Digital currencies or cryptocurrencies have recently become very popular among investors. The market is not only seeing new individual investors. Traditional financial institutions are offering crypto to their clients and many top businesses are beginning to offer their customers the option to pay for products and services in crypto. Investing in crypto is risky, but also has the potential to be extremely profitable. With these tips, risks inherent in investing can be managed.
1. Research, research, and research some more.
There is no excuse to make any investment, no matter how small with little or no understanding of the asset. Before picking which coins to invest in, read their white papers. These are very accessible online. When you’ve done this, find reputable sources that you can trust. Don’t believe everything you read on the news. Check and re-check the facts. Get on platforms like Reddit and find out what long-time investors are saying about the different coins on the market. There are tons of videos of YouTube that provide information ranging from something as basic as how to buy crypto on exchanges, emerging alt coins to watch to analyses on how world events can impact the price of crypto. These days there are a multitude of sources where you can get the information you need to make decisions.
2. Don’t get into debt just so you can start investing in crypto.
You’ve heard the truism, “Invest only what you can afford to lose.” Taking a second mortgage for your house and buying crypto is extremely imprudent. While cryptocurrency is much more mainstream these days, it still is a volatile market. You don’t want to lose the roof over your head if the value of your digital assets goes south. The investment strategy of dollar cost averaging is a wiser move. Instead of buying investments at a certain price point, you buy in smaller amounts regardless of price. Decide how much you want to invest regularly. For example, you’ll set aside $100 every week to buy a certain crypto coin regardless of price. You maximize your chances of paying a lower average price over time.
3. Aim to have a diversified portfolio.
Another saying that applies to crypto goes, “Don’t put all your eggs in one basket.” Investing on just one coin increases your risk of being overexposed should its value plummet suddenly. Spread your funds among different strong digital currencies. You can still use the dollar cost averaging. This time, decide on how much percentage of your regular investment fund goes to which coin. For instance, for each $100 you invest, 50% goes to Monero, 25% to Ethereum, and 24% to Bitcoin. You may keep on adding other coins to your portfolio, but be sure to keep to the percentages.
4. Take it slow.
Don’t be in a hurry to invest in a particular crypto just because your friend says it’s sure to rise in value in so-and-so days. See number 1 of this article. It’s also sensible to wait and see how it goes. Another investment adage to remember, “Buy low, sell high.” That being said, be prepared to wait for months or years to get maximum gains. Don’t panic and sell when prices dip. Patience is a virtue when you invest in crypto.
5. Security.
To avoid the risk of data breach, create another e-mail account just for crypto trading and use two-factor authentication if possible. Avoid using public networks to make transactions. If possible, use a VPN to keep your activities private and safe. A strong firewall on your computer or gadget is highly recommended and make sure that you have updated and effective anti-virus and anti-malware software installed.
6. Get both hot and cold wallets for digital asset storage.
Web-based wallets, mobile wallets, and desktop wallet are all generally hot wallets. A hot wallet is easy to use and highly accessible. The user doesn’t need to switch going offline and online to make transactions. As it’s used while you’re online, a hot wallet may be vulnerable to security breaches. A cold wallet is usually a hardware that you need to plug in your computer before you can make any transaction. It’s considered to be more secure, but could be impractical because of the need to go online before you’re able to use it. To offset the trade-offs each kind of wallet has, it’s smart to have both. Just like diversifying your assets, it’s like having two baskets where you can spread out your digital eggs.
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