Step-by-Step Guide to Investing in Cryptocurrency from India

Cryptocurrency is a virtual asset with cryptography security that makes it nearly impossible for scammers to counterfeit. It operates on decentralized networks using blockchain technology. The idea of cryptocurrency began decades earlier. 

In 1983, David Chaum published a paper laying the groundwork for future developments in the blockchain space. In the 1990s, through his company DigiCash, he released a digital currency called eCash. Although eCash ran out of funds by 1998, it spurred further development in the blockchain space. Today, there are over 25,000 cryptocurrencies in the marketplace. 

In recent years, many have preferred crypto as their foremost investment choice. This article will assist if you also wish to invest in cryptocurrency but don’t know how to begin.

Step Involved in Crypto Investment

You can start your crypto investment journey by adhering to the following steps:

Step 1: Choose Exchange

A safe investment starts with choosing a reliable exchange after considering the following parameters.

• Security: Opt for exchanges with strong security protocols like two-factor authentication, withdrawal whitelists, and cold storage.

• Reputation: Research the exchange’s history, read user reviews, and check if it has been involved in security breaches.

• Trading Fees: Every exchange charges a fee for trading. Some may have low fees but make up for it in other areas, such as withdrawal fees. Always understand the fee structure before you start trading.

• Available Cryptocurrencies: Depending on your trading strategy, you may trade altcoins or stick to mainstream cryptocurrencies. Ensure the exchange offers all the cryptocurrencies you wish to invest in.
  
  Mudrex is the best cryptocurrency exchange platform that simplifies investing and trading cryptocurrencies with its intuitive UI, extensive crypto insights and strong customer support.  As one of the first FIU-registered crypto exchanges in India, Mudrex prioritizes regulatory compliance and security for all its users.

Step 2: Choose Your Wallet Type

You can decide between two main types of wallets: Hot and Cold.

• Hot Wallets: These are digital wallets that are connected to the internet. They provide quick access to your crypto assets and are convenient for trading and transacting on the go. Examples include online wallets, mobile wallets, and desktop wallets. However, they are vulnerable to online threats and hacks.

• Cold Wallets: These offline wallets offer additional security because they are not connected to the internet. They are ideal for storing large amounts of crypto assets for a long period. Examples include hardware wallets and paper wallets. They are less convenient for frequent trading or transactions.

If you are somebody who is just starting your crypto journey, it is recommended that you start with a hot wallet or a Centrna

Step 3: Choose Virtual Currency

Single out on the cryptocurrency you want to invest in. Since the list of virtual currencies available for trade on various platforms is exhaustive, here are the two main categories:

Mainstream Cryptocurrencies

The most prominent mainstream cryptocurrency is Bitcoin (BTC), the first and most well-known digital currency. Another mainstream cryptocurrency is Ethereum (ETH), which is not just a digital currency but also a blockchain platform for developing decentralised applications.

Altcoins

Alternative Coins (Altcoins) include all digital currencies other than Bitcoin. Some consider altcoins to be all cryptocurrencies other than Bitcoin and Ethereum. Altcoins attempt to improve upon or differentiate themselves from Bitcoin by offering additional or new capabilities.

There are several types of altcoins, including:

• Stablecoins: These are tied to a stable asset, such as gold or a fiat currency, to reduce volatility. Tether (USDT) is a well-known example.
• Utility Tokens: These tokens provide digital access to an application or service. BNB (Binance Coin) is a popular utility token.
• Platform Tokens: These blockchain systems support building smart contracts and decentralised applications. Solana (SOL) and Ethereum (ETH) are common examples.

In India, popular cryptocurrencies for trading include Bitcoin (BTC), Ethereum (ETH), and altcoins like Tether (USDT), Ripple (XRP), and Litecoin (LTC). The choice of cryptocurrency for trading often depends on factors like liquidity, volatility, and the trader’s risk tolerance.

Step 4: Complete the KYC Process

Know Your Customer (KYC) ensures account security and regulatory compliance. The process involves submitting identification documents and linking your phone number and email. You can submit a valid government-issued ID card. This could be your Aadhaar Card, Passport, or Voter ID Card. Please note your Driver’s License is not an acceptable KYC document.

Despite unregulated cryptocurrencies in India, reputed exchanges diligently follow KYC norms to prevent illicit activities. This helps guard against attempts to route illegal money through crypto investments.

Step 5: Deposit Funds

Consider the following steps to make a deposit for buying a cryptocurrency.

• Set an Account: Sign up on the preferred platform by entering the required information. Ensure you set a strong password and enable two-factor authentication for added security.
• Navigate to the Deposit Section: Once your account is verified through the KYC process, select the ‘Funds’ or ‘Wallet’ section and select ‘Deposit.’
• Select Deposit Method: Cryptocurrency exchanges typically offer various deposit methods, including bank transfer, credit/debit card, and even other cryptocurrencies. Choose the one that suits you best. Note that each method may have different transaction fees and processing times.
• Enter Deposit Amount: Choose the amount you prefer to deposit and enter it. Given the volatility of cryptocurrencies, begin with an amount you can afford to lose.
• Confirm the Transaction: Check all the provided details, then confirm the transaction. The funds should appear in your account after processing the transaction, which can vary depending on the deposit method.

