The cryptocurrency space offers unique opportunities, but it also introduces obstacles and hazards that are not normally found in regular markets.
For example, there is extreme volatility, technical intricacy, and regulatory uncertainty which can be overwhelming for inexperienced investors.
Thankfully, by adhering to the essential principles and playing by the rules you not only protect yourself from risk, but also increase your chances of winning. To help you out, here are the rules you should play with:
Invest what you can afford to lose
Cryptocurrencies are still relatively new and extremely volatile assets that can fluctuate significantly in value in a single day. While the long-term trend has been positive, there is still skepticism and opportunism in these markets.
As a result, you should invest only the amount of capital you are willing to lose if the market goes against you. Before investing in cryptocurrency, you should ensure that you have enough emergency savings.
When you're ready to invest, limit it to 5% of your portfolio. This is sufficient to increase exposure to prospective gains while minimizing the impact of losses on the overall portfolio.
Aim to build a balanced portfolio.
Crypto trading is continually evolving. While several countries support cryptocurrency trade, others remain suspicious.
Central banks around the world are working on new ways to govern digital currencies, making trading in cryptos a risky proposition. However, there are tactics that can help you avoid the high volatility.
One way to do it is to build a well-balanced portfolio with cryptocurrencies such as Bitcoin, Dogecoin, and Ethereum that could help you beat volatility.
This calls for you to keep a set quantity of regular investments in various cryptos. From this, gradually raise your risk appetite, allowing your portfolio to generate positive long-term returns.
Stick to the major currencies.
When building your portfolio, you shouldn’t go at it blindly. Instead, you should take your time and aim to invest in the major currencies.
The reason for this is that large, established crypto assets such as Bitcoin and Ethereum benefit from first-mover and adoption advantages, have high market capitalization, and are linked to a slew of financial products created on top of them, including ETFs and derivatives markets.
These well-known coins have been through several big market cycles and downturns.
While hazards exist, larger cryptocurrencies have greater resilience than newer or smaller-cap coins.
While it’s good to focus on the already known currencies, consider reinvesting periodic profits from significant assets in promising fresh ventures with real-world applications when the opportunity presents itself.
As with any asset or security, avoid substantially overweighting big cryptocurrencies in relation to the size of your total investing portfolio and risk tolerance.
Take advantage of dollar cost averaging.
This is simply making tiny, recurring purchases on a regular basis, such as weekly or monthly. Instead of making these purchases manually, you should automate them using an exchange such as Bitcoin Decode.
Dollar-cost averaging allows you to gradually develop a position while avoiding the psychological trap of attempting to exactly time market tops and bottoms.
As a result, they will buy more cryptocurrency when prices fall and less when they increase, mitigating the impact of volatility.
Paying a few additional transaction fees is typically profitable in the long run. You also should consider making opportunistic purchases when the market falls drastically.
Take time to research and stick to the fundamentals
Vetting a cryptocurrency investment requires different metrics than the stock market. These frequently include determining real-world adoption potential, scrutinizing technical requirements, researching the founders and developers, analyzing community activity, and evaluating competitors.
When investing, favor time-tested initiatives or those that provide unique features that cannot be easily replicated and have the potential for mass adoption. Beware of assets primarily based on speculation and lack actual fundamentals, as you will likely get burnt.
The utility of the token, transaction speed and scalability, network security, coding language(s) employed, team transparency, and competitive advantages over other cryptos are all critical considerations you should take the time to study.
Safely store your assets.
You should store your crypto assets in a hardware wallet or with a reputable crypto custodian rather than leave them on an exchange for an extended period of time.
You should research the most popular and best hardware wallets with enhanced security features such as offline storage, encryption, PINs, multi-signatures, recovery phrases, and anti-tampering measures.
While at it, keep your recovery word somewhere secure, such as a locked bank vault. Don’t store your recovery phrase electronically; if necessary, encrypt or password-protect it.
When entering sensitive wallet data on a smartphone, exercise caution. You should create difficult and unique passwords.
Understand the crypto technology.
Set some time to learn about the underlying technology that powers various cryptocurrency assets. Understanding how blockchain networks, consensus methods, hashing algorithms, and smart contracts function will help you assess a project's potential.
Learning cryptography fundamentals also allows you to better understand the potential of technologies such as zero-knowledge proofs.
There are many ways you can get the information. For example, you can subscribe to reliable industry magazines and blogs, to stay up to date on new technological breakthroughs in the area.
Stay disciplined
You should create a strong, rule-based structure.
A systematic strategy based on set criteria helps to avoid emotional decision-making, which is costly.
At the same time, continuously improve your portfolio and strategy based on lessons acquired. Instead of tightly committing to a single system, remain flexible and open to fresh knowledge.
You should maintain objectivity while assessing the cryptocurrency investments. Do not give in to the fear of missing out (FOMO), speculative meme currencies, or hype cycles.
Also, avoid any assets that promise instant money, guaranteed returns, or anything else that appears too good to be true. As most likely, it is.
You should maintain a well-balanced portfolio across several asset classes. Avoid overexposure to cryptocurrency.
Before acting on any cryptocurrency-related information, double check to confirm that it is accurate.
Understand that cryptocurrency investing is still very speculative, and be prepared to reduce your losses if investment trends change.
Consider speaking to expert financial consultants for advice suited to your specific financial status and goals.