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Cryptocurrency Investing for Dummies


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Table of 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 Chapter 4: Looking Under the Hood: 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 Chapter 13: Stocks and Exchange Traded Funds 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 Chapter 15: Dealing with the Dollar and Other Fiat 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 Picking Out Patterns on a Chart 213 Bullish reversal patterns 214 Bearish reversal patterns 214 Smoothing Charts Out with Moving Averages 215 Basic moving averages 216 Sophisticated moving averages 216 Chapter 17: Short-Term Trading Strategies 217 Distinguishing Three Short-Term Time Frames 217 Profiting within hours 218 Profiting within days 221 Profiting within weeks 222 Trying Short-Term Analysis Methods 223 Deciphering chart patterns 223 Using indicators 227 Avoiding illegal pump-and-dump stuff 228 Managing Short-Term Trading Risk 228 Chapter 18: Long-Term Investing Strategies 231 Time Is on Your Side: Getting Started with Long-Term Investing 231 Your personal goals and current situation 232 Your portfolio's objectives 233 Creating Long-Term Strategies 234 Observing psychological levels 234 Selling when you reach your goal 235 Keeping tax consequences in mind 236 Considering Limit and Stop-Loss Orders 236 Limit orders 236 Stop-loss orders 237 Chapter 19: Minimizing Losses and Maximizing Gains 239 Keeping the Losses Down 240 Measuring returns 240 Monitoring exchange fees 241 Understanding the art of getting out 242 Letting the Profits Rise 244 Buying at the bottom 244 Knowing that patience is a profitable virtue 245 Identifying the peaks 245 Finding peaks and bottoms with a few trading tools 247 Chapter 20: Using Ichimoku and Fibonacci Techniques 249 Getting a Handle on Ichimoku Kinko Hyo 249 The components of Ichimoku Kinko Hyo 250 Ichimoku interpretations 251 Introducing Fibonacci Retracement Levels 252 Some background on Fibonacci 253 How to insert Fibonacci retracement levels into your chart 253 Combining Ichimoku and Fibonacci Techniques 254 Chapter 21: Taxes and Cryptocurrencies 257 Distinguishing Three Types of Crypto Taxes 257 Income taxes 258 Long-term capital gain taxes 259 Short-term capital gain taxes 260 Minimizing Your Crypto Taxes 260 Lowering your mining income tax 260 Reducing your trading tax 261 Bringing down your capital gain taxes 261 Checking the rate of your state 262 Evaluating Taxable Income from Crypto Transactions 263 Tracking your crypto activity 263 Handling crypto forks 263 Reporting international crypto investments 264 Part 5: The Part of Tens 265 Chapter 22: Ten Considerations Before Getting Started with Cryptocurrencies 267 Don't Get Too Excited 267 Measure Your Risk Tolerance 268 Protect Your Crypto Wallet 268 Find the Best Crypto Exchange/Broker for You 268 Determine Whether You Should Invest Short Term or Long Term 269 Start Small 269 Follow the Cause 270 Mull Over Mining 270 Look into Investing in Other Assets First 270 Get a Support Group 271 Chapter 23: Ten Possible Moves When Your Crypto Portfolio Is Down 273 Do Nothing 273 Reevaluate Your Risk Tolerance 274 Look at the Big Picture 274 Research the Fundamental Reasons the Crypto Is Down 275 Consider Hedging 275 Diversify within Crypto Assets 276 Diversify across Other Financial Assets 276 Exchange with a Better Crypto 276 Think about Adding to Your Current Position 277 Contemplate Cutting Losses 277 Chapter 24: Ten Challenges and Opportunities for Crypto Investors 279 New Cryptos on the Block 279 Finding Economic Data 280 Regulations 281 Hackers 281 Bubbles 281 A Down Market 282 New Currencies and Projects 282 Diversification 283 Falling in Love with a Crypto 283 Using Invest Diva Diamond Analysis 284 Part 6: Appendixes 285 Appendix A: Resources for Cryptocurrency Investors 287 Appendix B: Resources for Personal Portfolio Management 303 Index 309

About the Author

Kiana Danial is the CEO of Invest Diva as well as an internationally recognized personal investing and wealth management expert. She delivers workshops and seminars to corporations, universities, and investment groups, and has been featured in Forbes and on CNN. She was named the 2018 Personal Investment Expert of the Year by Wealth & Finance International.

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