or Why Cryptocurrencies isn’t all gain, profit, and money?
Talking about crypto may make people around you feel like you’ve lost your mind.
You can make good money with cryptocurrencies, in fact, a 1000% return within a year is pretty common in the crypto universe. It is, however, equally easy to lose all of that money within the twinkle of an eye. Here are a few tips for those who are willing to join the train.
1. Delve Extensively Before Investing
The first step in crypto consciousness is understanding the underlying technology – blockchain. Forget the tech jargons for now. No one needs to convince you of how revolutionary blockchain technology is. A good starting point is reading articles, checking online forums and blogs discussing crypto. You’d soon find out why governments and corporations are exploring this nascent technology and how they’re looking to integrate it to their systems, or why banks are fearful of Blockchain and cryptocurrencies as a threat to their existence and looking to clamp down its growth. This outlook will help broaden your mind to learning and seeing the possibilities of the potential of blockchain technology.
On the other hand, because of the purely psychological implications, I would recommend investing a small sum in one of the top coins. This would incentivize you to go deeper in your research, already knowing that your funds are at stake. Once you are in the game with your money you get way more involved.
It is also important to not make the mistake of trusting someone else with your funds; that defeats the entire purpose of cryptocurrencies, which was created to empower everyone with true ownership of their money without trusting any third-parties such as banks. It is extremely common for scammers to ride on newbies’ naivety in this unregulated market. This, therefore, calls for extra caution.
2. Invest Only What You’re Willing to Lose
In the cause of my extensive research in the early days, I’ve realized a very important rule of thumb in the crypto market — only invest what you’re willing to part with. This is because the market is exceptionally volatile. This makes the crypto markets intensely risky; that’s why you have the potential to make loads of money or lose everything instantly. It is a high risk / high reward business. It is for people with a very high-risk appetite. Still, despite the usual disclaimer “not a financial advice” I will give you one now:
Do not mortgage your house or take out a loan to invest in cryptocurrencies; you’re only signing your death warrant.
3. Focus on the long-run
Cryptocurrency is not a “get rich quick scheme”. Do not have the sole mentality of pursuing short-term gains, especially if you do not have the necessary trading or technical skills. Let’s face it, many in the investors have no idea what they’re investing in and are in this only for the short-term rewards. This is a recipe for disaster. It is imperative that every investment decision is based on thorough due diligence and patience. Do not be the guy who had 1700 BTC when it valued at $0.06. He sold it for $0.30 and was then lamenting when it reached $8.00. This was back in 2011. Imagine if he had hodled today, it would worth tens of millions today!
*Hodl – or hodling – is crypto-slang denoting the act of holding on to your coins or tokens no matter what the circumstance is; be it in a bear market or a strong correction; that’s why doing your research is important for the mental toughness to hold coins you already believe in
You should always be focused on the long-term, as the technology underpinning cryptocurrencies are still in its infancy stages and it could take a while before the technologies and various innovations within the cryptocurrency ecosystem are ready for mainstream adoption. Short-term trading in this extremely volatile market could be disastrous, especially if you do not have any trading expertise.
4. Diversify Your Portfolio
Your cryptocurrency investments should be spread across the market proportionally. There are over 1,500 different coins and tokens in the crypto space.
Never put all your eggs in one basket
Bitcoin (BTC) and Ethereum (ETH) have proven their stability with time and represent the base currencies of the cryptocurrency world.
Therefore, it is recommended to always have a considerable portion of your investments in both coins as they are relatively stable and they are easy to exchange with altcoins. Thereafter, it is recommended to spread the rest across valuable altcoins with potentials of disrupting their space. Look for coins that solve real-world problems, not shitcoins.
*Altcoins The word “altcoin” is an abbreviation of “Bitcoin alternative,” and thus describes every single cryptocurrency except for Bitcoin. Altcoins are referred to as Bitcoin alternatives because, at least to some extent, most altcoins hope to either replace or improve upon at least one Bitcoin component.
There are hundreds of altcoins and more appear each day.
*Shitcoins are coins that do not have good fundamentals and are created with the purpose of scamming the masses. They’re often associated with ‘pumps-and-dumps’ and Ponzi schemes and are a great way to lose your money.
A well-built portfolio is a solid foundation for better returns.
5. Keep an Eye on Your Profit & Loss
When I first started, I wasn’t taking cognizance of the amount of satoshi a coin was worth. To the contrary, those numbers determine the value of your coin at any given time. The key to profitability, in the long run, is to buy low and then sell high but not just against the dollar. Look at the price in Bitcoin or Ethereum, whichever you are trading against.
Importance of Due Diligence
One of the most fundamental skills that you absolutely must possess is the ability to identify cryptocurrencies that are backed by solid fundamentals. There are hundreds of coins available, and there is a tendency for most to overlook the fundamentals of the coin and make investment decisions based on hype. This is especially common since many don’t understand the mechanics of the coins they invest in. They tend to just follow the hyped crowd.
Is Hype Good?
True, you can make loads of money buying coins based on hype, but there’s a real chance that it could backfire and you could get burned. There are and will be numerous opportunities to make money with crypto, and you have to be patient. It’s easy to fall into the hype of something we don’t fully understand.
The best way to protect yourself is to arm oneself with the necessary skills and knowledge to make an informed investment decision. Investing on fundamentals sets you up for the long term, and most importantly it gives you ease of mind since you’ve made your decision based on your own analysis. Ask as many questions as possible and seek to find the answers before you invest. Such questions can include:
– What problem does the coin solve?
– Is there any utility to the coin?
– What are the credentials of the team of developers?
– Do they have competitors within the space? And if so, how are they better?
Also, it’s a great idea to look for reasons you shouldn’t invest. There might be several red flags associated with that particular crypto. Keep asking and finding answers from various sources. Reddit is a good source of information. Once you’ve done your due diligence, you’d have a peace of mind knowing whether it’s worth your money.
Be safe, guard yourself with the right knowledge.