How to invest in cryptocurrency? Guide 2023

Investing in cryptocurrency is no longer a fad of geeks. The venerable bank JP Morgan, long skeptical about cryptocurrencies, now recommends that its wealthy clients invest 1% of their wealth in cryptocurrency. This change of opinion is not trivial. Investing in cryptocurrency is becoming a serious subject. Similarly, Blackrock (largest asset manager in the world) offers its clients to invest in cryptocurrency. The cryptocurrency market has experienced rapid growth and is becoming institutionalized ,

Cryptocurrency market capitalization

On our side, we estimate that we should not exceed 5% of our wealth in cryptocurrency , because it remains a very risky and very volatile asset. In our wealth allocation , it is at the tip of the pyramid among atypical assets.

The cryptocurrency ecosystem seems to be here to stay and is intended to be the foundation for a major digital evolution . With a system governed by algorithms rather than central banks, trust in IT rather than institutions.

While inflation is racing due to the hundreds of billions of dollars created by central banks, cryptocurrencies can appear as a safe haven (“digital gold”) . In particular Bitcoin limited to 21 million copies, while central banks print tickets on demand and devalue currencies.

Since the appearance of Bitcoin in 2009 , and even if Bitcoin remains the reference cryptocurrency, the universe of cryptocurrencies has greatly expanded with the emergence of dozens of “cryptos” and ways of investing. It was high time that ADI took up this subject, always with the aim of popularization and knowledge sharing.

All this may seem abstract, but we will try to popularize the best , as usual. Beyond the technical aspect, there are many parallels between cryptos and traditional finance. Understanding the basics and applying best practices makes investing in cryptocurrency accessible to everyone. Explanations.

Thanks to our loyal reader Cédric (LinkedIn profile) for having largely contributed to this article thanks to his knowledge (Master 2 in finance) and his experience (crypto investor)! Investing in cryptocurrency is not complicated, when it is explained simply!

What is Cryptocurrency?

To understand cryptos, one must first describe the cryptocurrency ecosystem. The world of cryptocurrencies is changing at breakneck speed and it’s easy to get lost. Before placing your money there, it is essential to understand the fundamentals.

We are convinced that this ecosystem is affordable to everyone, without getting bogged down in technical terms. Its development is strongly inspired by the current digital and financial system . Thus comparisons can be made between this new technology and the world around us.

Blockchain: the economy of a country

The blockchain is the technology allowing the existence of cryptocurrencies and “tokens”. Concretely, the blockchain is a database that contains all the transactions carried out by its users . It is public, therefore accessible to all (transparency).

All blockchain users participate in validating and securing its transactions. In comparison, banks or digital giants like Facebook have control over their customers’ data. Conversely, the blockchain is intended to be decentralized because no person or entity is in charge of this database .

There are several blockchains, each with its own characteristics and a dedicated community . The Bitcoin blockchain relies on optimal security. Others like Solana’s want to offer fast transactions with very little cost.

Cryptocurrency universe

There are around a hundred blockchains and cryptocurrencies. A selection is necessary because many do not offer relevant technology. Moreover, the least reliable cryptocurrencies are called “shitcoins”. There are then about twenty blockchains supporting a large economy. Our diagram focuses on 4 of them: Bitcoin, Ethereum, Avalanche and Solana .

In our diagram we compare the blockchain to a country, in order to visualize its economic functioning. It is not a territory held by a government, but rather by its users, its community. To use the metaphor, the economic value of each country depends on the strength of its currency (cryptocurrencies) and the dynamism of its cities (the “tokens”).