Step 6: Monitoring your Investment

Keep track of your investment by factoring in the following tips:

• Set Clear Investment Goals: Identify your desired outcomes from investing in cryptocurrencies. This could be long-term growth, short-term gains, or both.
• Use Reliable Tracking Tools: Numerous crypto tracking tools are available. These provide real-time data on prices, market caps, volumes, and more.
• Monitor Market Trends: Track global economic events, regulatory news, technological advancements, and sentiment analysis.
• Track Individual Performance: Monitor the performance of each crypto asset in your portfolio. Look at price changes, trading volumes, and news about each coin.
• Assess Portfolio Balance: Regularly review your portfolio to ensure it aligns with your investment goals. You may need to rebalance your portfolio by buying or selling certain assets.

Different Ways to invest in cryptocurrency

• Buying Crypto Directly: Here, you purchase cryptocurrencies like Bitcoin, Ethereum, or others directly from a crypto exchange. The benefit of this approach is that you own the actual crypto asset, allowing you to benefit directly from any price increases. However, it also means you bear the entire risk if the price decreases.

• Crypto-Related ETFs: These financial products traded on a stock exchange track the movement of a specific cryptocurrency or a basket of cryptocurrencies. ETFs allow you to gain exposure to crypto price movements without owning the underlying asset. This can be less risky, but it also means you don’t have the same level of control.

• Crypto Stocks: These are stocks of companies involved in the crypto industry. For example, a company might be a crypto exchange, mining company, or blockchain technology provider. Investing in crypto stocks benefits you from industry growth without directly owning crypto. However, stock performance can be influenced by factors beyond crypto prices, such as overall company performance.

• Mining or Staking: This involves using computer hardware to validate transactions on a crypto network and add them to the blockchain. In return, you receive a reward in the form of new crypto tokens. This can be a profitable way to acquire crypto but requires a significant investment in computer hardware and electricity.

• Initial Coin Offerings (ICOs): This occurs when a new crypto token is launched and sold to investors for the first time. Investing in ICOs offers early access to new projects but is risky due to high failure rates.

• Yield Farming involves lending your crypto or providing liquidity to decentralised exchanges in return for interest or fees. It offers passive income potential but involves risks such as borrowers’ default.

• Airdrops: This is when a crypto project distributes free tokens to existing crypto holders. However, the future value of such crypto may be uncertain.

Tips for Managing Risk while investing in cryptocurrency

• Avoiding FOMO (Fear Of Missing Out): FOMO can lead to impulsive investment decisions, such as buying a cryptocurrency at its peak price, because you fear missing out on potential gains. In order to avoid FOMO, it is important to stick to your investment plan and make decisions based on research and analysis, not emotions.

• Setting Stop Losses: It is an order to sell a security when it touches a specific price. By setting stop losses, you can limit your losses if the worth of a cryptocurrency drops significantly. For example, if you bought Bitcoin at $10,000, you might set a stop loss at $9,000 to limit your potential loss to 10%.

• Position Sizing: It involves determining the amount of money to invest in a particular asset based on its risk level. For instance, you might invest a smaller percentage of your portfolio in high-risk cryptocurrencies and a larger percentage in lower-risk ones. This strategy can help limit potential losses from high-risk investments.

Conclusion

Investing in cryptocurrency in India can be both exciting and challenging. The process starts with choosing a reliable exchange, selecting the right wallet, and completing the KYC process diligently. Next, you need to deposit funds carefully and monitor your investments regularly. When you invest in cryptocurrency, manage your risks by setting stop losses and practising proper position sizing. 

To begin your crypto investment today, visit Mudrex.

Frequently Asked Questions

Q. How can I minimise risks when investing in cryptocurrency?

Reduce risks by researching each cryptocurrency’s fundamentals. Diversify investments across different types and use secure exchanges. Only invest within your means, stay informed about market trends, and use stop-loss orders to handle potential losses. Be cautious of market volatility.

Q. What is staking in cryptocurrency?

Staking in crypto requires holding coins in a wallet to aid blockchain network functions. In return, stakers earn rewards like interest for validating transactions and keeping the network’s security and integrity. Staking helps decentralise and secure blockchain networks while participants earn incentives for their contributions.

Q. What parameters should I consider before investing in a cryptocurrency?

Before investing, consider the project’s technology and purpose, its team’s expertise, and its potential for real-world adoption. Evaluate the cryptocurrency’s market demand, liquidity, and volatility. Understand the regulatory risks and security measures of the exchanges you use. Lastly, assess your own risk tolerance, investment goals, and the overall economic and market conditions.