There was a time, not so long ago, when the average investor considered cryptocurrency a niche investment. It was something technical experts did, but not something for the average person on the street.
But how times have changed! Last year, almost half of the US population invested in cryptocurrency. And that number is getting higher, even with news of dips and crashes. It seems that the crypto market is here to stay.
If you are a beginner, continue reading to discover our nine top tips for investing in cryptocurrency.
1. Get to Know the Technology
Cryptocurrency may be new, but the old investing rules still apply. Only invest in products you understand. So your first step when getting involved in cryptocurrency is to learn about the technology.
Find articles and books aimed at crypto for beginners. The first thing you’ll need to read up on is the blockchain concept. A blockchain is a ledger, one that’s public and decentralized.
That last bit is significant because it was up to banks and governments to provide centralized financial transactions before cryptocurrency and the blockchain.
The technology that makes the blockchain decentralized is where things become more advanced. Still, even if you don’t have a technical background, it’s worth looking at the detail behind how this works.
Read up on how decentralization differs from traditional finance. Focus on how the blockchain offers security and speed with financial transactions.
Another process you’ll want to understand is mining. Mining is a virtual version of the old-fashioned kind, using computer power to access wealth (miners solve complex puzzles and get cryptocurrency as a reward).
2. Choose Your Preferred Currency
As of last year, there were nearly 8000 cryptocurrencies worldwide, which is constantly growing.
That means there will always be exciting new types of cryptocurrency entering the market that some crypto fans will tell you is the perfect investment.
Of course, there is no such thing as the perfect investment. Don’t be swayed into investing in a new currency because you think it will see steep price rises similar to what Bitcoin experienced several years ago.
Instead of seeing new cryptocurrencies as shiny new investments, focus on one currency only and make that your specialist topic. Learn about the technology and advantages of that currency and use that to form your investing decisions.
Only once you’ve mastered one currency is it time to move on to a second or third one.
If you are new to crypto, start with one of the well-known ones like Bitcoin and Ethereum, as they have the most financial articles from trusted sources written about them.
3. Understand Volatility
Volatility refers to any investment that sees steep highs and lows on a price graph. You’ll see this frequently with cryptocurrency. It’s worth reviewing a 5-year price tracker to see how volatile cryptocurrencies can be.
It’s important to understand volatility and how this relates to risk.
People love Bitcoin because they’ve heard many stories of friends, family, or acquaintances making thousands of dollars by investing before a steep price rise.
But the flip side is that cryptocurrencies like Bitcoin experience equally steep falls. And if you buy at the top and then suffer a crash, you could end up with only a tiny fraction of your original investment.
In other words, while cryptocurrencies are a high reward, they are high risk. Always track the 5-year graph before investing in a cryptocurrency to understand the price volatility.
4. Don’t Use All Your Savings
There’s a big reason not to put all your savings in cryptocurrency. It’s a high-risk market, and you could lose it all. But as evident as that advice seems, many investors still make this mistake.
Some have even mortgaged their house or taken out personal loans to fund their investment. The temptation to put all your money in crypto is strong because of those potential rewards.
A sharp rise could turn all your savings into a healthy early retirement fund. But don’t do it. You could lose it all.
Instead, set aside a percentage of your savings to invest in crypto and make it a firm rule that you don’t exceed that limit. And choose a rate that you can afford to lose.
So, for example, if you decide to invest 5% of your savings into crypto, ensure you never stretch to 6% even if the market appears exceptionally promising.
And don’t make the percentage so high that it will cause financial trouble or change essential life plans. Don’t opt for 50% if you were saving that money for your children’s college funds.
5. Avoid Emotional Decision Making
Your emotions might occasionally trick you into thinking you are using good intuition when choosing an investment.
But it’s sadly not. It’s our emotional brain. And however reliable you think your intuition is, there is a flip side. That flip side is panic, and it’s pervasive for beginner investors.
The way to avoid emotions interfering with your decision-making is to set rules around your decisions. Setting up these rules in advance allows you to treat each decision as pre-determined.
It will help protect you against rash crypto investments that could cost you. So, for example, you might have a rule that says: if the price goes below this number, I will sell.
That rule will stop you from convincing yourself that the dip is temporary. It should deter you from the temptation to hold on to your investment for a bit longer, potentially causing you to risk everything.
The recent Luna Terra crash is an excellent example of how catastrophic that mindset could be. The price fell from over $100 to less than ten cents. Some investors lost their life savings.
6. Try an ATM
If you haven’t invested in Bitcoin before, you might wonder how to start and the logistics of buying this currency.
There are online cryptocurrency exchanges you can head to for these sorts of purchases. You’ll need to register and prove your identity, after which you can make a purchase.
However, there is a newer and more popular way to buy Bitcoin, and that’s via an ATM.
An ATM works like a regular cash machine, but you use it to purchase your Bitcoin. The benefits of investing this way include ease of use and simple technology. Here is where to find Bitcoin ATMs near you.
7. Understand Short Vs. Long Term Investing
There are two types of cryptocurrency investors. So you need to decide what category is right for you. There is no correct answer here, only personal preference.
First, you have the short-term investor. These are investors who make money on the volatility of cryptocurrency. They regularly trade, buy during tips and sell during highs. And they make their money on the difference if they can time their investments perfectly.
The second type of investor is a long-term investor. That is someone who sees the long-term benefit of cryptocurrency and how it will eventually become more prevalent in society.
These investors ignore the regular ups and downs of the price and focus on keeping their money held in that cryptocurrency for years.
They may also set up regular orders to buy more currency. For example, they might arrange to buy $200 of cryptocurrency each month.
A longer-term investment strategy is best if you don’t need your money back in the short term. If you want the excitement (and risk) of tracking the market and making quick profits, the short-term is your best option.
The most important tip here is to choose one or the other. Don’t try and do both strategies.
8. Follow the Professionals
There are online cryptocurrency networks that share information and advice on investing. If you can find a reputable online network with an excellent track record, it’s worth joining.
Even if you don’t use these networks to make decisions on your investment, they are still a fantastic source of knowledge. They will help you learn the basics of financial training and cryptocurrency technology.
Do your research before joining these groups and avoid ones that rely on heavy sales advertising. That could point to a scam or a group that offers poor recommendations.
9. Understand Limit Orders
Limit orders are a fantastic asset for beginner traders if you understand how to use them.
Limit orders on Bitcoin exchanges involve setting up a pre-determined figure for cryptocurrency when the price hits a certain amount. That could be a low price (to buy) or a high price (to sell).
It will take the stress out of investing in the beginning when you still have a lot to learn. And though it could mean you won’t maximize profits, you won’t maximize losses either.
Nine Tips for Investing in Cryptocurrency
Putting your savings into crypto is exciting but nerve-wracking. So use these tips for investing in cryptocurrency to make knowledgeable and informed decisions if you want long-term financial success.
For more investment advice, please browse our business section for the latest crypto news.
