After a devastating year, it looks like crypto prices are on the rise, and numerous investors are entering the market for the first time. And while now is the ideal opportunity to purchase digital currencies because you can easily spot those that will survive the crypto winter and the majority are sold at low prices, you also have to be careful because scammers usually take advantage of opportunities like the one the market is offering. Keeping your funds safe when investing in cryptocurrencies is a major priority.
Most of the golden rules of investing in crypto like Bitcoin or Ethereum center around the idea of minimizing risks, so if you plan to buy digital currencies, here are the rules you should keep in view.
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Don’t spend more than you afford to lose
The biggest mistake a beginner investor could make is to put all their available funds into a cryptocurrency they hope will generate big gains. Predictions might say that Ethereum or Bitcoin could reach $1 million in the following years, but no one can tell for sure what happens with such volatile assets, and you could also lose all your money. Spending only money you are comfortable losing, you won’t deal with financial issues when the market enters a new bear market.
Crypto investing is risky, as is putting your money in any other volatile asset. There’s a chance the blockchain will gain more popularity and enter the mainstream in the future, but it’s also probable that the technology will fail to meet the public’s expectations. During turbulent times, many projects could fail, and the entire sector could collapse, so it’s best to be careful and guard your funds.
Diversify your investment portfolio
Portfolio diversification comes in several forms – according to the assets you invest in. Seasoned investors recommend allocating only a small portion of your finances to digital currencies; the rest of it should go to lower-risk assets. When you diversify your portfolio with multiple assets, you expose yourself to a lower risk. Before spreading your finances across multiple categories of assets, decide how much tolerance for risk you have and understand your financial situation thoroughly. Suppose you have decades ahead of your retirement; you can take on more exposure to volatile assets like cryptocurrencies because your portfolio has time to recover if something goes wrong.
Regardless of your situation, it’s wise also to diversify your crypto portfolio and invest in multiple projects. Beginner investors make the mistake of investing solely in Bitcoin and Ethereum, as they’re the largest digital currencies by market cap, but you should also turn your attention towards smaller altcoins.
Mix different digital currencies, depending on what your goals are. You can spread your portfolio’s exposure to multiple sectors, from stablecoins to smart contract cryptos and metaverse tokens.
Research the market thoroughly
Research is paramount in the crypto sector because it helps you figure out if the project you put your money into matches your goals. While it’s a little more complicated than investing in a publicly traded company, research can still help you determine how the market functions. Research the crypto projects you’re interested in to find out more about its developers, supports, and evolution on the market.
Some essential principles that should guide your research are whether the crypto projects you turned your attention to have a unique and valuable use case. Focus on finding out more about the founders, management team, technical elements of the network, and its potential to disrupt the space and sector.
Regardless of the project you choose to invest in, focus on the fundamentals. Does the project seem reliable? Does the management team have experience in the sector? Does the technology behind the blockchain seem to have genuine potential?
Think long term
A great way to make a profit when you invest in crypto is to adopt a 10- to 20-year mindset. Engaging in short-term investing methods doesn’t always trigger a profit – in fact, this is how most investors lose money. But if you add to your portfolio projects with strong utility cases that have higher chances of performing well in the coming decades, you boost your chances to make a profit.
However, we get it, it’s not always easy to make long-term plants, and you might even struggle to hold on to your assets when the industry shows fluctuating signs. But it’s recommended to stick to this approach because it’ll prevent you from suffering losses due to price dips and stop you from making emotional decisions.
Stick with well-known names
Suppose you’re a beginner; the novelty of the crypto market will make it feel intimidating. Therefore, it would be better if you would stick to major digital currencies that have survived the test of time. Bitcoin and Ethereum are the best examples of cryptocurrencies that perform well, even in bear markets. However, you shouldn’t limit yourself to adding only Bitcoin and Ethereum to your portfolio; you should also search for other digital currencies that have made themselves a name in the sector. You should invest in the first ten cryptocurrencies by market capitalization, or you could choose the most competitive projects in the market.
Use your common sense
Investing in any kind of market requires common sense. In the beginning, it’s quite easy to get swept away in the hype of the market, and every new project might capture your attention. However, a lack of discipline when investing in cryptocurrencies could lead to high losses. It’s easy to get involved with a new project that promises spectacular returns, but before putting your money into something no one has heard before, think if you’d eat something no one has confirmed is edible.
You want diversity when building a crypto portfolio, and there are several projects you could choose from, so make sure you pick those with the highest potential for market disruption. It’s not guaranteed that they’ll bring a return on your investment, but they are definitely more likely than others to drive a profit.
What’s more to say
Investing in the crypto sector, especially at this time, might seem challenging. It’s a novel industry not many seem to grasp a hold of, but you can make good use of your capital if you follow the above recommendations.
