Most of us actively invest in cryptocurrency but where do we really stand ten years after Bitcoin’s creation?
It’s clear that the crypto market has gained a considerable amount of momentum over the past decade. But surprisingly, people are still skeptical about its intrinsic value.
Well, in a way, that’s easy to understand. Unlike a dollar bill or a piece of gold, cryptocurrency isn’t tangible and can’t be physically held in your hand.
Moreover, there is still a shroud of mystery surrounding the digital currency and blockchain technology. Additionally, there is a great deal of uncertainty about where the market will go in the coming years.
With this sentiment, as well as the fact that crypto wears the Cloak of Invisibility, makes it harder for people to trust. So for many, the concept of crypto trading is too sophisticated to handle.
But it doesn’t have to be this way. You see, whether you invest in crypto, Stocks or even Index Funds, you always need to be aware of what you are getting into. And, as with everything, there are certain things you can do to maximize the potential of your investment.
Here are a few rules that you should be aware of before you invest in cryptocurrency. Learning the tips and tricks to the trade can help you decide if this is the best route for you.
1. Cautious is the new trend
While investing in crypto may seem scary to some, others are excited about the entire affair. Some early investors managed to predict the impact of crypto and became multi-millionaires.
But even so, it takes time and effort to understand how this all works. So I’d like to begin with a word of caution. Investing in cryptocurrency is a risky business, and you never know what tomorrow will bring.
So it’s not common for newcomers to take a quick dip in the crypto pool and dry out completely before trying it again.
For instance, one investor narrated his experience. An early investment in Bitcoin generated a small profit of $1000. He was content with the amount and was afraid that another Bitcoin bubble might soon burst.
Unwilling to speculate about its future price, he quickly called it a day and cashed out. He felt better knowing that the $1000 was in the bank than as crypto.
So it’s okay to be careful. And I, for one, agree with the less-is-more school of thought.
2. You’ve got to be patient
The good thing about crypto is that many people understand the importance of getting a long-term view. And that’s how they make a substantial profit. As such, those who invest in cryptocurrency need to develop a great deal of patience.
Though the price of crypto is known to be volatile, that’s not always true. It can take months before you see some return on your investment. And, in the crypto world, months seem more like years.
3. Invest only what’s yours
It is always good to be sensible. So the best tip I’ve learned is to start small. It’s safer to test the waters before diving headfirst into the deep end.
Whatever you do, do not invest more than you can afford to lose. Also, it goes without saying that you should never take out a loan to buy cryptocurrency.
4. No, you’re not too late
If you think that it’s too late to invest in cryptocurrency, think again. Investing in the top ten is still a relatively safe bet. Except for new currencies, it’s important to realize that the crypto-space is coming out with exciting new products. So, what may seem unnecessary or confusing right now could fuel the changing economy.
So, when it comes to background noise, learn to ignore it.
5. Diversify your cryptos
You’ve all heard the saying, “Never place all your eggs in one basket.” The same is true for your investments. While it’s against common sense to place all your savings into crypto, you shouldn’t put all your capital into one option either.
Distribute your investments through different coins to reduce the risks in case the price of one drop. Consider picking at least five cryptos to diversify your portfolio, but keep it under ten, so you can manage them effectively.
6. Understand the terminology
You need to understand the underlying technology behind crypto. If you have a strong base and adequate knowledge, you’ll be able to make better investment decisions. Moreover, you’ll feel more confident about the choices that you make.
A great place to start is by reading through our Blockchain Glossary. Most of the popular crypto terms are explained in a simple and digestible way.
7. Do your research
Give yourself time to understand the market. There are numerous coins out there, and each one is different. So make sure to perform thorough research. Ethereum, Ripple, and Bitcoin are among the many that have gained a great deal of value based on people’s perception of what they can do.
On the other hand, cryptocurrencies like Dogecoin (DOGE), were created purely to induce hype (without having an actual product).
