Engaging with cryptocurrency: A six-step guide to acquiring digital tokens.

Six ways to dive into cryptocurrency investments

Step 1: Examine the Mix

Several cryptocurrencies have delivered outstanding returns in recent years, with Bitcoin, the most widely-used digital currency, experiencing a 156% growth in the past year (USD). This enticing prospect draws in new investors.

According to consumer advocates, caution is essential when investing in cryptocurrencies. Hendrik Buhrs, an expert in financial investments from the consumer advice service Finanztip, warns, "Only those who are financially well-positioned should even consider investing in cryptocurrencies. These coins are only fitting as a supplement." This warning is due to the absence of security measures found in conventional investment platforms. Cryptocurrencies are a high-risk endeavor.

Step 2: Opt for a Platform

Aside from physically investing in coins, another option is to invest indirectly. This can be achieved through buying securities that mirror cryptocurrencies. In the US, ETFs, which are stock exchange-traded index funds, have been approved for Bitcoin and Ethereum. Unfortunately, these financial products cannot be offered in Germany, and only ETNs, or stock exchange-traded securities that track the price development of the corresponding currency, are available.

For those focused solely on price increases, an ETN would suffice, according to Timo Emden, market analyst and crypto expert from Emden Research. The advantage of ETNs is that investors can transfer them in a securities account without worrying about blockchain or the secure storage of private keys for the coins (Step 6).

Emden adds that some investors value the fundamental principles of cryptocurrencies - like decentralization and the lack of any central authority. In this case, it's advisable to buy the coins directly. Fees are also a factor, as they apply to ETNs but not to the coins themselves.

Step 3: Select a Coin

Given the several thousand cryptocurrencies in the market, choosing which one to invest in is challenging for new investors. While smaller currencies with short-term hype should be approached cautiously, it's advised to read the whitepaper or "prospectus" of the specific coin. This document outlines the core essence behind the currency. Emden suggests understanding its background before deciding.

The coin's past performance should not influence the decision. Instead, the main focus should be on comprehending the unique features and importance behind each currency.

Step 4: Select a Trading Platform

Numerous trading platforms offer Bitcoin and other cryptocurrencies. Some have made a name for themselves exclusively in the crypto space, while others, like traditional brokers, also facilitate cryptocurrency transactions. For most investors, access to popular coins is more vital than the range of options on the platform. German customer service is also recommended. In case of trouble, this can be invaluable assistance.

BaFin, the German financial services supervisory authority, now issues licenses to crypto custodians. A list of these verified companies is available on the BaFin website. Transparency regarding the provider's reputation and regulatory status is crucial to ensure security.

For those who prefer complete control, buying the coins themselves means avoiding continuous fees. However, costs still exist for buying and selling. Emden emphasizes that investors interested in frequent trading should consider these fees.

Step 5: Decide on the Investment Amount

For less popular cryptocurrencies, it might be impossible for most individuals to afford a whole coin, but owning fractions is an option. Buhrs suggests practicing with small investments initially. If unsure about a particular coin, set a predetermined threshold when buying on a trading platform to limit potential losses.

Step 6: Ensure Secure Storage

To safely store digital currencies, it's essential to have a "wallet". This virtual bank unit holds the private keys (private keys) required for accessing the coins. When you own the keys, you're guaranteed ownership of the cryptocurrencies. This entails assuming the responsibility of managing your coins.

If you prefer not to handle this aspect on your own, many trading platforms offer to store your coins. Buhrs emphasizes the importance of considering the storage method to ensure maximum security. However, owning and securing your private keys is preferred for those who want to maintain sovereignty.

"Investing in cryptocurrencies is not a task for the faint-hearted" is the general consensus. Things can change significantly, rapidly - a good reason to stay abreast of market trends and possess a solid understanding of cryptocurrencies. Diversifying and managing your portfolio by continuously evaluating your digital assets might increase your chances of weathering the inevitable highs and lows. Not only should you research, but you should also seek expert advice. Finally, remain prudent when it comes to investing - independent critical thinking is crucial. It's crucial to understand and analyze the futures of various currencies, the potential of technological advancements, and societal changes that might affect the future of cryptocurrencies.

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There are different versions for securing your cryptocurrency, with the most popular being hardware wallets and paper wallets. A "hard wallet" is an example of a USB stick that stores your keys. For "paper wallets," investors write down their access on a piece of paper. "I'd go for a hardware wallet, which has a proven track record," Emden suggests. However, everyone has their own preference, and there's no right or wrong option. The key is to keep your private keys secure. [Translated with www.DeepL.com/Translator (free version)]