Whenever your crypto-investing friends and family members start talking about digital currency, don’t you feel pressured to let go of your reservations and just dive into investing in it?
Do you feel like you’re missing out? After all, cryptocurrency is booming, right?
Though still revolutionary, the digital asset is gaining wider and wider acceptance into mainstream markets and economies.
There are good, even great reasons why crypto is so attractive and even gaining acceptance among institutional investors. For one, whether you are a small-time retail investor or a gigantic investment brokerage, the encrypted digital currency does not discriminate.
You can also invest any time without any middleman. Yet another attraction is that trading is deregulated on a peer-to-peer network. Moreover, the crypto investment is also slowly gaining popularity as a viable hedging strategy against inflation.
But wait – do not go choosing just yet from among Bitcoin, Doge, Litecoin, and the rest of the purportedly available 6,500 available cryptos (that is, as of September 2021). First, get your bearings, take a deep breath, then check out these tips on how to make investing in cryptos worth your while.
Devise a Sound Investment Strategy
Create a solid investment strategy to help you clarify the guiding principles by which to make better investment decisions, set more realistic financial goals, and enable you to distinguish opportunities from distractions.
Are you medically insured? Are your life insurance payments up-to-date? How is your cash flow? Do you have emergency savings of at least nine months’ worth of monthly expenses?
All these questions may seem tedious, even painful, but you will need to be able answer these for yourself. Determine your overall financial health first before dipping your toes into the cryptocurrency pool.
Go for the Tried and Tested (Relatively Speaking)
Similar to being in the stock market, where your investment should ideally be a combination of blue-chip assets and potential growth stocks, your cryptocurrency portfolio should also be a good mix of crypto pioneers and newer players.
However, if you are a crypto novice, it would be safer to start your crypto investing experience with the more reliable and established cryptos such as Bitcoin and Ethereum. As you become more confident, you can start delving into the newer tokens, which may be bit players now but have great potential.
The newer cryptos are profiting from the learning curves of their older counterparts, allowing more investor-savvy features. For instance, the NEO blockchain uses Onchain technology which is regulator-friendly and more centralized, facilitating transactions with markets such as China that are increasingly becoming more regulated.
Unlike a lending investment that is more conservative and is generally considered a safer investment, cryptocurrencies are highly volatile. The performance of cryptocurrencies is harder to predict because their movements show a low correlation to traditional economic fundamentals.
Remember how Elon Musk’s casual remarks sent the crypto trading platforms tumbling down in an instant? That’s how vulnerable the crypto market is, at least for now.
Be more risk-averse by diversifying your crypto investments. Dollar-cost averaging can work for you. Regularly make small investments and spread them among several carefully selected currencies.
Lastly, make sure that you only invest what you can afford to lose.
Secure Your Assets.
Watch out for scams. Cybercrime is on the rise. The UK fraud-alert service Action Fraud relayed a 57% year-on-year increase on reports of scam incidents in 2020, equivalent to a loss of £113m. To avoid becoming a victim of such scams, check the legitimacy of any site or communication. Check for legit links to the industry.
Another way you can minimize possible losses is by initially using a custodial digital wallet, which keeps your customer keys and provides backup and security. Over time, investors have ascertained the relative reliability of certain wallet management services, so check out what the pioneers in the crypto market have to say.
If you want to hold a custodial wallet, have a password strategy, so you don’t end up losing access to your digital wallet and your hard-earned money.
Be in it for the Long Term.
Crypto is similar to a real estate investment in that you have to be able to hold on to it long enough to realize substantial gains. You need to have a strong stomach to face the constant tossing and turning of the crypto tide.
Keep your nerves in check, as well as that of your finances. Take your emotions or the opinions of your friends out of the decision equation. Because cryptos cannot be predicted based on historical performance and trade values, you need to stay informed on the goings-on in the industry.
Check for the reliability of so-called technical and niche experts to make sure they have been around long enough to give sound trading advice.
While you’re in for the long haul, be ready with an exit strategy. Determine the acceptable level of maturity whereby you can either enjoy some profit or nip your losses in the bud, if not reap substantial gains.