A Beginner’s Guide to Saving Cryptocurrencies: the Risks and Potential Rewards

Matt Gibson| Sep 10, 2019

General

Cryptocurrencies went mainstream in 2017 when bitcoin hit its all-time high of $20,000. According to a YouGov study conducted in November 2018, over 90 percent of Brits have heard of Bitcoin, and the interest in crypto is on the rise. 

 

Today, investing in digital assets has become commonplace among millennials. Interestingly, even institutional investors are jumping on the bitcoin bandwagon as traditional asset classes, such as stocks and bonds, have been underperforming crypto. 

 

In this article, you will discover how you can start saving in cryptocurrency and, thereby, diversify your investment portfolio to include digital assets. 

 

Why Cryptocurrencies Are Poised to Succeed

 

Digital currencies like bitcoin (BTC) and ether (ETH) have the potential to play an integral role in payments, finance, and investments in the future. 

 

The Bitcoin network provides a borderless, peer-to-peer payment system that enables anyone in the world to be their own bank while Ethereum powers decentralized financial applications that can provide financial services to anyone in the world with an Internet connection. Both these innovative new technologies are powered by their respective digital currencies, bitcoin, and ether. If the adoption of Bitcoin and Ethereum continues, their digital currencies are poised to gain value as a function of their increasing demand. 

 

Additionally, cryptocurrencies offer an alternative to fiat currencies, which are subject to inflation, government actions, and central bank policy measures. In light of the increasingly complicated geopolitical situation across the globe, storing part of one’s wealth in decentralized digital currencies - that cannot be influenced by lawmakers or central bankers - provides another selling point for cryptocurrencies. 

 

How to Start Saving Cryptocurrencies

 

One of the primary reasons why people are not investing in cryptoassets (or traditional financial products for that matter) is because they believe that they “need to have money to make money.” Fortunately, that is not the case! 

 

You can start investing with as little as a few pounds and use the power of compound interest to grow their wealth. Interestingly, Albert Einstein once referred to the principle of compounding as the most powerful force in the universe. When it comes to investing, his assertion is correct. 

 

For example, you could place £25 per month into an investment fund that generates 5% per annum for a period of ten years. While £25 may not seem like much to put aside each month, after a ten-year investment period, you would end up with almost £4,000 in portfolio value (assuming no transaction fees). If you were to increase your monthly savings to £250 per month, you would end up with close to £40,000! 

 

Save Crypto Using Vimba

 

Arguably, the best way to use the power of compound interest to grow your digital asset holdings is to use Vimba’s automated crypto savings platform. 

 

Vimba is a digital asset investment platform that enables anyone in the UK to buy, sell, and save crypto. We allow users to save in either bitcoin (BTC) or ether (ETH), which are widely considered two of the best cryptocurrencies to invest in now.

 

To save cryptocurrencies using Vimba, you first need to set up a bitcoin wallet. Then, register for an account and verify your identity. Finally, you need to set up regular bank payments for the amount you want to invest in BTC or ETH at your chosen time intervals. 

 

To encourage new users to start saving, we are currently offering the first four saving transactions free of charge. 

 

Dollar-Cost Averaging 

 

The investment strategy applied by Vimba to enable users to save crypto is called dollar-cost averaging. 

 

Dollar-cost averaging can be considered the holy grail of investing for individuals who only have a small amount of capital to start. However, that does not mean that this investment approach is not used by well-heeled digital asset investors as well.

 

Dollar-cost averaging refers to buying the same amount of an asset at regular intervals regardless of the prevailing market price at the time. The idea is to invest in an asset medium to long-term without letting the day-to-day volatility affect you. 

 

It is extremely difficult, if not impossible, to successfully time the market over the long-term. By putting the buying the same amount of an asset regardless of where it trades at the time, the challenge of market-timing is alleviated. Additionally, investors can benefit from the power of compounding over the course of their investment period. 

 

For example, if you would have invested in £25 in bitcoin (BTC) each week for the last three years, you would have ended up with a portfolio value of £17,423! 

 

While historical returns cannot predict nor guarantee future returns, they can give you an indication of how much your crypto savings could potentially be worth after several years. 

 

The Risks and (Potential) Rewards of Saving Cryptocurrencies

 

Every investment comes with risks and potential rewards. Cryptocurrencies have been labeled as high-risk due to their volatile nature but are also considered potentially highly profitable investments given their impressive historical returns. 

 

The price of bitcoin, for example, can double in a matter of weeks. However, it has also experienced a 5% to 10% price drops over the course of a day. Hence, bitcoin is better suited as a medium to long-term investment than a short-term bet, which is why investing in bitcoin using dollar-cost averaging makes so much sense. 

 

Additionally, there are security risks in holding cryptocurrencies. Unfortunately, hackers have an eye on crypto. Hence, it is vital that you use a secure digital currency wallet to “HODL” your digital assets. 

 

There is also a regulatory risk, which investors need to keep an eye on. Announcements by major global regulators have often dictated price movements for cryptoassets in the past. However, the overall regulatory picture has started to look better in recent years, and lawmakers and regulators are acknowledging the value of digital currencies and their underlying technology, the blockchain, could bring to society. 

 

Given the meteoric price rises of bitcoin and ether, investing a small amount into one or both of these two digital assets could potentially turn into a lucrative investment over time. The easiest and most convenient way to do that is using our crypto saving platform. 

 

Sign up to Vimba here to start saving crypto!