Cryptocurrency Investing for Dummies

317 Pages·2019·11.89 MB·English

by  Kiana Danial

Cryptocurrency
Investing
by Kiana Danial
Cryptocurrency Investing For Dummies
Published by: John Wiley & Sons, Inc.
111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
© 2019 by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
Library of Congress Control Number: 2019930733
ISBN 978-1-119-53303-0 (pbk);
ISBN 978-1-119-53305-4 (ebk);
ISBN 978-1-119-53307-8 (ebk)
Manufactured in the United States of America
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 .........................33
CHAPTER 4: Looking Under the Hood: Blockchain Technology ..................49
CHAPTER 5: How Cryptocurrencies Work .....................................63
Part 2: The Fundamentals of Investing in Cryptos ..........75
CHAPTER 6: Cryptocurrency Exchanges and Brokers ...........................77
CHAPTER 7: Using Cryptocurrency Wallets ....................................95
CHAPTER 8: Different Types of Cryptocurrencies .............................109
CHAPTER 9: Identifying Top Performing Cryptocurrencies .....................125
CHAPTER 10: Diversification in Cryptocurrencies ..............................137
Part 3: Alternatives to Cryptos ................................149
CHAPTER 11: Getting Ahead of the Crowd: Investing in ICOs ....................151
CHAPTER 12: Cryptocurrency Mining ........................................163
CHAPTER 13: Stocks and Exchange Traded Funds with
Cryptocurrency Exposure ......................................173
CHAPTER 14: Cryptocurrency Futures and Options ............................183
CHAPTER 15: Dealing with the Dollar and Other Fiat Currencies .................191
Part 4: Essential Crypto Strategies and Tactics .............203
CHAPTER 16: Using Technical Analysis .......................................205
CHAPTER 17: Short-Term Trading Strategies ..................................217
CHAPTER 18: Long-Term Investing Strategies .................................231
CHAPTER 19: Minimizing Losses and Maximizing Gains ........................239
CHAPTER 20: Using Ichimoku and Fibonacci Techniques .......................249
CHAPTER 21: Taxes and Cryptocurrencies ....................................257
Part 5: The Part of Tens .........................................265
CHAPTER 22: Ten Considerations Before Getting Started
with Cryptocurrencies ........................................267
CHAPTER 23: Ten Possible Moves When Your Crypto Portfolio Is Down ..........273
CHAPTER 24: Ten Challenges and Opportunities for Crypto Investors ............279
Part 6: Appendixes ..............................................285
APPENDIX A: Resources for Cryptocurrency Investors .........................287
APPENDIX B: Resources for Personal Portfolio Management ...................303
Index ...............................................................309
Contents
INTRODUCTION ...................................................1
About This Book ...............................................2
Foolish Assumptions ...........................................2
Icons Used in This Book ........................................3
Beyond the Book ..............................................3
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 ................................................12
Communities .............................................13
Making a Plan Before You Jump In ..............................14
Select your cryptos ........................................14
Analyze, invest, and profit ..................................15
CHAPTER 2: Why Invest in Cryptocurrencies? .....................17
Diversifying from Traditional Investments .......................18
Stocks ...................................................18
Bonds ...................................................20
Forex ....................................................21
Precious metals ...........................................23
Gaining Capital Appreciation ...................................25
Historical returns ..........................................25
Huge growth potential .....................................27
Increasing Income Potential ...................................28
A bit about traditional dividends .............................28
The basics on crypto dividends ..............................28
Fueling Ideological Empowerment ..............................29
The economy of the future .................................29
Freedom from government control of currency ................30
Help for the unbanked and underbanked .....................31
CHAPTER 3: Recognizing the Risks of Cryptocurrencies .........33
Reviewing Cryptocurrency Returns ..............................34
Capital gains (or losses) ....................................34
Income ..................................................34
Risk: Flipping the Other Side of the Coin .........................35
Glimpsing Cryptocurrencies’ Reward versus Risk ..................36
Digging into Different Kinds of Risk .............................37
Crypto hype risk ...........................................37
Security risk ..............................................38
Volatility risk ..............................................40
Liquidity risk ..............................................41
Vanishing risk .............................................41
Regulation risk ............................................42
Tax risk ..................................................43
Exploring Risk Management Methods ...........................43
Build your emergency fund first .............................45
Be patient ................................................45
Diversify outside and inside your cryptocurrency portfolio ......47
