Cryptocurrencies are investible assets that allow traders to buy, sell and spend. However, while they share plenty in common with conventional fiat currencies, they have unique characteristics that every beginner investor should understand. 

What Are Cryptocurrencies and How Do They Work? 

The first thing every potential investor should understand is that cryptocurrencies have no inherent value of their own. Instead, they’re digital representations of value, which is determined by supply and demand. With buying pressure, the value of a given coin goes up, while a sell-off reduces the price, much like the regular stock market. 

Transactions take place on blockchains or other distributed technology. Rather than a central issuing bank or regulator, transfers occur between individuals and are recorded on a publicly viewable ledger. 

How Many Cryptocurrencies Are There? 

New investors are often surprised by the sheer number of cryptocurrencies available – over 5,000 at the time of writing. Bitcoin dominates the mainstream and is unquestionably the market leader, closely followed by Ethereum. Tether, Cardano, and Binance Coin round off the top five, and, between them, they’re responsible for over 80% of cryptocurrency’s overall market value. 

Choosing Which Cryptocurrency to Buy 

When investing, a key consideration is deciding whether the established names will continue their growth or if a minor player will break out and see similar gains. A single Bitcoin is expensive for many beginner investors, who could potentially get thousands of XRP for the same value. It’s like deciding between investing in IBM or a penny stock, but with higher volatility and more ambiguous valuations. 

Like any investment, they can go down as well as up. Crypto may not have been around for long, but there has been plenty of time for coins to come and go. Referred to as ‘dead’ coins, those no longer with us usually fail due to a lack of volume or through association with dishonest trading practices. 

There are no quarterly earnings reports and no investor conference calls. However, what most reputable cryptocurrencies do have is plenty of reading material. Whitepapers and other documentation outline the goals of the founder(s) and the impact they hope to have as a new currency alternative. As the old saying goes, past results don’t necessarily inform future performance, so reading up on what might drive future price growth is often the best option. 

Buying and Selling Cryptocurrencies 

Relatively few cryptocurrencies can be spent conventionally. However, Bitcoin is the closest to emulating fiat currencies following a brief period of Tesla acceptance and its adoption as legal tender in El Salvador. 

In most cases, investors will use a cryptocurrency exchange. These exchanges enable investors to fund their accounts using regular currencies, such as through debit card deposits or wire transfers and convert them into cryptocurrencies of their choice. In many cases, members can use one cryptocurrency to purchase another. 

Some platforms that are more conventionally associated with stocks and shares also provide cryptocurrency services, although relatively few enable traders to transfer or withdraw their coins. 

Storing Your Assets 

Cryptocurrencies reside in digital wallets. Virtually every reputable exchange also provides wallet services, such as through apps or browser extensions. These storage solutions are often offered separately from the primary exchange account for security purposes. Anything with a direct internet connection, like an app wallet, is considered a “hot” storage medium. They’re best for people that want quick and easy access to their cryptocurrency for spending or trading. 

While the currencies themselves are digital, they can also be stored on physical wallets. Paris-based Ledger ranks among the biggest hardware wallet producers and specializes in “cold” wallets. This means they’re not connected to the internet and make your assets immune to remote hacking attempts. 

As a beginner investor, an online wallet represents an appropriate entry point to the world of cryptocurrency. However, as your assets grow, it may be worth considering more secure, ringfenced solutions. Ultimately, you’ll often keep a small amount of cryptocurrency in a “hot” wallet for easy access and anything you have earmarked for long-term growth in a “cold” wallet. 

What to Expect as a Cryptocurrency Owner 

If you’re familiar with the traditional stock market, you’ll notice several similarities between share ownership and holding crypto coins. However, there are vast differences too, and beginner traders must be aware of them. 

The most striking observation will be volatility. Sales figures and cash on hand don’t drive crypto assets. As well as supply and demand, they’re also powered by speculation. Elon Musk’s tweets are often a catalyst for sharp rises and falls in Bitcoin’s value. They’re also relatively illiquid compared to stocks and shares. This can lead to same-day peaks and troughs that reach well into double figures. 

Another critical difference compared to the stock market is that cryptocurrency trading never closes. Thus, while conventional markets are driven by stock exchange opening and closing bells, together with out-of-hours trading periods, crypto trading is available 24/7. 

The other primary consideration involves regulation. Part of the appeal for some investors is the lack of oversight and ties to official channels. However, as might be expected, regulators aren’t overly thrilled at being bypassed. El Salvador’s aforementioned adoption as legal tender had minimal price impact, pushing Bitcoin down if anything. However, China’s Bitcoin struggles tend to move the needle. 

Nobody could have foreseen that Bitcoin would rise from $100 in 2013 to a 2021 peak of over $60,000. Nor could they tell that the same coin would fall back to $35,000 later the same year. It’s a rollercoaster investment vehicle, and that goes not only for Bitcoin but cryptocurrencies in general. 

Consider it a high risk, high reward investment strategy, and there’s certainly potential for incredible growth. 

Wrapping Up 

Cryptocurrency trading is easier now than ever before, making it a viable option for beginners and experienced traders alike. As with any investment, it’s essential to be aware that prices can fluctuate heavily compared to traditional investments. There are still plenty of unknowns in the world of crypto, and it rarely represents an all-in strategy. However, it’s an opportunity for diversification, and there could yet be vast rewards for getting in early. 

As with any investment, it is vital to do your own research and make your own decisions, and seek professional advice where necessary.  

The concept of investing has become more democratized than at any point in history. Like most significant advancements of this millennium, the internet plays an important part. Information sharing is at an all-time high, and people are no longer reliant on the same talking heads for investment advice day in and day out. 