So remember, if you wanna play it safe, only invest in coins with a solid foundation. These are the ones that are most likely to survive.
While other coins may seem attractive and offer a quicker and higher return on investment (ROI), they might end up doing the complete opposite. Often, newer altcoins are prone to disappear or won’t survive in case of a long bear market.
8. Select the right platform
Choosing the right cryptocurrency exchange is almost as important as the cryptocurrency you buy. This is where you will be able to exchange your coins for other digital assets.
Each exchange offers different features, trading pairs, and payment options.
While established exchanges offer fewer features, they are usually associated with a greater level of security. But keeping an eye out for newer exchanges can help you find better rates or exclusive offers.
For example, Paybis is a popular, fast-growing cryptocurrency exchange that offers numerous payment options, some of which can’t be found elsewhere.
9. Be vigilant
Investing in crypto means staying active. You need to watch and learn. Therefore, keep the appropriate tools handy to get current updates about the crypto market.
Aside from that, you’ll need to build confidence and emotional intelligence. That’s how you’ll get better at decision making.
10. Keep track of the fees
You can’t afford to ignore this one. Take into account all the little expenses. Once you start trading, these numbers will add up pretty quickly. To keep a better overview, try to keep track of all your trades on an Excel sheet.
You may soon realize that a lot of small trades won’t offer great profits, especially when taking all the fees into consideration. It may be that the profits simply cover your costs.
11. Reach out to community members
It’s a good idea to learn from the experiences of others. And since the crypto industry is relatively new, there isn’t a lot of history to learn from. So, gaining thoughtful insights from trustworthy people is an ideal way to begin.
However, this could also act as a double-edged knife. A brand new industry will still need to undergo a maturity phase before individuals can start calling themselves experts. This, however, doesn’t mean their advice can’t be helpful.
Learning from those who have more expertise in crypto will give you a heads up on upcoming opportunities, potential pitfalls or scammers.
12. Analyze the capitalization
Don’t invest in a coin simply because it’s cheaper than the rest. It’s smarter to focus on the margin of the progress for any cryptocurrency.
Begin by understanding market capitalization, an indicator that ranks a cryptocurrency based on its total value. Market cap(1) can be calculated by multiplying the price of a coin with its circulating supply.
On the other hand, circulating supply(2) is the number of coins that are circulating in the market and the general public’s hands.
So the tip to keep in mind is, the more coins there are, the less valuable they are. And any currency with a high market cap (relative to its coins) has more upside potential than a coin with a low market cap.
13. Track, evaluate, and analyze
When you choose to invest in cryptocurrency, you cannot directly buy something and then forget about it. You need to invest time alongside the money. So study the metrics that come with the trade.
Regularly track and record how your investments are performing. Analyze reports to acquire meaningful information about the statistics.
For first-timers, it may not be an easy task. But there are plenty of tools that are simplifying the process. With the help of apps such as Blockfolio, you’ll get detailed pricing, market data, news, direct updates, and much more to jumpstart your journey on becoming a successful investor.
In time, you will become less emotionally attached to your investments and develop an understanding of when to let go. For that reason, analyze the facts based on logic and not your emotions.
14. Identify your risks
The crypto market is a volatile, over-hyped arena. The rate can fluctuate drastically. So never invest if you are not confident or comfortable with your investment choices.
Furthermore, if you can’t take the pressure of losing, then this may not be the place for you.
15. Utilize the best safety practices
On a more critical note, fraud and hacking are prominent concerns in the crypto arena. Yes, blockchain is a secure medium, but you will also have to take a few measures to ensure the security of your digital assets.
To do this, enable 2FA (two-factor authentication) on every sensitive website. It’s a simple way to reinforce the security measures for your crypto. Most exchanges and wallets offer 2FA options.
Every time you log into an exchange or wallet, you will be required to enter the username, password, and the passcode. Because the passcode changes every 30 seconds, hacking into your account is going to become an impossible task.