Looking Under the Hood: 
CHAPTER 4:
Blockchain Technology .................................49
Breaking Down Blockchain Technology Basics ....................50
What is a blockchain, and how does it work? ..................50
How does a blockchain secure itself? .........................52
Why is blockchain revolutionary? ............................53
Perusing Problems with Blockchain .............................55
Scalability problems .......................................56
Environmental problems ...................................57
Fraud problems ...........................................57
Political problems .........................................58
What Can Blockchain Be Used for? ..............................58
Payments ................................................58
Voting ...................................................59
Supply chain monitoring ...................................59
Identity verification ........................................59
Legal ownership of stuff ....................................60
Healthcare ...............................................60
Entertainment ............................................60
Energy ...................................................61
Internet of Things (IoT) .....................................61
CHAPTER 5: How Cryptocurrencies Work ..........................63
Explaining Basic Terms in the Cryptocurrency Process .............63
Cryptography .............................................65
Nodes ...................................................66
Mining ...................................................66
Proof-of-work .............................................67
Proof-of-stake ............................................67
Proof-of-importance .......................................68
Transactions: Putting it all together ..........................68
Cruising through Other Important Crypto Concepts ...............69
Adaptive scaling ...........................................69
Decentralization ...........................................69
Harvesting ................................................69
Open source ..............................................70
Public ledger ..............................................70
Smart contracts ...........................................70
Stick a Fork in It: Digging into Cryptocurrency Forks ...............71
What is a fork, and why do forks happen? .....................71
Hard forks and soft forks ...................................72
Free money on forks .......................................73
PART 2: THE FUNDAMENTALS OF
INVESTING IN CRYPTOS .........................................75
CHAPTER 6: Cryptocurrency Exchanges and Brokers ............77
Distinguishing Crypto Exchanges ...............................78
Centralized exchanges .....................................78
Decentralized exchanges ...................................81
Hybrid exchanges .........................................83
How to choose an exchange ................................84
Considering Brokers ..........................................87
How brokers work .........................................88
The pros and cons of using a broker .........................88
How to choose a broker ....................................90
Looking at Other Methods for Buying Cryptos ....................91
Funds ....................................................91
Credit card ...............................................91
PayPal ...................................................91
Cash .....................................................92
Cryptocurrency ATMs ......................................93
CHAPTER 7: Using Cryptocurrency Wallets .........................95
Defining Cryptocurrency Wallets ................................95
A few important terms .....................................96
How a wallet works ........................................96
Looking at Different Types of Wallets ............................98
Online wallet .............................................99
Mobile wallet .............................................99
Desktop wallet ...........................................100
Hardware wallet ..........................................101
Paper wallet .............................................101
Choosing a Crypto Wallet .....................................102
Based on security ........................................102
Based on your crypto ownership ...........................103
Based on transaction fees .................................104
Based on anonymity ......................................104
Keeping Your Wallet Secure ...................................105
Back up your wallet .......................................105
Have multiple wallets .....................................105
Add more security levels ..................................106
Update your software .....................................106
Remember where you hide it! ..............................107
CHAPTER 8: Different Types of Cryptocurrencies ................109
Celebrating Celebrity Cryptocurrencies by Market Cap ............109
Bitcoin ..................................................110
Ethereum ...............................................112
Ripple. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
Litecoin .................................................116
Other top ten major cryptos ...............................117
Top 100 major cryptos ....................................118
Cryptocurrencies by Category .................................119
Payment cryptos .........................................120
Privacy cryptos ...........................................121
