By Matt Casadona
Cryptocurrencies are becoming more mainstream, but many investors still don't know whether it's an investment risk they should take. That being said, investors can't deny the widespread demand for crypto from both individuals and institutions. Of course, the crypto investment market extends beyond the coins alone to include blockchain technology investments with a range of applications. Make no mistake; investing in cryptocurrency is risky, and you could lose everything you invest quickly, depending on the market. However, there's still an opportunity to make money as long as you know how to practice patience. Here are tips to safely invest in crypto.
Know What You're Investing In
It's important for investors to understand exactly what they're doing with their money. For example, you must analyze the companies if you're buying stocks. You should also do the same with crypto. There are many options out there, including top names such as Bitcoin and the so-called meme coins, including Dogecoin. All of these coins are sold at different prices and function differently. If you want to invest in crypto, you need to understand which coins you're investing in.
Remember, crypto isn't backed by any financial institution or government. Instead, investors must rely on someone else to pay more for the coins than the investor paid. Unlike stocks, crypto relies on the market rather than the provides and returns of a company.
Before investing, understand the pros and cons of each coin. Since your investment isn't backed by any other type of asset or financial institution, you could lose everything.
Consider the Future
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At one point, Bitcoin was worth virtually nothing, which made investors of all types nervous. However, Bitcoin prices have since increased, and tokens are worth much more. That being said, prices fluctuate daily because, as we've said, the cost of Bitcoin and other cryptocurrencies depends on what someone is willing to pay for them.
Instead of looking to cryptocurrency's past, consider its future. Many experts believe Bitcoin's growth will continue into the future, while others believe that crypto, as we see it today, is just a trend. No matter how you feel about crypto, you need to consider its future, not the performance of the asset in the past.
Beware of Volatility
As we've mentioned, crypto prices fluctuate daily as crypto is one of the most volatile assets to invest in. With no signs, crypto value could drastically drop on just a rumor, but savvy investors who know how to trade can take advantage of volatility to earn more money by executing trades quickly and understanding how the market is trending.
However, new investors don't have the same skills as long-time investors and may panic when prices drop. Volatility is fun for some investors and worrisome for others, especially new investors. Volatile investments typically scare away beginners while other traders step in and buy cheap assets to earn more money over time to buy low and sell high later. Unfortunately, too many beginners buy high and sell low because the volatility of the asset makes them uncomfortable.
Consider Your Risk
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Whether you're trading an asset on a short-term or long-term basis, you must manage your risk. As a beginner crypto investor, you must understand the risk and manage it effectively by developing a process to help you mitigate losses. Risk management for long-term investors may look like never selling their assets, allowing them to stick with an investment no matter what. However, short-term traders might be more strict with themselves regarding the right time to sell.
New investors should set aside some money to begin investing and only invest a portion of it to get a feel for how cryptocurrency investing works and how it feels for the investor.
Don't Invest More Than You Can Lose
You should never invest more than you're willing to lose with any high-risk asset. You should never put too much of your money into crypto, especially if you're a new investor. Instead, you may choose to diversify your portfolio and only let cryptocurrency investments make up about 5% of it, with the rest of your investments consisting of various stocks and bonds.
The money you need for the next few years should not be invested in cryptocurrency because crypto investments are long-term, and you might need to hold onto your coins for years to increase your return on investment. Remember, you can't guarantee any returns for crypto, so if you're saving to buy a house, it's best to keep your down payment cash in your savings account.
Of course, you can lose your crypto investment in other ways, such as losing your key. Your private key is how you gain access to your wallet, and there's no backup, so if you lose your key, you'll lose access to all of your money. Because crypto isn't backed by any institution, any money in your wallet will be lost forever.
Know How Much to Invest
You can invest as much or as little you want in cryptocurrency, but it's best to ensure these assets make up no more than 5% of your portfolio. Additionally, many crypto exchanges might have minimum trade limits. Other trading platforms will take a percentage of your investment as a fee, depending on the amount of money you invest.
Don't Lose Your Key
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As we've mentioned, losing your private key means losing everything. Your key will serve as the password that allows you to access your crypto funds. However, your key is not as simple as a password; instead, it's a string of letters and numbers which can be difficult to remember.
It's always best to keep a copy of your key somewhere, whether it's written down or printed out. Of course, you don't want anyone else gaining access to your key, except maybe your lawyer, who can tell your children where the key is if you pass away. Placing your key in a safe or safety deposit box is a great way to keep it safe.
Final Thoughts
Crypto is a high-risk investment, so you should never invest more money than you're willing to lose or the money needed in the next few years. Whether or not you find success with crypto, it's a long-term investment, so your money will be tied up for a while until you're willing to sell your tokens. Beginners should learn everything they can about investing in crypto, including best practices and learning how much to invest, before they begin trading in their hard-earned cash for tokens.
ABOUT THE AUTHOR
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.
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