It’s important to always stay updated when it comes to money-making and currency. Cryptocurrency is the new gold rush. As a product of blockchain technology, this type of digital currency has quickly grown in popularity and power in recent years. Though it has made many new millionaires, it has also caused many people to lose their investments. The latter can happen when you don’t properly prepare yourself. Just like any other asset, investing in cryptocurrency requires a certain mindset, strategy, and fortitude. If you’re thinking of buying crypto, rely on these 11 important things to help you make sound investments.
1. Budget Accordingly
The first rule of any investment, whether it’s stock, real estate, forex, etc, is to only invest what you can afford to lose. Every investment is a risk, and crypto is a lot riskier than others due to its volatility. If it was a surety, then everyone would be doing it and making millions. Sadly, it’s not.
You’re more likely to lose your first few trades as a beginner, so budget with that in mind. Sure, there’s beginner’s luck, but you don’t want to rely on luck; rely on trading smartly. The last thing you want to do is bet your life’s savings and lose everything.
2. Do Thorough Research
Want to know the next way to not lose money? Research. It’s unwise to invest in something you know nothing about. Familiarize yourself with everything crypto. Read many articles and books about digital currency before you even invest your first dollar. This Bitcoin guide for beginners is a good resource to start with. Knowledge is power.
There are so-called gurus out there who promise to do everything for you. Run away from them. Anyone who promises unrealistic gains or one-stop solutions never delivers and doesn’t really care if you gain or lose after they’ve sold you their snake oil. Again, run! Run home and do your own research.
3. Know When To Miss Out
Let’s talk a little bit more about safety for a minute. There’s a lot of hype now surrounding new coins that promise great gains. Most of these are promoted by celebrities who we trust, but it hasn’t turned out well.
These celebrity endorsements are often bought to make the new coin look good. You should invest based on the research you have done and not on your emotions. Instead of going with the upcoming trend, thoroughly analyze what this new coin has to offer. The last thing you want to do is hop on a hype train only to end up regretting it.
Every coin has pumpers, people who shamelessly promote possibly failing coins, spot them, and avoid them.
4. Know Your Crypto Exchange
Whether you are buying Bitcoin, Ether, or altcoins, you’re going to need an exchange for transactions. If you want to buy, sell and swap cryptocurrency, then you need to choose a crypto exchange that works for you. Each exchange has different terms, rates, and benefits. Since it is going to be where your coins are stored, this decision is quite important. If the location of the exchange is a big factor for you, then choose one that is based in your region. Other factors to consider are if that particular exchange supports the cryptocurrency you’re interested in and what payment methods can be used.
5. Anticipate Volatility
Cryptocurrencies are highly volatile. Besides some stable coins, it’s commonplace to see their values fluctuate wildly. This requires you to have a high-risk tolerance and a strong mindset. You must first come to terms that whatever you have invested can crash at any moment. Then you need to master patience.
Though there are many day-traders in the market, most of its value is seen over the long term. If you’ve done proper research about your coin, you’ll know when to hold or when to sell. Don’t freak out when you see a major dip, sometimes they can have huge rallies. Prepare yourself for the ups and downs and you’ll rarely be caught off-guard.
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6. Join A Community
They say if you want to go fast, go alone, but if you want to go far, go together. That certainly applies to cryptocurrency investment. While we’re not saying you should pool funds to buy crypto, being part of a community will be one of the best decisions you could ever make.
Most investors communicate online via Reddit and other platforms, but some still meet in person if they can. A community will help you stay up-to-date with the cryptocurrency market. You can also get advice about trades, terms, and market moves. Join the discussion; you’ll learn many new things and forge valuable friendships.
7. Verify Everything
So we have to talk about safety again. Scammers like to take advantage of any situation they can. They either piggyback off celebrity promotions, impersonate trusted authorities, or set up fake altcoins that suck you dry. If something sounds too good to be true, it likely is.
It’s important to know how to spot these scammers so that they don’t get you. Examine their claims, research their origins, and dissect their offerings. The moment something smells fishy, move on. This crucial step can save you from huge losses. Whatever claim, promise or opportunity comes your way, scrutinize and verify everything.
8. Diversify Your Portfolio
If you really want to make profitable investments, do what the experts do: diversify. Bitcoin is the juggernaut of the cryptocurrency family; the heavyweight with the highest growth to date. But the other members shouldn’t be ignored.
Even though Bitcoin is doing great right now, it has taken huge dips. You need to prepare for that. Invest in other cryptocurrencies so that if one falls, you have others to rely on and all your money doesn’t go down the drain. Most investors follow the 6:3:1 rule. That’s 60% Bitcoin, 30% Ether, and 10% altcoin. There are other ratios you can use, and you can choose which coins you want to apply them to.
9. The Keys Secure The House
Would you trust a stranger with your house key? Hopefully, your answer is no, otherwise, we need to talk. With cryptocurrency, holding the keys for your coins is very important. Since crypto is a bearer asset, anyone who possesses them is considered to be the rightful owner. This means that if your crypto is lost or stolen, you’d be completely out.
Seasoned investors will safeguard their keys by using either a hardware device or paper. Yet, there’s still room for error here. Firstly, do you really trust yourself with keeping that device or piece of paper safe? It’s not like losing a pen; it’s losing a possibly huge investment. If you lose your keys and your key phrase (a backup password to regain access to your wallet) then you’re doomed.
Admittedly, this one is a bit tricky. You can either choose to have a third-party custodian hold your keys or keep them yourself.
10. The Government’s Due
No matter what you earn or how you earn it, the government will be coming for its due. Unfortunately, taxes are unavoidable (if you want to stay out of jail). Despite the crypto industry’s efforts, the Internal Revenue Service (IRS) requires you to report capital gains and pay taxes on them. This is because they consider cryptocurrency to be property and not currency, for federal tax purposes.
The government treats crypto much like how they treat stocks. You need to track the value of your coin when purchased and then when it’s either traded, spent, or exchanged. Different rates apply for short-term and long-term gains. Read up on the stipulations for paying taxes so that the government doesn’t scoop you up and put you in a box.
11. You Don’t Even Have To Go All In
If you’re a newbie, this is important. In fact, this would be the preferred way to get your feet wet. You don’t have to go all-in when buying crypto. You don’t need to buy a whole coin or spend large sums of money. Crypto can be bought in fractions.
For example, Bitcoin is divisible to the eighth decimal. So you can start with $10, $20, or $50 worth of it. This is great if you want to test the market of a particular coin and see how it trends. This also ties in perfectly with our first tip, budgeting accordingly. Use these small amounts to experiment with trading and develop your instincts. This will prepare you for larger investments and develop you into a competent trader. If you can successfully trade $10, you can successfully trade $10,000.
Cryptocurrency has created some amazing new opportunities. As you take advantage of them, you must be aware of the risks involved. To reduce potential losses, you need to invest what you can afford to lose. On top of that, research the market thoroughly as it will help you avoid scams and failing hype trains. There are many exchanges you can choose from and many currencies you can buy fractions of to get started. Armed with these tips, you’ll confidently make your first cryptocurrency investment.