You should know all these before investing in cryptocurrency

Fredrick Awino
17.06.2022
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Since the first cryptocurrency , bitcoin entered the market, the internet has been awash with mixed experiences. So many people paint cryptocurrency investing and trading as being a bed of roses while others cry foul of losing their lifetime investments, especially to crypto fraudsters.  Despite the mixed reception of cryptocurrency, budding investors or starters are largely motivated by the desire to make it big, rake in billions in returns and just attain that dream lavish lifestyle, raw ambitions it is.

WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.

When it comes to cryptocurrencies, traders have made mistakes by rushing to trade before understanding the market. Digital currencies have highly risen over the years. It has gained prominence among institutional and retail investors. Also, people have to know that it is volatile in nature. The following are some of the things you should know before investing in cryptocurrency:

Understand exchanging, buying, and selling of cryptocurrencies

As a trader, you should be able to locate the platforms which allow you to deposit and withdraw local currency. It should be an option for moving funds in and out of the cryptocurrency ecosystem. Also, you should be able to understand the way basic selling and buying trades works. Although investing in cryptocurrency is a learning process, you need to understand the basics. Therefore, you have to have the know-how to cash out to the local currencies. Through this, you will be able to use the profits made.

Conduct research

You have to do lots of research before making a decision to trade in cryptocurrency to understand why you should invest in crypto. There is a sure or hot thing everywhere you turn in cryptocurrency. Have a personal due diligence list in case you are investing in cryptocurrency on your own.

However, in case you want to join a team, then you should ensure that it is a real one. You should verify in case it has legitimate and experienced players in the crypto space. Moreover, be sure that you can open the firm’s code base. Another thing, you should ensure that it is addressing a real problem. For instance, it may have identified a certain area with opportunity. Lastly, ensure that there is proof of beta or concept. If this is available, then it means that your investment will have a great chance to see returns while the company is maturing.

Spend time looking deeper into projects to determine whether it has long-term sustainability. The reason is that this is something every trader is interested in holding. In addition, you should not purchase something since a friend or a family member told you that they have risk free experience or guaranteed returns.

There is a limited supply

Basically, an asset can only be valuable if it is scarce or difficult to get. It is because of that that oil is highly valuable. You can’t just find it anywhere, like dirt. Also, this is the reason why a government cannot print a lot of money that it needs and then give it to the citizens.

The crypto makes recreated this trait in the digital world. Remember, if Bitcoins were readily available today, then it would be difficult to justify why one Bitcoin is worth thousands of U.S dollars. Bitcoin supply is 21 million, and the number available to mine reduces daily.

Purchasing crypto may be tricky

Cryptocurrency is decentralized digital money. This means that neither the banking industry nor the government controls it. By this, I mean that you cannot just visit an ATM machine, put in the bank card, and withdraw bitcoins.

In purchasing a cryptocurrency, one has to go online and open a digital wallet. This is the place that enables you to store your Bitcoin. After having a digital wallet, you head to a cryptocurrency exchange in which you trade, sell and buy the digital currency that you want.

Diversified Portfolio results in the long-term success

As an investor, you should have varied sources of money. As much as you may have invested in real estate, stocks, and bonds, you should try other ways of getting money. Therefore, investing in cryptocurrency is one of those ways. Moreover, after getting into the crypto world, you also have to diversify your portfolio. You should not just trade in one cryptocurrency. Some of the sectors that you may diversify in include layer one protocols, gaming, NFTs, and DeFi.

The Digital Assets are Volatile

It is the volatility of digital assets that makes many people miss out on investing in them. For instance, Bitcoin’s price fluctuates by about 2.67% daily. For most personal traders, this is a lot of risks. It is like purchasing a product in a supermarket and finding out that its price increases when you are billed.

To avoid such kind of fear, you should only invest what you can afford to lose. For instance, you can just take 10% of your savings to avoid being depressed after losing money. Most of the exchanges accept stop-loss orders to allow an investor to predetermine the amount that they are willing to lose.

Timing

After doing research, you must have identified the cryptos that you want to invest in. The next step is timing your investment. As I said earlier, digital currencies are volatile. You may decide to purchase a new hot digital currency before it becomes more valuable and popular. Moreover, cryptocurrencies usually follow a similar pattern.

Remember, when investing in cryptos, you should not be driven by emotions. This might make you have poorly timed investments resulting in value loss. For instance, when a token commences moving in the market, forces do conspire to make it go up. Thus, the unsuspecting investors are sucked in as they cannot resist the Fear of Missing Out (FOMO). As a trader, you should resist FOMO and wait for price consolidation as well as a blow-off top in case it is a token that you must have.

Protect your Private Keys

As a crypto investor, you have to protect your private keys. Remember, those keys are not the same as passwords which you can say that you forgot, and you get the chance to set a new one. The private keys help in keeping your crypto safe. You can do this through a hardware wallet. This ensures that crypto assets are safe.

 

Author Fredrick Awino