore, it is important that you constantly (also in the future!) deal with the changing influences on your investment and the respective markets and keep yourself informed about current developments.
Step 1: In which currencies to invest?
With currently more than 1,000 cryptocurrencies you can spend a lot of time researching and evaluating. In theory it is actually quite simple: You invest in the newest cryptocurrencies as long as they cost only cents and hope that they will not disappear again and that you can sell them later for a multiple.
In general, as with any other investment, the maxim of „diversification“ applies to cryptocurrencies. Our recommendation here is therefore a fifty-fifty strategy. The advantage of this strategy is that you always have a healthy mix of currencies to hedge against speculation.
- You invest the first half of your planned investment in the dominant classics such as Bitcoin, Ethereum and Litecoin. These currencies are growing at normal rates and are unlikely to disappear completely from the market. Initially dramatic bubbles and price slumps in these currencies have always recovered and the price has risen steadily.
- You invest the second half of your planned portfolio in Altcoins. CoinMarketCap.com lists all cryptocurrencies, sorted by market capitalization. Here you can then go through the Top 10 (or Top 20 etc.) and buy. Completely unemotional. No matter how your course goes.
Example: If you want to invest a total of1,000 €, you buy Bitcoin for 250 €, Ethereum for 125 € and Litecoin for 125 € as dominant classics and for 50 € each Ripple, Dash, Monero, IOTA, NEO & Co. as old coins.
Step 2: Set limits
The cryptocurrency market is extremely volatile and as things go uphill, things can quickly go downhill again. It is therefore of considerable importance to set your own limits before making your first investment. So we clearly ask you never to invest money on which you are dependent or whose total loss you cannot cope with.
Step 3: Buy currencies
To buy the selected currencies, they must be exchanged on the so-called „exchanges“ for other (traditional) currencies such as euros or dollars. Our recommendation is Coinbase (test report) for Bitcoin, Ethereum and Litecoin and Kraken (test report) and Bitfinex (test report) for Altcoins.
Step 4: Wait and see and hold currencies for the long term
The price of cryptocurrencies – comparable to shares – is determined by demand. When exchange rates start to fall (which is quite normal and can be observed daily on stock exchanges worldwide), fear of loss often sets in quickly. In the worst case, one then sells one’s own cryptocurrencies in haste with loss in order to avoid an alleged total loss. These panic reactions only trigger an increased sales volume in the market and prices continue to fall.
We therefore recommend that you check the price development only irregularly and do not worry whether you have chosen the right time or the wrong time. In the long run, it helps to release oneself emotionally and to proceed according to the specially defined plan in order to avoid making the wrong decisions and not to drive oneself crazy.
If financially possible, co-investments can be handled as a kind of savings plan: At regular intervals, you take a constant amount of money at hand over a longer period of time and buy cryptocurrencies for this. As a result of this „average cost effect“, more coins are acquired when prices fall and fewer coins when prices rise, so that the coins are acquired at an average price that is above the most favourable price during the observation period, but also below the least favourable price.
Step 5: Selling currencies
In principle, it is recommended to hold the currencies for at least one year and only then sell them again instead of trading daily, in order to avoid having to pay the corresponding taxes for each transfer. The sale of cryptocurrencies is a private sale or speculative transaction. All purchases should therefore be clearly listed and data/quantities maintained so that only coins that have been held for at least one year are sold. The sale will also take place again via the respective Exchanges.