10 Rules You Need To Know When Investing In Cryptocurrencies
Cryptocurrencies and blockchain technology are changing the world. We're seeing more and more of this revolutionary technology enter the mainstream, with more people learning about it every day.
One aspect of this change is the fact that cryptocurrencies have become a popular investment vehicle for individuals who want to grow their money or just see how they can make money from an asset class that isn't as well understood as stocks or bonds. However, investing in cryptocurrency is not just buying into an asset class—it's also an art form.
So, if you're new to investing in cryptocurrency or want some tips on how to approach it better, then read on:
What is Crypto Investing
Cryptocurrency is a digital asset designed to work as a medium of exchange. It uses cryptography to secure transactions, control the creation of additional units, and verify the transfer of assets.
Crypto investing refers to the act of allocating funds into cryptocurrencies, digital or virtual currencies that use cryptography for security. These digital assets are decentralized and operate on a technology called blockchain, which is a distributed ledger that records all transactions across a network of computers.
Crypto investing in the context of mining refers to the process of allocating resources, such as capital and computing power, to mine cryptocurrencies such as Bitcoin through the Bitcoin mining pool. Mining pools provide a way for multiple parties to pool their efforts when mining Bitcoin, as it has become increasingly difficult and resource-intensive over time.
The 10 golden rules of investing cryptocurrency
Investing in cryptocurrency is a risky business. Like any other investment, it's important to do your research and learn as much as you can before committing your hard-earned money. Here are some tips to help you avoid common pitfalls:
Rule No. 1 – Never lose money
This is the golden rule of investing in cryptocurrency, and it's also the most important one to follow. When you invest in something like bitcoin or ethereum, there's always going to be an element of risk involved.
You could lose some money if things don't go well with your investments, but if you follow this rule and make sure that any losses are small enough that they won't affect your life too much then there's no reason why anyone should ever lose any significant amount of money while trading cryptocurrencies.
Rule No. 2 – Think like an owner
The first rule of investing is to think like an owner, not a trader.
When investing in cryptocurrencies, it's essential to adopt an owner's mindset. This means treating your investments as if you're an owner of the underlying technology or project, rather than just a speculator looking for short-term gains.
By thinking like an owner, you'll be better equipped to make informed decisions and invest in cryptocurrencies with long-term potential, ultimately increasing your chances of success in the market.
Rule No. 3 – Stick to your process
There's nothing more tempting than changing your strategy when things aren't going well. You might think that if you change something, then everything will turn around and start working again. But it doesn't work like that in investing--or any other aspect of life, really--and trying to force a system into working will only lead you down an endless rabbit hole of frustration and failure.
The same goes for sticking with your process when things are going well; don't get complacent just because everything seems fine now. Just because everything is going smoothly doesn't mean there won't be bumps in the road ahead.
Rule No. 4 – Buy when everyone is fearful
This is the most important rule to follow, as it will help you make more money. If a lot of people are selling their crypto assets, then that means there's less supply available and therefore prices will increase because of this fact alone. This is why it's important to buy at times when everyone else isn't buying; if everyone else has sold off their coins or tokens, then there won't be as much competition for them in the future.
Rule No. 5 – Keep your investing discipline
Investing in cryptocurrency is not for the faint of heart; it's a highly speculative market and it can be very difficult to stay disciplined when you're making investments with money you can't afford to lose. If you're going to invest in cryptocurrency, make sure that you keep track of all of your transactions and constantly review them so that if something goes wrong, there won't be any surprises later on down the road when the market changes drastically from what it was when you first made those investments.
A good way to do this is by keeping a journal where every time an investment is made or sold (or even simply added), write down exactly what happened with that particular coin/token/etc.
Rule No. 6 – Stay diversified
Diversification is the only free lunch in investing, but many people fail to take advantage of it. Diversification means having investments spread across different asset classes (such as stocks and bonds) and geographic regions (such as U.S., Europe and Asia).
The idea behind diversification is that if one asset class or geographic region experiences trouble, other holdings may perform well enough to offset losses elsewhere in your portfolio without having to sell anything at an unfavorable time or price yourself out of an opportunity entirely by selling everything at once.
Rule No. 7 – Avoid timing the market
You should avoid timing the market. The stock market is a complex system, and it's impossible to predict its movements with any certainty. Even if you think you know what's going on, there are still so many variables at play that your guess could be wrong.
The best way to invest in cryptocurrency is by buying and holding for long periods of time (at least five years). This way, you won't have any emotional decisions based on short-term fluctuations in price of assets such as Bitcoin which you can track in bitcoin (BTC) price and charts displayed in crypto exchanges. Instead, your investment will grow steadily over time as more people use cryptocurrencies as currency or buy into ICOs (initial coin offerings).
Rule No. 8 – Understand everything you invest in
- Understand the technology: How is it different from what's already out there? What can it do that other blockchains can't?
- Understand the team: Do they have experience building products and technologies like this before? Are they experts in their respective fields or newbies jumping on the crypto bandwagon? How much money do they have to work with, and how much more do they need to succeed at their goals (i.e., if it's an ICO). Do any members stand out as particularly talented or notable for some reason (e.g., early involvement with Bitcoin)?
- Understand the business model: What problem does this project solve for its users/customers/end-users; why are people going to use this cryptocurrency over others; how does having this token benefit them; what makes this company stand out compared with similar ones trying to accomplish similar things--and why should anyone care about those differences enough that they'd buy into one instead of another one?
- Understand token economics: How many tokens exist overall; how many will be issued during each sale period; what happens if there aren't enough buyers during these periods because demand isn't high enough yet.
Rule No. 9 – Review your investing plan regularly
You should review your investing strategy at least once a year, preferably before the end of December, to make sure it's still relevant and up-to-date. You'll want to make sure that:
- Your plan is still right for you - if not then it may be time for some changes.
- The risks involved are still what suits your risk tolerance level best - if not then perhaps consider making some adjustments here too so that they are in line with what feels comfortable for you now rather than back when this was first put together.
- That any goals have been met or fallen short by now (if applicable), so that we can adjust accordingly going forward from here on out through our next review cycle which will probably happen sometime around mid 2020 onwards depending on how much progress has been made since last year's assessment point was reached.
Rule No. 10 – Stay in the game, have an emergency fund
This is a bit of a controversial rule because many people believe that you should never invest more than you can afford to lose. While we agree with this, we also understand that things happen and sometimes you need to dip into your savings for an emergency or unexpected expense.
The best way around this is to start saving early and keep some cash set aside for these purposes so that when they arise, you don't have to sell all of your crypto holdings at once just because something came up unexpectedly (or even worse--because someone else convinced you it was time).
Conclusion
To sum up, here are the 10 golden rules of investing in cryptocurrency that can help you navigate the volatile world of digital assets and maximize your chances of success.
By following these 10 golden rules, you'll be better equipped to navigate the complex and often unpredictable world of cryptocurrency investing, ultimately increasing your chances of success and long-term profitability.