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10 Tips for Investing in Cryptocurrency for the First Time

Investing in cryptocurrency for the first time can be a daunting task and the crypto market is often shrouded in bad news stories. It’s true, you sometimes hear about the rags-to-riches stories but just as many first-time investors have lost their life savings to crypto scams, market volatility and even bankruptcy.

In this article, we talk about tips for investing in cryptocurrency and some things you should know before getting started in in the crypto market.

1. Only Invest What You Can Afford to Lose

The Cryptocurrency market is extremely volatile and as an investor, you must be ready for some very large fluctuations in price. For instance, Bitcoin is considered the most stable of these cryptos and frequently experiences drops of 10-20% in just a single day. At the same time, this is also a high-risk asset which has historically provided immense returns on investment since the very first transaction which took place back in October 2009. You should also remember the crypto industry is mostly unregulated which means there is literally no protection if you happen to fall prey to scams or fraudulent activity.

Moral of the story: Never invest more than you can afford to lose and try to view crypto as a speculative investment with a high-risk to reward ratio.

2. Understand the Fundamentals of Blockchain Technology

You should never invest in something you do not understand or a project in which you do not have any faith. While this goes for every type of investment, it’s especially important for a market in which there is so much speculation.

Are you already familiar with blockchain technology? It’s worth reading up on this technology and knowing as much as possible about the fundamentals. You should also properly understand the difference between Bitcoin and the underlying technology and how industries can use blockchain to transform how they do things.

FAQ: What is blockchain technology?

Blockchain is a shared public ledger that tracks and records transactions accords multiple computers. While blockchain is the technology behind Bitcoin, there are thousands more cryptos that use it to provide real-world utilities. In fact, research also suggests that companies in more than 50 industries will use blockchain technology to redefine their operations in the near future.

3. Do Your Own Research!

Research can provide peace of mind and a sense of direction for your investing thesis. That is to say, if you do sufficient research, you can feel more confident with your investments in spite of what is happening in the market. This is important because some traders rely on advice or analysis from others but this type of approach will not provide much confidence or reassurance over time. But what does this cryptocurrency research look like?

If you have interest in a certain crypto, try to learn everything possible about the coin/token. You can start by reading the whitepaper which is always available to view and then examine the actual progress and utility of the project. There is no harm taking the opinion of others into account during this process and such information is easily accessed through various online resources.

4. Only Use an Exchange that You Trust

Recent events saw one of the largest cryptocurrency exchanges in the world go bankrupt. This is not the first time such scandal have consumed the crypto market and it’s unlikely any FTX customers will be compensated for their loss.

The crypto market is currently flooded with exchanges which feel rather shady and distrustful. With this in mind, spend time verifying the legitimacy of the exchange you wish to use. You can do this by checking out the team/company behind the platform and look to see if the exchange is regulated in a certain country. At the time of writing this post, Coinbase and Binance are widely considered to be two of the more trusted and reputable crypto exchanges.

5. Invest in a Hardware Wallet

The truth is, you need to use an exchange in order to buy cryptocurrency in the first place so there is always an element of risk. However, this does not mean you need to leave the cryptocurrency on the exchange and most experts recommend using a hardware wallet to ensure the security of your investment.

FAQ: What is a crypto hardware wallet?

A hardware wallet is used to hold cryptocurrency offline. Often referred to as “cold storage”, these physical devices resemble a USB stick and provide a means of keeping crypto away from the internet and away from exchanges.

6. Diversify to Build a a Balanced Portfolio

Diversification is critical for a traditional investment portfolio and the same is true for cryptocurrency. The reasoning behind diversification is to avoid “putting all your eggs in the one basket” and ensure your portfolio is not affected too much when a certain coin experiences a problem or dramatic drop in price.

As a rule, most investors tend to invest the majority of their portfolio in Bitcoin and then allocate the remainder between various alternatives known as “altcoins”. This can reduce your exposure to risk but then also provide some potential for upside when the market or a certain altcoin is performing well.

7. Avoid Using Leverage at All Costs

Leverage enables traders to trade more than they hold but this is extremely risky and definitely not a good idea for beginners. This is because leverage increases the chances of losing all your money and it can happen in a single trade. Most professional traders will even avoid using leverage and any recommendation to do so is simply a reckless and ill-advised piece of advice.

8. Learn How to Dollar Cost Average (Averaging)

You might know the saying “buy the dip” which is sometimes a profitable way to invest in a bull market. It involves adding to your investment after a significant drop in prices but there is still a risk that markets will continue to sell-off after you invest. This is why many investors choose to “dollar cost average…

FAQ: What is dollar cost average in crypto?

Dollar cost average (DCA) is a strategy in which you invest a specific amount on a regular basis over a period of time. This amount is invested regardless of price and provides a simple means of taking a disciplined approach which can help investors plan without having to stress and overthink too much.

9. Be Careful Not to Buy the Top

FOMO a well-known acronym in cryptocurrency which stands for “fear of missing out”. It relates to the very real urge to invest that one can feel when the price of cryptos is going up and it most often results in badly timed decisions.

A good example of this is always seen when Bitcoin is reaching for new all-time highs and trade volume among retail investors is exploding. These investors are usually new to investing and get carried away with the exuberant market. However, this is also the most likely time for markets to sell-off in a dramatic fashion and leave such investors wishing they deployed more patience. But how can you avoid this fear of missing out?

It’s best to have a trading strategy and stick to the plan. Take all news with a pinch of salt and avoid buying crypto at all-time highs. If you’ve every listened to famous investors like Warren Buffet or George Soros, you might also know it’s usually best to buy when others are fearful and not when they feel exuberant.

10. Think Long Term and Move on With Your Life!

Investing in crypto as a beginner can feel stressful at times and this is exactly what happens when you look at the charts too often. Traders who watch the charts every day or week are sure to feel stress and possibly even lose sleep and none of this will do anything for your portfolio – not to mention your health!

The truth is, markets will always have good or bad times and it’s best to approach your investments with a long term mindset that helps you avoid feeling stressed on a regular basis. This is also a better way to view a crypto market which needs time to evolve and grow. If you can deploy patience and consider the risks above, hopefully your portfolio can prosper with the market.

Final Thoughts

Cryptocurrency is a high risk – high reward investment and it is essential to  better understand this market before putting any capital to work. This requires investors to learn as much as possible not only about blockchain but also bitcoin and the various altcoins in which they would like to invest. While exchanges are needed to buy crypto, a hardware wallet is the best place to secure coins over time and this should be the mindset because investing in cryptocurrency is a long-term strategy.

As for when to buy? Expert traders recommend that you dollar-cost-average and if past performance is indicative of future gains, investing in crypto could provide a very impressive return.

Good luckwith Investing in Cryptocurrency!

 

 

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Inredningsvis is one of Swedens largest magazines on home decoration, with thousands of readers each month. Maria Ljungström behind the blog has an eye for making your home look more luxurious and personal.

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