Prices of cryptocurrencies have skyrocketed in the past few years. The year 2009 saw the first fully decentralized cryptocurrency called Bitcoin. Since then, the entire crypto market cap has gone from nothing to a whopping $165 billion. It is a gold rush.
New millionaires are being made every other day. Price jumps of 500% are a regular occurrence. It is clear, the cryptocurrency market is highly volatile and not suited for regular investors who are looking for stable returns.
There is a good chance you might losing all the money you “invest” in this market. That being said, by following the right strategies, you can certainly minimize risks and losses.
So if you have some money lying around, you could give crypto a shot. In case you play your cards right, you could also end up being a millionaire.
Here are 10 things to must know before going about investing in the crypto market:
1.Invest what you can afford to lose
Many skeptics believe the crypto market is a bubble that will burst sooner or later. Billionaire investor Mark Cuban in the past compared the cryptocurrency market to the dot-com bubble. Of course, not all the 8000+ cryptocurrencies will survive over the years, but dozens will, and their prices will skyrocket in the future.
Yes, there is a chance we are living in a bubble. So make sure you don’t put your life savings into crypto. Only invest the amount you’re willing to lose.
2.It all starts with acquiring Bitcoin
If you wish to buy other cryptocurrencies, you will first need to purchase Bitcoin using fiat. The best way to do it is through a local exchange in your country. In the US, exchanges like Coinbase, Bitstamp, and Kraken are the go-to options for most people. You can check exchanges in your country here.
Although you can directly buy other coins from these exchanges, the options are minimal. If there is no bitcoin exchange in your country, you could always use localbitcoins.com and buy Bitcoin from other people. It is an escrow service that helps to match buyers and sellers. You can either pay the seller by cash or bank transfer.
Most of the sellers advertise whichever payment method they prefer. Note: You don’t have to buy one whole Bitcoin ($4112 at the time of writing); you can purchase Bitcoin in fractions known as Satoshis. 100k Satoshis is equal to 0.001 bitcoin. For instance, if you want to buy $500 worth of Bitcoin, you can.
3. Buy crypto on multiple exchanges
Once you have some Bitcoin, you could either hold on to them or buy other cryptocurrencies with it. If the latter is the case, transfer Bitcoin to one of the exchanges like Bittrex or Poloniex to buy other lesser-known cryptocurrencies like Stratis, Monero, Siacoin, etc.
4. Learn about the cryptocurrency
This is probably the most important thing. Learn about the cryptocurrency you want to invest in. There are so many scams, aka pump and dump schemes going around. Make sure you don’t fall for those.
Read the white paper and the roadmap of the project. It can be found on the official website of the cryptocurrency. Understand the tech, idea, and team behind the project before putting in your hard-earned money.
5. Figure out the real-world use cases
Another important factor is to look at the real-world use cases of that particular token you want to buy. For instance, there is one token that’s supposed to be used for parking only.
These coins have no real value and will die in the coming years. Look out for coins that can be used in real life and have a community behind them.
6. Diversify your portfolio
Just like you’re advised to diversify your stocks, the same goes for cryptocurrencies. The more diversified you are better the chances you have of surviving a market crash.
If you want to have a balanced portfolio at one point in time, it might be a good strategy to reflect the ten most valuable currencies in your portfolio.
More interesting, however, is it to take some time, read about those coins, decide if their vision gets you, and make this to the base of your asset selection.
For example, you’ll find some coins focused on privacy, like:
Some are based on smart contracts, like Ethereum and Ethereum Classic, and some on scaling payments, like Litecoin and Dash. Like Ripple or BitTorrent, some coins seem to be less open and decentralized than Bitcoin and other coins.
Keep your portfolio diversified, covering all the major niches.
7. Keep track of your investments
There are a lot of apps that can help you track all your crypto investments. My personal favorite is Blockfolio, available for both android and iOS. It has major exchanges integrated into it and almost all the coins.
Keeping track of your purchases and sales will help you learn from your mistakes. Investing isn’t crypto isn’t a cakewalk. You won’t be getting returns overnight. It is a long, tedious process. Recording your past trades will only help you make better trades.
8. Have a long term vision
Having a long-term vision is key while trading cryptocurrencies. Ask yourself how much return are you expecting 4 or 5 years down the line from particular crypto.
Once you do that, the short-term price swings will not affect you as much.
9. Safely secure your coins
There are many wallets you can use to keep your coins secured.
- Hardware wallets (trezor, ledger): These are the most secured.
- Hierarchical Deterministic wallets (Electrum, Bitcoin Core client, Mycelium)
- Paper wallets
If you believe in a coin, you’d want to hold on to it long-term because a good coin will always rise back up again. It doesn’t matter how experienced a trader you are; you will make some mistakes and lose money.
Learn from those mistakes, get back up and make sure not to repeat them.