Cryptocurrencies or digital currencies may sound familiar to you, regardless of whether you are an investor. The word “Crypto” is making headlines due to its popularity with bitcoin and Ethereum.
While many crypto investors have made millions of dollars by investing in bitcoin and Ethereum, many have also lost their hard-earned money. It is either because they invested in a newer cryptocurrency or at the wrong time.
No matter the reason, here are a few things you should consider before investing in cryptocurrencies.
Table of Contents
1. Understanding the Crypto Network
The most common mistake we make when investing in crypto is that we overlook the underlying buying, selling, and trading mechanism. Most people buy cryptocurrency impulsively without considering the source or timing of their investment. It can result in heavy financial losses if anything goes wrong. Learning about the bullish and bearish phases of the crypto market, the price of a particular cryptocurrency and the market outlook can benefit investors.
Successful crypto investors had made money by buying the bitcoin when prices were low and selling it when the prices increased. This is the most common way how people earn money through their investment. They buy at lower prices, hold the cryptocurrency until the prices are sore, and then sell for profit. However, they constantly have to keep track of cryptocurrency prices to invest at the right time. You can also invest in bitcoin and use the live bitcoin price to keep track of the changes in its prices and invest when the prices hit the lowest.
2. Creating a Diversified Portfolio
Before investing in cryptocurrency, learn about diversification. Investing in a single asset is a big mistake. If you invested all your money in bitcoin, and the price of bitcoin takes a steep downward curve, you would lose most of your hard-earned money.
Therefore, Crypto investors need to diversify their investments and make a balanced portfolio. It is also wise not to invest all your money in digital assets because when the prices of bitcoin fall, other cryptocurrencies follow suit.
If you have diversified your portfolio only in digital assets, you will still lose money when the prices go down. A safe investment strategy would be to invest some part of your investment in stocks, some in digital assets, and some in commodities such as gold and silver. This way, you can ensure that you don’t lose all your money when the prices of one particular sector go down.
3. Do Your Research Before Investing In Crypto
Researching the crypto market as a whole and learning about the particular altcoin is essential if you are to invest in it. As the crypto market experiences steep downward and upward trends, most investors start buying or selling digital assets based on emotions. When the price of bitcoin declines, most investors sell their holdings which triggers a herd behavior among the other investors. When other investors follow suit, the prices go further down, and a bearish phase starts. This can result in monetary loss for most investors because they had bought the bitcoin at a higher price.
Similarly, when the prices go up, investors start buying cryptocurrency. Once herd behavior gets into the equation, the prices increase as more and more people demand bitcoin. But cryptocurrencies are bound to make corrections in their prices, so the prices experience a downfall after some time. This again hurts investors’ money as they will sell their holdings at a lower price.
To keep yourself from losing money due to impulsive buying and selling, you should do your research without relying on what the market is doing.
4. Invest Only As Much As You Can Afford To Lose
One important lesson you can learn from failures in the crypto space is never to invest more than what you can afford to lose. This means you should only invest the amount that is more than your expenses.
Investing all your money in cryptocurrencies can result in the loss of your life savings since the crypto market is highly volatile, and even major cryptocurrencies fluctuate frequently.
5. Invest In It For The Long Run
Most of the investors that became successful in cryptocurrencies are the ones who invested in it for the long run. If you invest in a cryptocurrency, make sure you hold the altcoins for a long time to earn good money. Most people invest by buying cryptocurrencies when their prices are low, generally during a bearish phase, and then hold their digital assets until the market becomes bullish again. They sell their holdings once the prices reach their peak.
Although this means they have to wait for months or even years before they can sell their digital assets. However, it is worth the wait when they sell their altcoin holdings. Many early bitcoin investors saw their investments increase by 300% when bitcoin prices reached an all-time high in 2021. Trading short-term might earn you little money, but you need patience if you want to earn big.
6. Avoid Scams
With the rising popularity of cryptocurrencies, it is only natural that they caught the attention of scammers. In recent years, the crypto market has seen several scams that deprived investors of their hard-earned money. Another contributing factor to increasing scams is that the crypto space is largely unregulated, becoming a haven for scammers. Some popular crypto scams include cloud multiplier, pump-and-dump schemes, fake coins, and malicious wallet software. Most scams are related to new cryptocurrencies, less recognized crypto exchanges, and wallets. So, sticking to the older and more popular cryptocurrencies is better if you want to steer clear of these crypto scams.
Thanks to their popularity, cryptocurrencies such as bitcoin and Ethereum have become household names. Many new investors come to the crypto space ready to invest in cryptocurrencies without knowing how these digital currencies work. Investors need to know about the crypto markets and their preferred altcoins before investing. If you are new to the crypto market and eager to earn money from investing in cryptocurrencies, reading this article might have taught you some things every investor should know before investing in crypto.