Do you wish to know What is the most important rule when starting investing in cryptocurrency?
if yes, congratulations because you have come to the right place,
that will solve the problem and show you the most essential rules for investing in cryptocurrency.
Investing and profiting from the cryptocurrency market is one of the significant challenges.
That a lot of people are facing these days.
Cryptocurrencies have been volatile right from when it was introduced.
The volatility can create opportunities for profit if you’re looking to trade digital assets such as Bitcoin, Ethereum, and the rest.
Here’s how to start investing in cryptocurrency and the essential risks you must know. I will explain as we proceed forward.
Related post about how to earn without investing in crypto
Research to understand the Fundamentals of a project
Research is one of the essential things to do in the cryptocurrency market.
While it’s not as direct as investing in a publicly traded company,
improving your investment process to choose and make a conscious decision is still essential.
The process of researching cryptocurrencies for investment would be treated as an entire topic on its own,
but here, it is still one of the critical purposes of this discussion, which is why I bring it up.
There are a few things to consider when researching the cryptocurrency market.
Some of the principles that will guide you in your research area.
you should check if the coin or token has a valuable and unique use case.
the technical aspects of the project, the management team, and the potential to destroy the industry or space in which it works.
However, the important thing is that you should mainly focus on the fundamentals at times.
Does the crypto project have a transparent and honest team?
Do the financials, regarding expenditure and allocation toward investors, make sense?
Is the crypto project technology something that has genuine potential?
don’t you buy a cryptocurrency you have yet to research in-depth.
I KNOW the majority of people are busy, and it can be enticing to put a small amount of money into an altcoin you read about online.
But it’s your money, and there’s a lot of incorrect information out there. Only you know your investment plans and goals.
Research doesn’t guarantee success, but it dramatically reduces the chance of being scammed or buying crypto with no good long-term potential.
There are several others as well, though it is getting much more complicated to tell whether the other significant crypto assets with large market capitalizations,
are capable and have the potential to survive in the future.
This also applies to Bitcoin and Ethereum, though the belief is that these two have already proven themselves worth considering.
Make a Conscious Decision to choose a Safe Storage
Apart from investing in the crypto space, one primary requirement when engaging in the crypto market is the act of storage.
It is commonly experienced to hear that investors have lost access to their exchange accounts or,
in the worst case scenario, lost all their funds because of a hack or security issues.
Storing your crypto holdings securely is the highest priority, and the responsibility is yours.
Choosing the most effective ways to buy and store coins is crucial.
The cryptocurrency market is a relatively new space, and you have to choose the best option on how to buy and where to store your coins.
When investing funds, security should always be the top aspect to consider.
As such, serious investors ought to consider what is called a hardware wallet.
These specialized wallets have extra security features to guarantee that your funds cannot be stolen or hijacked.
Investors shouldn’t store their coins on exchanges or software wallets, at least for any considerable amount of crypto.
Every step and process must be secure from when you choose to invest in any crypto asset.
Build a solid financial background first
Building a solid financial background is essential if you want to invest in crypto.
That requires having an emergency fund to cover three to six months of living costs and being on top of your retirement obligations.
Put this over any crypto investments if you’re trying to pay down debt.
If you face a financial emergency in the next couple of days,
your emergency fund will help and rescue you to cover your needs without taking on debt or selling assets, possibly at a loss.
Imagine you spent $2,500 on Bitcoin last year in November instead of saving as an emergency fund.
It could be worth as little as $700 today. While it may recover in the long run,
That wouldn’t help if you are forced to sell today due to the immediate financial crisis.
How would you feel if you lost your job this week or faced a medical challenge and your financial reserve was in Bitcoin rather than a bank?
Use Dollar-Cost Averaging (DCA)
The dollar-cost averaging (DCA) principle is essential in the crypto market.
DCA can defeat volatility in the cryptocurrency market, which is a significant market characteristic.
Investing small amounts over time can reduce some losses and efficiently use your capital.
It is important to remember that using this method will cost you more transaction fees,
but any gains you make should cover the expenses (gas fees).
You can apply this method on a weekly or monthly basis.
The decision is up to you, depending on your financial level.
If you feel optimistic about where the market is going,
you can set aside some extra funds to accumulate the coins when the market seems to be at a low region.
Choose the Best Entry Point
Many people are afraid to buy coins just because of market manipulation.
Everyone knows that big companies can artificially increase and decrease the price until they get their desired profit.
At the same time, usual traders constantly wait for a coin to become cheaper.
This fear is normal, but you must learn to ignore it since it is almost impossible to predict market fluctuations caused by whale manipulation.
If you see that a cryptocurrency is promising and cheaper than average, you can buy it.
Learn chart analysis and also use technical indicators to confirm your entry point.
Never you invest more than what you can afford to lose
Any successful and sensible investor will tell you that investing what you can afford to lose is essential.
This applies across all markets, including the cryptocurrency market.