16. Transfer your coins to a personal wallet
One of the most common mistakes of new investors is to leave their coins on a cryptocurrency exchange. By doing this, you are entrusting the exchange with the security of your assets.
It’s much safer to keep your coins in a hardware wallet. This way, your coins will be stored in a cold wallet with many additional layers of security.
Wanna keep your funds even safer? Follow these practises:
- Avoid using public Wifi
- Avoid using unsecured software/extensions
- Avoid sharing your keys with anyone
- Use strong passwords
- Avoid using your daily email address in the crypto space. Create a separate one specifically for crypto purposes.
- Stick to well-known exchanges. Avoid unexpected high return offerings.
17. Select a plan of action
There are many ways to earn money when you invest in cryptocurrency. You need to plan how you want to utilize your funds. Even with a great deal of knowledge, predicting the right selling time or target $$ amount is tough. But if you have an aim and target in mind, selecting a course of action is easier.
Here are a few methods that are quite popular when it comes to investing in cryptocurrencies:
- Buy and hold. Then wait for the price of your coin to go up so you can sell at a rate higher than when you bought it.
- Buy and hold for dividends. PoS (Proof of Stake) cryptocurrencies reward customers for holding onto them. This keeps the coins in circulation.
- Crypto mining. It’s a passive way of making money. Invest in the equipment. As the computer solves complex mathematical problems, you earn coins. You don’t necessarily invest in cryptocurrency but rather in the equipment that will help you create new coins.
- Day trading. This is not recommended for beginners. It involves tracking and analyzing financial trading charts every day. And since the crypto market never sleeps, monitoring the best time for a trade can be tricky.
- Currency and exchange arbitrage. The price of all cryptocurrencies is always changing. But they vary from one exchange to the next. Tracking these differences is one way of making a profit. Buy low from one exchange and sell at a higher price on another.
18. Enter into a liquid market
The whole point of investing in cryptocurrency is the ability to transfer your earnings into real money or other assets. That way, when the need arises, you can make the journey from the digital world to the physical one.
So when you need to buy a car or a house, you can continue to do so either through crypto or convert your assets to fiat currency.
19. Become aware of tax implications
So now you know the ropes when it comes to investing in the crypto market. But if you want to make the entire process a smooth experience, you need to become aware of the taxing regulations in your specific location.
Many are under the impression that they only need to pay taxes when they earn a profit. However, in some cases, you will need to pay taxes for each and every trade you make.
20. There will be turbulence
Last but not least, be prepared for a roller coaster ride. With the fluctuating prices of crypto, it’s hard to predict when you can get the highest returns. So gear up with the perfect mix of expertise, skills, and knowledge.
But at the same time, be ready to take calculated risks. More importantly, when you invest in cryptocurrency, make sure you remain calm and patient at all times. Be wary of fake, manipulative news. And don’t get goaded into the FOMO (fear of missing out) syndrome.
The best way to make an educated investment is to be attentive to the market dynamics. It doesn’t hurt to watch trendsetters like Bitcoin. It’ll give a pretty good idea of how other altcoins are faring in comparison.
Let’s recap (in short) the points you need to remember when you invest in cryptocurrency:
- Be cautious at all times
- Develop patience
- Invest only what’s yours
- Do your own research
- Understand you are still early
- Learn the correct terminology
- Select the right platform
- Be vigilant
- Keep track of the fees
- Reach out to community members
- Analyze market capitalization
- Identify your risks and costs
- Be ready to HODL
- Store your funds in a hardware wallet
- Set a goal and stick to it
- Become aware of tax implications
- Develop emotional intelligence
Explore all your options and become a confident, successful crypto investor. Ready to enter the crypto arena? Then invest in cryptocurrency through Paybis.
Evie Harrison is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and expresses herself through her blogs. Find her on Twitter:@iamevieharrison