Your Financial System
When you grow up and step into the financial world you are full of energy but little to no capital. In the beginning all your earnings are made through active physical efforts. As you mature you save and reinvest your capital. So now in your mid ages you have both physical labor and capital earing you money. As you grow old, earnings through your physical labor gets low with capital making most of it.
So we need to start investing while we are still young.
Key Elements To Crypto Investment
A stable coin is a new class of cryptocurrency that seeks to provide price stability. It is stable in price because it is backed by a reserve asset mostly a fiat currency or gold.
Stable coins have received traction as they try to provide the first-rate of each world—the immediate processing and safety or privateness of bills of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
While bitcoin remains the most popular cryptocurrency, it suffers from high volatility in its valuation. For example, it rose from around $5,950 in November of last year to above $19,700 around in December 2017 and then declined by almost two-thirds to the $6,900 level in early February.
Even its intraday price swings can be wild; It is common to see the cryptocurrency rising more than 10% in either direction within a few hours.
This kind of short-term volatility makes bitcoin and other popular cryptocurrencies unsuitable for everyday use by the general public. Essentially, a currency must function as a medium of monetary exchange and a way of storing monetary value, and its value must remain relatively stable over a long-time horizon.
Users will refrain from adopting it tomorrow if they are not sure of its purchasing power. This is why Stable coins are so much in demand.
High Market Cap Coins
Market Capitalization > $5 billion
Mid Market Cap Coins
$500 million < Market Capitalization < $5 billion
Low Market Cap Coins
Market Capitalization < $500 million
Initial Coin Offering or ICO
An initial coin offering (ICO) aims at raising capital. A new company in order to raise funds for its development project may come out to public and ask them to invest in the company. The tokens of that project are provided in exchange for their fiat money.The main advantage of ICOs is that they remove middlemen from the capital raising process and create a direct relationship between the company and the investors. Furthermore, the interests of both sides are aligned.
The ICO's are a great way in making money if quality project tokens are bought at the right time.
Building Your Portfolio
So, in this section we will focus on deploying strategy for investing in cryptocurrency.
So, when it comes to cryptocurrency investment, you can divide your portfolio into 3 sections
- High Return, High Risk
- Mid Return, Mid Risk
- Low Return, Low Risk
High Return, High Risk Portfolio
Investment is into tokens that are highly volatile in nature. They are indeed high risk, high reward.
Only the amount you can afford to forget is the amount you put into this section.
Tokens with low market capitalization is what constitute this section.
You can aim for 10x – 1000x return in this category.
You can check your risk profile before building your portfolio.
Mid Return - Mid Risk Portfolio
This is where the major portion of your equity should lie.
This is further divided into 2 sections: large cap and mid cap.
You can expect a descent growth of 20-50% in this category.
Large cap equity gives your portfolio strength in order to survive volatility and mid cap compensate for the return as well as providing better performance than small cap.
Low Risk, Low Return Portfolio
This is the reserve you keep for buying/selling if any emergency arises
This section is divided into 2 sections:
Stable coin reserve - 15%
Alt coin reserve - 10%
Reserve does not mean that this equity will remain idle. Nothing remains idle in cryptocurrency that’s the beauty of cryptocurrency. You can put them in for yield farming that can fetch you stable income.
You can expect a return of 10-25% return in this section.
Starting Up With Crypto
Central exchanges operate through order book. An order book is a collection of buy and sell orders submitted by individual traders.
Orders are requests to purchase or sell a specified amount of a coin at a specific price.
CEXs collect orders from its users and then match and execute the buy and sell orders using specific software.
Users of CEX do not trade crypto or fiat money with one another. Instead, when they deposit funds on an exchange, the latter assumes custody of those assets and provides the trader a matching quantity of IOUs.
The exchange keeps track of each user's IOUs as they pass through trades and only converts them to actual currency when funds are withdrawn.
Prominent Examples: Binance, CoinBase
A decentralized exchange is a peer-to-peer market (better known as DEX), where transactions between crypto traders occur directly.
DEXs do not enable the swaps from fiat to crypto; they only trade tokens for the cryptocurrency of other tokens.
Most Decentralized exchanges use liquidity pools to enable exchange.
Prominent Examples: Uniswap, Pancakeswap
Wallet Types Based On Control
Centralized wallets do not come separately but is the part of the main application itself. Like Binance wallet comes with Binance Application, Coin Base wallet with Coin Base Application itself.
Prominent Examples: Binance Wallet, CoinBase Wallet
A cryptocurrency wallet is a piece of software which tracks the secret keys needed to sign digitally for distributed ledgers in cryptocurrency.
Remember Private Keys? Access through private keys is the sole method of demonstrating digital asset ownership transfer. They enable the transactions by relaying your consensus of transfer of assets to the wallet. The wallet runs code and gets it done for you.
Wallet Types Based On Accessibility To Assets
Hot wallets are the wallets that need to be linked to the internet, which makes them less safe.
The Internet makes digital wallets very accessible, but the wallets are more subject to security concerns and fraudulent assaults.
Hot wallets are easier to use, though users' safety and privacy are constantly at risk.
Mobile Wallets, Desktop Wallets are some of the hot wallets in use.
Prominent Examples: Trust Wallet, Metamask Wallet.
Cold wallets are kinds of cold storage cryptocurrency wallets and store offline crypto-tokens to increase security.
Cold wallets always provide a safe approach to do everyday transactions than other wallets. There are several kinds of wallets, some of which are connected to the internet, and users must select the wallet to suit their demands.
Prominent Example: A private key written on a piece of paper is also a wallet and can be known as a cold wallet.