Investing in the cryptocurrency market is challenging, to say the least. The cryptocurrency market seems to ignore any rules that apply to other markets, and investors can be simply overwhelmed by the volatility and technical nature of the market. Thus, a huge number of investors can lose their money.
However, it is not for nothing that many popular investors and companies are beginning to allocate a significant portion of their portfolios to cryptocurrencies. The cryptocurrency market can be unpredictable, but in the long run it has proven attractive to many people.
So, how do you invest in cryptocurrencies and not go bust? Volatility can be discouraging, but there are some basic rules you can apply to get the most out of your capital. That’s what we’re trying to explain here. But remember, nothing is guaranteed, so the age-old principle of investing as much as you can afford to lose remains a rule of thumb.
1. Never Invest More than You Can Afford to Lose
Any successful and intelligent investor will tell you to only invest as much as you can afford to lose. This applies to all markets, and even more so to crypto, where double-digit drops can be seen in a few hours. In today’s investment world, there are quite a few reckless investors who throw all their savings into a handful of stocks, but this is a sure path to death.
The cryptocurrency market has experienced an unprecedented rise in value and an equally significant fall in value. It is still a nascent market, with no regulatory checks and early technical barriers. This can lead to some nasty situations like break-ins, scams, and a flurry of sales orders that can pop up on a whim.
Thus, investors should take a small portion of their capital – I repeat, exactly as much as they can afford to lose – and funnel it into a select few cryptocurrencies.
2. Use Dollar-Cost Averaging (DCA)
The principle of dollar value averaging (DCA) is very applicable to the cryptocurrency market. DCA is used to overcome volatility, and the latter is the main characteristic of the market. By investing small amounts over time, you can stop any losses and use your capital more efficiently.
It’s worth noting that you’ll pay a little more in network fees using this method, but any gain you make should make it negligible. You can do this weekly or monthly – the details are up to you. If you are particularly confident about where the market is heading, you can set aside additional capital for a period when the market appears to be low.
3. Research in Detail, Stick to the Fundamentals
Research is still important in the crypto market. Although it is not as clear and direct as investing in a public company, it still plays an important role in the investment process. The process of researching cryptocurrencies for investment could be a separate topic, but here it is beyond the scope of discussion.
Some of the principles you will guide in your research are whether the project in question and the cryptocurrency in question have a valuable and unique use case, the technical elements of the project, the management team, and the potential to disrupt the particular industry or area in which it operates.
However, in all cases, you should always focus on the basics. Does the project have a transparent and honest team? Do the financials match in terms of costs and returns to investors? Does the technology seem like something that has real potential?
4. Stick to the Major Assets
Of course, many may be put off by the relatively complex and novel way of researching cryptocurrencies. For these people, it may be better to stick with core assets that have stood the test of time. Bitcoin and Ethereum are the best examples of these assets and have seen many rough bear markets.
There are a few others, although it becomes much harder to tell if these other large, large-cap assets have the potential to survive in the future. This also applies to Bitcoin and Ethereum, although everyone agrees that these two have already proven themselves worthy of attention.
5. Use Safe Storage
In addition to the investment itself, one of the main requirements when working on the crypto market is storage. It is not uncommon for investors to lose access to their exchange accounts or, in the worst case, lose their funds altogether due to a hack or security breach. Safe storage of your crypto assets is of paramount importance, and you are responsible for this.
Thus, serious investors should consider what is called a hardware wallet. These are wallets with additional security features to prevent your funds from being stolen. Investors should not store their cryptocurrencies on exchanges or software wallets, at least not for any appreciable amount of cryptocurrencies.
6. Employ Common Sense
First of all, common sense is required to invest in the cryptocurrency market. It’s easy to get caught up in the hype and hype around a brilliant new project, but more often than not, it results in big losses. It’s even easier to participate in a meme token that’s greatly boosted solely by rallying people online like Dogecoin, but it’s a double-edged sword with one side much sharper than the other.
As with the stock market, you want to diversify. There are several projects working on some key issues and use cases, and they can cause major disruptions. This is not guaranteed, but as is the case with different sectors of the stock market, you can allocate your capital between these projects.