Without the internet, we’d still have paper share certificates. We’d still rely on adrenaline-fuelled phone calls to brokers and traders. In essence, Wall Street and markets worldwide would still be as inaccessible to the everyday retail investor as they had been for decades before. 

New trading opportunities pushed for change. It’s no longer all about old money and massive institutions. Brands like Robin Hood and eToro have made investing mainstream. With a few taps and under $100 in starting capital, anyone can get in on the market. That’s precisely what they’re doing, and they’re doing so in their droves. 

So what of Bitcoin? 

Naturally, the rise of the world’s premier cryptocurrency would also have been impossible without the internet. Likewise, Crypto as a concept wouldn’t exist without global connectivity. 

It’s also the rags to riches tale that can inspire entire generations of investors. Had you bought a solitary Bitcoin on July 22, 2013, you’d have paid slightly less than $100 for the privilege. Sell that same Bitcoin on April 14, 2021, and you gleefully receive in excess of $63,000. 

In most years since 2013, Bitcoin has outperformed every other asset class. 

It also bears all the hallmarks of something that catches the attention of millennials and Gen Z. While somewhat harsh and impossible to apply to every one of these generations, they’re assumed to seek instant gratification. They’re also happy to take more significant risks for heightened rewards. More politely, they’re the generations that grew up with the internet, and they’re known for financial shrewdness. 

Something like Bitcoin, and the ecosystem surrounding it, check every box. Buying and selling are as simple as opening an app. Bitcoin has no intrinsic value. Instead, it’s priced based on buying and selling pressure, together with a healthy dose of speculation. 

Single tweets can cause swings of multiple percentage points, as can attempted regulatory intervention. 

It’s also as close as we currently have to “internet money,” and the results speak for themselves. 

The economy has changed alongside the rise of the internet. 71% of millennials worry they’ll never get on the property ladder. Rents have risen faster than income in virtually every state since 2001. 

The idea of turning $100 into $60,000 in eight years is bound to appeal to the technically literate, economically stunted generations. 

The Great Wealth Transfer 

If Bitcoin truly represents the most significant wealth transfer in history, it won’t necessarily be between the wealthy elite and the less well-off. Major institutional investors like BlackRock may have taken their time to come to terms with the viability of cryptocurrency. However, they’re now very much involved via long positions in Bitcoin and other major cryptocurrencies. As values rise, so do their assets. 

Instead, the transfer, should it happen, is much simpler. It takes place between the old and the young. Bitcoin has already made plenty of young millionaires. Should the cryptocurrency continue to reach new heights, it will undoubtedly make many more. 

Eventually, those millionaires cash out and start spending their newfound wealth. They buy homes and cars. They join the one percent and spend accordingly. Slowly but surely, they contribute to inflation. However, they do so slowly enough that it’s impossible to notice. 

That’s not all. Two generations of tech-savvy risk-takers are backing cryptocurrency at a time where more mature investors are often uninformed. They remain happy with traditional currencies and consider cryptocurrencies a bubble waiting to burst at best and a Ponzi scheme at worst. They might yet be right – only time will tell. 

One prominent commentator is bullish on a single Bitcoin becoming worth at least $1 million by 2025. Rothko Research named Bitcoin the story of the next decade in 2020 while also predicting that the cryptocurrency would take several percentage points out of the gold market. 

If it comes off, cryptocurrency investments clearly suit the attitudes and investment strategies of younger generations. 

A Push for Social Mobility 

Diverse attitudes partially drive the potential for a great wealth transfer. As noted, many older investors are inherently skeptical of cryptocurrency. Younger generations do not necessarily feel that Bitcoin represents a safe bet, but they’re far more inclined to trust it than what they believe to be a corrupt Wall Street system. 

It is the older generations that control that system that represent the target of their ire. They believe the rich get richer, and money makes money. Bitcoin represents a way to escape the established protocols of becoming wealthy. An unregulated, decentralized currency clearly represents a risk, but one that people are willing to take if it means avoiding playing with a deck that’s stacked against them. 

In a world of high risk and uncertainty, there’s a surprising number of consistencies. Part of the appeal stems from the fact that some investors are unconcerned with the dollar value of one Bitcoin. Between 1971 and 2020, the dollar lost 85% of its purchasing power. 

Meanwhile, one Bitcoin is always worth one in 21 million. There cannot and will never be more than 21 million Bitcoins in circulation. They cannot be counterfeited or duplicated, and banks cannot merely print more when supplies run low. 

Demand will rise, and supply will dwindle, culminating in the predicted mining completion of 2040. Every Bitcoin that can ever exist will exist. Rarity often equals value, and if demand continues at the pace some predict, that value will reside firmly in the hands of younger retail investors. 

Could the Transfer Take Place? 

There is every chance that we may be on the cusp of the greatest wealth transfer in history. However, as with most aspects of investing, nothing is guaranteed. Bitcoin reached higher than $60,000 in April 2021. Then, it sank below $30,000 in the following July. That’s the kind of short-term volatility that can scare off so-called ‘boomer’ investors. It’s also the kind of high-risk rollercoaster on which some young investors thrive. 

Should million-dollar price targets come to fruition, we’ll witness a surge in relatively young millionaires. We may also see the most significant alteration to the entire concept of investing the world has ever seen. Tradition and heritage may be forcibly replaced by transparency and fairness. 

Bitcoin is one of several potential catalysts, but risk-averse investors that are immovably set in their ways might well be the ones to miss out.