5 Things You Should Know Before Investing in Crypto
As global technologies continue to shape our world, cryptocurrency adoption soars to an all-time high. The need for digital currencies is becoming more and more prevalent in our society, making these coins more lucrative investments than ever.
Cryptocurrency aims to give power to the people. Its financial framework leverages Blockchain technology to be self-governing, unlike in traditional financial systems that have a central authority.
Crypto’s decentralized nature has attracted the likes of Elon Musk and Microstrategy's Micheal Saylor to become advocates of Bitcoin. Using their social media platforms, they preach the potential of crypto to their millions of followers.
Without a doubt, the crypto boom has influenced millions of people to start trading and investing in digital coins. But not everyone has been successful in this venture. Sometimes, it is due to market volatility. Other times, people fall victim to exploitation, scams, and hacks.
To make the best out of your crypto experience, we've outlined five things you should know before investing in crypto. Let's dive in!
Do Your Own Research (DYOR)
If you've been in the crypto space for some time, chances are you've seen the term "DYOR" come up on your feed once or twice.
So, what does it mean?
Doing your own research (DYOR) in crypto means conducting due diligence before investing in any digital asset. As an investor, knowing the right crypto projects to invest in will help you make better-informed decisions.
The truth is, investing in digital assets is not to be taken lightly. It is not as easy as taking financial advice from a thread on Twitter on profitable coins to buy. This way has seen countless people fall victim to the hype of potential gains. They buy these cryptocurrencies with the hope of a price pump, only to have the prices dumped in their faces. Unfortunately, when this occurs, there is no way to recover lost funds. So, it's important to be careful out there.
There are two main ways to DYOR. Fundamental analysis and technical analysis. The latter involves charts, indicators, and a more complex method of research.
But, conducting your fundamental analysis on a token is quick and easy. All you need to do is look at the project behind the coin to see if it is viable or not. You can google the company or read their coins whitepaper to determine if it's worth investing in.
Have you Decided on an Investment Approach?
Don't get sucked into the crypto noise due to FOMO. Diving into the crypto markets without a solid investment strategy is a plan doomed to fail.
Hold on for dear life (HODL) is a popular investment approach as well as short-term trading.
HODL is a long-term investment plan that means, buying a coin at a low price and sitting on your investment till the price rises. This investment approach can take anywhere between 6-12 months depending on the growth of the coin. For instance, Solana (SOL) launched in 2020 at a price of $0.5205 and in 2 years this same token is worth $86.23. That is a 16,000% growth from its initial coin offering (ICO).
Also, trading in the market and using short-term strategies like scalping and day trading strategies is very profitable. Short-term traders profit from crypto price fluctuations on a daily, weekly, and monthly basis.
Invest in Small Amounts - Buy Low Sell High
This is the most valuable advice to give a newbie crypto investor. Only invest in what you can afford to lose! This will help guide your finances and make sure you diversify your investments.
It is better to go into crypto in small amounts especially if you have limited capital. There's no rush to go all in, in the market. For instance, Bitcoin reached a price mark of $32,000 in January 2021, and a record high price of $69,000 in August 2021.
This same Bitcoin has lowered tremendously in 2022. It retraced and corrected to a price of $34,459.00 as recently as last month. Analysts say BTC will maintain the $30k-450k price mark in 2022.
This tells you that you can invest in crypto in small amounts. Stick to buying coins during the dip or correction phase to minimize losses.
Beware of Price Volatility
The promise of gains is very attractive, but the cold whip of volatility can lead you into financial ruin. The crypto market is volatile and unstable, unlike the stock markets and other asset classes. If you must indulge in crypto, do your best to practice risk management at all times.
Invest in a Hardware Wallet
A hardware wallet or cold wallet is the most secure place on earth to store your crypto. It cannot be hacked because it stores your crypto offline with a host of encryption nodes that is hard to bypass unless you have the private key or passcode to access that wallet.
Cryptocurrencies, like all digital technology frameworks, can be susceptible to hacks. In 2019, Binance, the largest cryptocurrency exchange in the world by trading volume was hacked! This should not surprise you though. Exchanges are likely targets for hackers because they possess a large number of people's funds stored in a hot wallet, which is online.
Although after this incident Binance now stores more than 90% of its users' funds offline and in cold storage. The remaining 10% is left in a hot wallet to facilitate exchanges on their platform.
When investing in cryptocurrencies, you should consider storing them in a hardware wallet like Trezor or Ledger Nano. This will keep your precious digital assets safe, especially if you do not have plans to trade with them on an exchange.
Cryptocurrency is a fun and exciting asset class, but it should not be underestimated. You still need to conduct due diligence before investing. And practice effective trading strategies to be able to make significant profits from the market.
This content should not be treated as investment advice. Cryptocurrency is a highly risky and speculative market.