6 Tips For Investing in Cryptocurrency In 2021
Cryptocurrencies have been around for more than a decade now and many are trying to get familiar with them. Being something fairly new to the world, cryptocurrencies faced a huge backlash back in 2018, when they experienced a bear run after the 2017 bullish cycle. The cryptocurrency market made a huge comeback this year, breaking all kinds of records.
Cryptocurrencies have started serving many different purposes, most of which are beneficial and proved themselves successful. As of today, many international companies – like Tesla and Microsoft – accept cryptocurrencies as a form of payment; and with the implementation of the crypto world onto the real world come more investments.
With a total market cap of around €2 trillion, the crypto industry is attracting new investors every day. Besides the volatility of the market and the unpredictable price changes that come with it, the crypto market is not that complicated. In this article, we’ll give you six essential tips that will guide you throughout your crypto journey.
1. Do Background Checks
One of the reasons why many people lose money when they invest in crypto is not knowing what they are investing in. Not knowing what you are getting yourself into will most probably result in you losing money since, as a new investor, you don’t understand how the market works. Many people want to join the hype and start investing when they see the name of a coin being mentioned everywhere, thinking that they will have massive gains like many others; what they don’t know is that the hype won’t last forever, and when the hype dies out, their investment will die with it. This is differently known as the fear of missing out (FOMO). A new investor should firstly check the website of the specific coin/token they are seeking to invest in; check who the creators of that coin/token are; find out what function does that coin/token serve, and do a basic analysis of the market surrounding the coin/token.
2. Invest Only What You Can Afford to Lose
Significant volatility exists in cryptocurrency markets, making them a risky environment for new investors that do not understand what is going on. The wisest thing to do is to invest what you can afford to lose. Investing is always a good thing to do when the amount you invest does not damage you financially even if it is lost. Cryptocurrency markets are known as high-risk/high-reward types of markets. Taking that into consideration, nobody can guarantee you that you may not lose everything you invest in crypto in the blink of an eye, and vice-versa. Just as Elon Musk stated for TMZ, “Cryptocurrency is promising, but please invest with caution; people should not invest their life savings in cryptocurrency, that is unwise.” In other words, do not bite more than you can chew.
3. Choose Your Investments According to Your Budget
Until the year 2021, a huge number of records have been broken in the cryptocurrency industry. Additionally, there have been thousands of new coins and tokens added. That being said, the range of options an investor has today is way wider than that of an investor back in 2016. This gives an opportunity to new investors to invest in coins that are cheaper and that can bring profit even with small amounts of investment. For example, if you are interested in investing $200, investing in a coin that is sitting at a price under that of $10 may be better than investing that money in BTC or ETH. That being said, choose what coins or tokens suit your budget best and do not try to buy a specific token only because it is huge at the moment. The higher the price, the harder it will be for that coin to grow percentage-wise.
4. Be Patient
The most important thing to keep in mind when investing in crypto is being patient. Even though there are many coins that have made millionaires overnight during this year, these rare circumstances should not serve as an example of how the cryptocurrency market works. Every coin has its ups and downs and those that have had x100 or even x1000 runs over the last couple of months are some rare coins that had those gains because of specific circumstances they were put in. As mentioned before, you should do a background check on the coin you are seeking to invest, let that investment sit until the time is right, and after you have gained what you aimed to gain, it could be a good time to sell. Most new investors start to panic-sell when they anticipate a drop in their investment; which leaves them with less money than they had when they joined the market. A perfect example would be Bitcoin during the last decade. If you bought just 1 BTC in 2011 and let it sit there until today, you would witness a 115 million % increase in your investment – just by being patient.
5. Carefully Choose Your Exchange
One of the biggest problems that new investors are facing today is frauds and scams. The new investors are the most vulnerable ones when it comes to these phenomena because the crypto markets are still unregulated by laws in most countries. When choosing a crypto exchange, you should look at the credibility of the exchange and the feedback it has from previous users. Most of these exchanges provide wallets for their users, and that is where things get complicated. In 2018, one of the biggest crypto exchanges in the world, Binance, was hacked and more than $40 million worth of Bitcoin was stolen. Even though Binance promised that the funds of users will not be affected, the fact that a major exchange got hacked and suffered that much damage portrays the risk that comes with using these types of online crypto exchanges. If some hackers could breach the security of a whole exchange, what is stopping them from breaching into your account in that exchange? Therefore, carefully choosing in what exchange you do most of the investing is crucial.
6. Carefully Choose Your Wallet
When you buy any particular coin, you will need a wallet to store that coin. These coins can be stored on an online wallet or an offline wallet, also known as “Hot” wallets and “Cold” wallets respectively. What differentiates “Hot” wallets from “Cold” wallets is their way of being accessed by you.
While a hot wallet is a wallet that maintains a constant connection to the internet, a cold wallet is a wallet that you have to access through a specific piece of hardware. Even though you may have quicker access to your funds and assets when storing them in a “hot” wallet, they will never be as safe as they would be in a “cold” wallet where only the ones who have physical access to that particular hardware that serves as a storage unit can control those funds and assets. If you invest big amounts of money, a cold wallet is the best option for you, however, if you are seeking to invest small amounts of money and want to have an easier time trading and exchanging cryptocurrencies with one another, an online wallet will serve you just right.
The world of cryptocurrencies is still young and on the build-up. Being an industry with high volatility, it is really hard to master. However, just like in everything else, practice makes perfect. Do not rush it and join the market with slow and steady steps in order to build somewhat of an understanding of what you should and should not do when investing. Even though the cryptocurrency market is very unpredictable, there are still elements like supply or market cap that, when taken into consideration, can become very valuable information that will guide your path to making huge profits.
- Just like in every industry, doing background checks for the cryptocurrency you want to invest in is crucial.
- Only invest an amount of money that won’t damage you financially if lost; investing your life savings is unwise.
- Aim to allocate your investments in coins that fit your budget.
- The world of crypto is still in its early phases. Be patient with your investments.
- Investing through crypto exchanges is the easiest way to start your crypto journey. Be cautious of the exchanges you let your money flow through.
- Having a wallet to store your assets is a necessity when investing in crypto. Choose one that fits your investment.
- Altogether, do not be influenced by the mainstream media when investing and carefully check where you put your money into.