Cryptocurrency Investing For Dummies (For Dummies (Business & Personal Finance))

403 Pages·2023·19.477 MB·English

by  Kiana Danial

Cryptocurrency
Investing

Cryptocurrency
Investing
2nd Edition
by Kiana Danial
Cryptocurrency Investing For Dummies®, 2nd Edition
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
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Library of Congress Control Number: 2023931103
ISBN 978-1-119-98912-7 (pbk); ISBN 978-1-119-98913-4 (ebk); ISBN 978-1-119-98914-1 (ebk)
Contents at a Glance
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Part 1: Getting Started with Cryptocurrency Investing . . . . .5
CHAPTER 1: What Is a Cryptocurrency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CHAPTER 2: Why Invest in Cryptocurrencies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
CHAPTER 3: Recognizing the Risks of Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . . . . . 35
CHAPTER 4: Looking Under the Hood: Blockchain Technology . . . . . . . . . . . . . . . . . . 53
CHAPTER 5: How Cryptocurrencies Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Part 2: The Fundamentals of Investing in Cryptos . . . . . . . . . . 83
CHAPTER 6: How to Buy Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
CHAPTER 7: Using Cryptocurrency Wallets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
CHAPTER 8: Different Types of Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
CHAPTER 9: Identifying Top Performing Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . 141
CHAPTER 10: Diversification in Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
CHAPTER 11: The Role of Cryptocurrency in the Metaverse . . . . . . . . . . . . . . . . . . . . . 167
Part 3: Alternatives to Cryptos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
CHAPTER 12: Getting Ahead of the Crowd: Investing in ICOs . . . . . . . . . . . . . . . . . . . . 187
CHAPTER 13: Cryptocurrency Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
CHAPTER 14: Investing in NFTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
CHAPTER 15: Stocks and Exchange Traded Funds with
Cryptocurrency Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
CHAPTER 16: Cryptocurrency Futures and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
CHAPTER 17: Dealing with the Dollar and Other Fiat Currencies . . . . . . . . . . . . . . . . . 237
Part 4: Essential Crypto Strategies and Tactics . . . . . . . . . . . . . 249
CHAPTER 18: Using Technical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
CHAPTER 19: Short-Term Trading Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
CHAPTER 20: Long-Term Investing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
CHAPTER 21: Minimizing Losses and Maximizing Gains . . . . . . . . . . . . . . . . . . . . . . . . 287
CHAPTER 22: Using Ichimoku and Fibonacci Techniques . . . . . . . . . . . . . . . . . . . . . . . 297
CHAPTER 23: Taxes and Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Part 5: The Part of Tens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
CHAPTER 24: Ten Considerations Before Getting Started with Cryptocurrencies . . . 317
CHAPTER 25: Ten Possible Moves When Your Crypto Portfolio Is Down . . . . . . . . . . 323
CHAPTER 26: Ten Challenges and Opportunities for Crypto Investors . . . . . . . . . . . . 329
Part 6: Appendixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
APPENDIX A: Resources for Cryptocurrency Investors . . . . . . . . . . . . . . . . . . . . . . . . . 337
APPENDIX B: Resources for Personal Portfolio Management . . . . . . . . . . . . . . . . . . . 353
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Table of Contents
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
About This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Foolish Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Icons Used in This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Beyond the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Where to Go from Here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PART 1: GETTING STARTED WITH
CRYPTOCURRENCY INVESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CHAPTER 1: What Is a Cryptocurrency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Beginning with the Basics of Cryptocurrencies . . . . . . . . . . . . . . . . . . . . . 8
The definition of money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Some cryptocurrency history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Key crypto benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Common crypto and blockchain myths . . . . . . . . . . . . . . . . . . . . . . . 11
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Gearing Up to Make Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Wallets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Making a Plan Before You Jump In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Select your cryptos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Analyze, invest, and profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CHAPTER 2: Why Invest in Cryptocurrencies? . . . . . . . . . . . . . . . . . . . . . 17
Diversifying from Traditional Investments . . . . . . . . . . . . . . . . . . . . . . . 18
Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Foreign exchange (forex) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Precious metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Gaining Capital Appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Knowing it’s a wild ride . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Playing “coulda woulda shoulda” . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Knowing that history doesn’t always repeat itself . . . . . . . . . . . . . . 28
Increasing Income Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
A bit about traditional dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
The basics on crypto dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fueling Ideological Empowerment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
The economy of the future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Potential hedge against inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Help for the unbanked and underbanked . . . . . . . . . . . . . . . . . . . . . 33
Table of Contents vii
CHAPTER 3: Recognizing the Risks of Cryptocurrencies . . . . . . . . . 35
Reviewing Cryptocurrency Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Capital gains (or losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Compounding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Risk: Flipping the Other Side of the Coin . . . . . . . . . . . . . . . . . . . . . . . . . 38
Glimpsing Cryptocurrencies’ Reward versus Risk . . . . . . . . . . . . . . . . . . 38
Digging into Different Kinds of Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Crypto hype risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Security risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Volatility risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Liquidity risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Vanishing risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Regulation risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Tax risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Exploring Risk Management Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Build your emergency fund first . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Be patient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Diversify outside and inside your cryptocurrency portfolio . . . . . . 51
Looking Under the Hood: Blockchain
CHAPTER 4:
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Breaking Down Blockchain Technology Basics . . . . . . . . . . . . . . . . . . . . 54
What is a blockchain, and how does it work? . . . . . . . . . . . . . . . . . . 54
How does a blockchain secure itself? . . . . . . . . . . . . . . . . . . . . . . . . . 56
Why is blockchain revolutionary? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Perusing Problems with Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Scalability problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Environmental problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Fraud problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Political problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
What Can Blockchain Be Used For? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Supply chain monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Identity verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Legal ownership of stuff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Internet of Things (IoT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
viii Cryptocurrency Investing For Dummies