Platform cryptos .........................................121
Exchange-specific cryptos .................................122
Finance/fintech cryptos ...................................123
Legal and property cryptos ................................123
CHAPTER 9: Identifying Top Performing Cryptocurrencies .....125
Introducing the Invest Diva Diamond Analysis ...................126
Using Fundamental Analysis to Pick Cryptocurrencies ............127
Go with what you know ...................................127
Choose the right categories ................................128
Check out cryptos’ websites ................................129
Choosing Cryptos with Sentimental Analysis ....................131
Key sentimental elements .................................131
Stuff to check in the news .................................134
Trying Technical Analysis to Select Cryptos ......................136
CHAPTER 10: Diversification in Cryptocurrencies .................137
Breaking Down Some Basics on Diversification ..................137
What is traditional diversification? ..........................138
How does diversification reduce risk? .......................138
Using Cryptocurrencies in Long-Term Diversification .............140
Diversifying with non-cryptocurrencies ......................141
Diversifying among cryptocurrencies ........................143
Tackling Diversification in Short-Term Trades ...................147
PART 3: ALTERNATIVES TO CRYPTOS ........................149
CHAPTER 11: Getting Ahead of the Crowd: Investing in ICOs ....151
Understanding the Basics of Initial Coin Offerings ................151
How an ICO works and how to start one .....................152
ICOs versus IPOs .........................................153
Investing in an ICO ..........................................155
Finding ICO listings .......................................155
Analyzing an ICO listing ...................................156
Outlining the ICO investment process .......................158
Holding your tokens after your purchase ....................159
So You Want to Start an ICO: Launching an ICO Yourself ..........159
Understanding the challenges ..............................160
Taking a few steps before the launch ........................160
CHAPTER 12: Cryptocurrency Mining ................................163
Understanding How Mining Works in a Nutshell .................163
Discovering What You Need to Mine ...........................165
Before you begin: The mining profitability of different cryptos ....166
Mining hardware .........................................167
Mining software ..........................................167
Mining pools .............................................168
A mining setup example ...................................169
Diving in and making sure mining is worth your time ..........170
Stocks and Exchange Traded Funds
CHAPTER 13:
with Cryptocurrency Exposure .......................173
Looking for Stocks with Exposure to Cryptos ....................174
Fundamentals ...........................................174
Market sentiment factors ..................................177
Other considerations .....................................178
Considering Cryptocurrency and Blockchain ETFs ................179
Getting an overview of blockchain ETFs ......................179
Keeping an eye on other indexes ...........................181
CHAPTER 14: Cryptocurrency Futures and Options ...............183
Focusing on the Fundamentals of Futures ......................184
Futures’ features .........................................184
Financial futures .........................................185
Introducing the Basics of Options ..............................186
Futures versus options ....................................186
Puts and calls ............................................187
Risks ....................................................187
Understanding Cryptocurrency Derivatives Trading ..............188
The advantages of crypto derivatives trading .................188
The advantages of crypto derivatives for the industry .........188
Trading resources ........................................189
Dealing with the Dollar and Other Fiat
CHAPTER 15:
Currencies ...............................................191
Considering the World’s Reserve Currency: The U.S. Dollar ........192
Focusing on factors that affect the U.S. dollar ................193
Looking at Bitcoin versus the U.S. dollar .....................194
Examining the Euro and Other Major Currencies .................196
The euro and the British pound ............................196
Safe havens: The Swiss franc and the Japanese yen ...........198
The Aussie, Kiwi, and Canadian dollars ......................198
Comparing the Forex Market and the Crypto Market .............199
The similarities ...........................................199
The differences ..........................................200
Resources for forex trading ................................200
PART 4: ESSENTIAL CRYPTO STRATEGIES
AND TACTICS .....................................................203
CHAPTER 16: Using Technical Analysis ..............................205
Beginning with the Basics of Technical Analysis ..................206
The chart art .............................................206
The time factor ...........................................209
The psychology factor: Trends ..............................210
Spotting the Key Levels .......................................210
Support levels ...........................................210
Resistance levels .........................................211
Trends and channels ......................................212
When the trend is no longer your friend .....................213