As cryptocurrency trading and cryptocurrency investing become more widely accepted, you might be wondering how to get started. You may also be curious about the value, if any, of investing in the crypto market.
Here’s a simple guide to investing in cryptocurrency and what you need to look out for, especially as a beginner, to ease your entry into the market.
5 Things to Consider Before Investing in Cryptocurrency
- Do Your Research
Like any other investment prospect, it is essential to know precisely what and where your money is going. Thankfully, cryptocurrency has been around for a little over a decade; thus, a considerable wealth of information is available for potential investors like you to take advantage of.
Find out everything you need to know about the crypto-blockchain market ecosystem. Read up on what common crypto terms mean and the different types of trading available. Watch Youtube videos about blockchain, NFT, web3 and cryptocurrency. Listen to crypto podcasts and follow thought leaders in the crypto industry on social media. Whatever your preferred method of consuming information, ensure that you apply critical thinking to the knowledge being shared. Remember, this is an investment, and the goal is to profit.
- Invest Only in Solidly-Backed Coins and Tokens
There are currently over 5000 different cryptocurrencies available for trading, and more tokens & coins are being created every other day. The hard truth is that most of these currencies may never amount to much or even pay off at all.
According to Adam Levine, founder of Let’s Talk Bitcoin and the current CEO at Tokenly, "as the value of (crypto) goes up, heads start to swivel, and skeptics begin to soften. Starting a new currency is easy; anyone can do it. The trick is getting people to accept it because it is their use that gives the “money” value."If you are curious about what it takes to create a cryptocurrency, we have a simple explanation on our blog. Read it here.
To offer clearer insight, let’s look at the case of Apecoin, the cryptocurrency of the Bored Ape Yacht Club community and its related communities. The Bored Ape Yacht Club is a collection of 10,000 unique Bored Ape NFTs launched in April 2021. Four founders built it on the Ethereum blockchain - Greg Solano, Wylie Aronow, "No Sass", and "Emperor Tomato Ketchup". Several of the pieces from the collection have been sold for hundreds of million dollars to collectors, including Serena Williams, Eminem, Snoop Dogg, Justin Bieber, Shaquille O’ Neal and Steph Curry.
Apecoin was launched on March 18, 2022, and after only a single day of trading, it had a market capitalisation of almost $2 billion. It can be speculated that the coin received such a positive response because of the community backing it. Hence, the key takeaway here is to always find out the backing behind a coin or token before purchasing it.
- Pay Attention to The Volatility Factor
Cryptocurrency is volatile. This is not only a fact but a major factor to consider before putting your funds into a coin or token. The price of crypto assets can rise or fall fast based on something as trivial as a rumour or even a tweet.
For example, on May 12 2021, when Elon Musk tweeted that Tesla would stop accepting Bitcoin as payment because of environmental challenges, the price of BTC dropped around 15%. Twelve days later, Musk tweeted positively about the North American bitcoin miners’ plan to publish renewable usage, and the price of Bitcoin went up 4%.
The volatility of cryptocurrency investing can seem daunting, but it is not impossible to manoeuvre.
At first, you may get frustrated as a beginner, but as you continue trading, you will eventually gain a solid grasp on the market’s fundamentals, how the market is trending and where it could go.
- Take Risk Management Seriously
Risk management is one concept both beginners and seasoned traders must always prioritise. As a new trader, you must understand the best way to manage risk. You must also set up a strategy that helps you minimise loss. For instance, your risk management strategy can involve establishing strict rules on when to hold and when to sell. You could decide that you will only sell when a coin or token has risen 20% or hold as long as the coin doesn’t fall below 15%.
Beginners in the crypto investment market should consider keeping a specific amount of money aside for trading and using just a small part of it to make the first couple of trades. With this approach, they will still have money to trade if their investment moves against them. To provide further context, let’s say you set aside $100 to trade. Then you buy $20 worth of Solana in the hope that it will rise and you can sell it, but instead, the price falls terribly. Despite this loss, you will still have $80 left to trade. To state the obvious, the loss would have been more severe if you had used all the $100 to buy Solana.
In essence, always have a risk management plan and some money set aside to offset any losses you may experience while cryptocurrency investing.
- Do Not Spend All Your Money On Crypto
This is self-explanatory, but it must be emphasised nonetheless as it is a mistake many beginner traders make. Some traders have been fortunate enough to invest all their money into a coin or token and have cashed out from the trade. However, spending all your money on a crypto investment is not financially advisable, regardless of how confident you are in its value. Remember the common saying, “do not put all your eggs in one basket”, and apply it to cryptocurrency investing.
Cryptocurrency investment offers an exciting and expansive lane to financial freedom. Nevertheless, you must apply caution, logic and patience when investing in crypto coins and tokens. Do your research. Pay attention to volatility. Have a solid risk management strategy. Never spend all your money buying crypto assets, and always stay within your financial limits.
Disclaimer: The writer wrote this article to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be considered financial advice. Obiex Finance will not be held liable for your investment decisions.