A beginner’s guide on how to invest in cryptocurrency
Now that you have set up a wallet and are now thinking of what to fill your bags with. (If you aren’t on this step yet check out this “How to open a cryptocurrency wallet”)
Thousands of cryptocurrencies have been created, and it is often overwhelming for newcomers. The underlying technology behind it all is blockchain. A public ledger that allows to verify, preserve and secure data. Congratulations! We got through the most technical stuff. Now, let’s talk about investing in cryptocurrency
Do not, under any circumstances, invest money that you can’t afford to lose. A great practice is to have at least a few months of your average spending set aside before you put your funds into the market. Stay away from leverage and futures, if you are new - only invest, don’t trade. Another good rule is not to follow the hype. If you want to buy into a hot coin that you heard about at the gym or on Facebook/TikTok/Instagram/Reddit it is often already too late, this train has passed.
What to look for
To start off, go to Coinmarketcap and check the cryptocurrencies listed there by their market capitalization. Those that are in the top 20 aren’t a bad choice already. The metric doesn’t mean much in isolation but does show that a large amount of money and money people have already entrusted their capital. Avoid stable coins that don’t change in value and are always equal to 1 USD such as <USDT, USDC, BUSD, DAI> for the purpose of this article they are of no interest.
A basic strategy
If you have allocated a set amount for your investment in cryptocurrency, don’t use it all at once. Let’s say you have $1000 that you want to buy crypto with. Start with buying only worth $100. Your next $100 spent should be next month and an equal amount after a set interval. This spreads your risks and averages the entry price to the market, making your investment much more resilient to volatility.
The cryptocurrency market overall moves in a similar trend, on good news most coins tend to grow, during a crash, all prices fall. But some projects have breakthroughs or see a surge in popularity and outperform the rest. To hedge risks and optimize your investment, buying 3-5 coins together often fairs better than going all in on one.
Researching a project
The market has been through a lot and the two projects that have really proven themselves are Bitcoin and Ethereum. They are the core of all cryptocurrency markets now. If you decide to venture further, it is always a good idea to do some research. Check the whitepaper, how the development team sees the project, and their plans for the future. Follow the community - have they any complaints, was anyone hacked, did the project face significant downtime. An important factor is the team. Are they active with posts updates and community interactions and are they trustworthy with any other complete and successful project already created.
There are very few cryptocurrency portfolios that don’t include Bitcoin. BTC has proven value, security, functionality, and the limited maximum supply adds scarcity and value. It is most recognized, and many investment firms added massive capital.
Ethereum is the second pillar of cryptocurrency, most of the existing projects are built using its technology. ETH is open source and has a programming language that is used across the industry.
Cardano adds some of the most advanced features to the industry. It is a rare project with scientific philosophy and a research-first driven approach. ADA is a leading launchpad for deploying smart contracts.
Polkadot software evolves to become an underlying technology to build other blockchain networks from it. DOT enables cross-blockchain transfers of data.
Solana is an implementation of a new high-performance permissionless blockchain. SOL is designed to facilitate development and maintenance of decentralized applications.
Understanding the financial decisions has always been a benefit for every investor. Learning will definitely add confidence to every action. Set investing goals: have a certain amount of profit to aim for or a total portfolio value to achieve. Goals add a sense of achievement and additional purpose beyond financial independence. Take profits – holding all profits forever isn’t always great. Moderately managing a portfolio would allow enjoying the process much more.
Before investing in cryptocurrency, make sure to pay due diligence to your approach. Scams are the plague of the crypto world, there are numerous schemes to steal money. Stay away from projects that have not been researched well, and do not ever share your confidential information. Use only regulated exchanges. Set up extra protection of your accounts with strong unique passwords and two-factor authentication.
Worrying about your money is something that every investor has gone through at one point or another. Not all your investments will always grow right from the start, that is only normal. Time on the market has been the main factor of success. When you have looked at all the aspects of the project and the invested funds are not life-dependent savings there is little that can go terribly wrong.
Now that you found some great assets and have a plan. See how you can increase your holdings and earn interest on the investment.