One of the best suggestions you can give to a new crypto investor is to invest money they can afford to lose.
Irrespective of how good the technology is or how experienced the project team is,
there is always a danger of losing all your investments.
If you are not convinced about a coin, wait to buy it. Do a little research then if you are convinced you can buy.
The fear of missing out (FOMO) motivates individuals to take uncalculated risks.
The digital currency or crypto market is highly volatile and can turn you from zero to hero and vice-versa.
When you encounter projections that Bitcoin (BTC) could go to $1 million,
the attraction is to put every available cent into the king of crypto with the expectation of huge gains.
The problem is that You can eventually lose all the money.
If you only invest money you are comfortable losing, you will avoid bankruptcy if the industry goes south.
Crypto investing is a risk. The blockchain could transform how we manage money or become the next currency of the internet.
But it may not.
Many projects can fail, and the entire industry could collapse entirely.
You have to invest responsibly in the crypto space.
Within an hour, a double-digit decrease can occur right in your presence.
The present investment world has its fair share of careless investors who risk their life savings on a handful of stocks, but this is a guaranteed path to failure.
The cryptocurrency market has seen exclusive value rise and similar massive decreases.
It is still a developing market with few regulatory checks and technical limitations.
This can result in unpleasant situations such as hacking, fraud, and an excess of sell orders that appear to be random.
As a result, investors should allocate just a little of their capital—remember, only as much as you can afford to lose—to some specific cryptocurrencies.
Develop Your Own Strategy
While buying and selling a crypto asset, you must have a carefully established procedure for further activities.
In today’s stock exchange nature, robots bring the most money since they completely follow the regulations and are unaffected by emotions.
Psychology is a crucial aspect that often affects overall earnings.
That is why you should establish your investing strategy and diligently follow it.
Diversify your investments
Diversification comes in different forms, including the types of crypto assets you buy and the individual assets within each class.
The majority of experts recommend only putting a small amount of your total portfolio if you want to invest in the crypto market.
The remaining should go for lower-risk assets such as real estate or equity.
If you are asking how much should be invested? It all depends on your tolerance for risk, belief in crypto, and financial situation.
It’s also good to diversify within your crypto portfolio.
Most people choose to invest only in Bitcoin (BTC) and Ethereum (ETH),
which is good as these are the most established cryptos with an ideal chance of surviving long term.
But if you want to diversify and buy some of the smaller altcoins, don’t go all in for one or two.
Consider a mix of crypto sectors based on which ones you think are promising.
For example, my portfolio is highly diversified toward smart contract cryptos simply because it is an area that I’ve researched a lot,
and I like that many other cryptocurrencies are also built on the identical blockchain.
Because I have some exposure to gaming and metaverse tokens,
I try to stay clear of privacy tokens completely.
Other investors will likely have different objectives and areas of knowledge.
Avoid FOMO
There is a lot of manipulation in the cryptocurrency market.
Several factors are responsible for moving the market in upward and downward directions.
FOMO means fear of missing out.
Note that we should never buy in Fomo at an all-time high and then sell at an all-time low,
so always expect dips to come, exhibit patience, don’t catch the moving train,
and wait for the train to stop at the next station before you catch it.
Remember that you should be fearful when others are excited; when others are fearful, be excited.
Check out the team behind it
Gathering information about the team behind the crypto project you would like to invest in is crucial.
Most times, when you look at the team behind a project, you can tell what will happen to the project,
at least for about 20% regarding the crypto project.
Then, you can back it up with all the other elements about the crucial rules to invest in cryptocurrency, and you will understand much better.
And have the ability to choose the asset that you would like to invest in after researching the crypto project.
Take profits at regular intervals
This is another significant and crucial aspect you should apply while investing in cryptocurrency.
Let me share my personal story about the mistake I made in 2019.
I bought a coin known as dogecoin and held it for some time.
And it later appreciated in 2021, giving me a huge profit.
Guess what? I did not withdraw the profit I made.
Because I was looking to make my first $1 million from that investment before I would withdraw the whole money at once.
I thought that it would keep going higher and higher.
Until it drastically drops 30%, I rush to take profit.
So I learned my lesson afterward: it is crucial always to take profit in some percentage till you secure your capital.
Don’t leave your entire profit on the asset. Try as much as possible to take a profit by withdrawing some and allowing some to remain and keep running.
Look at the coin market cap and its tokenomics
Looking at a market cap and the tokenomics of crypto assets is one of the most important things before investing in any cryptocurrency.
The market cap will give you an insight into the coin market capitalization by using this website known as coinmarketcap.
You can search and discover the coin’s market cap you wish to invest in.
Tokenomics of a coin or token will help you understand the asset’s total supply.
When you have insight into a coin market cap and the tokenomics of the coin,
you will be able to evaluate the price of the coin.
Note that the higher the total supply of a coin, the lower the value of the coin will be, and the lower the total supply of a coin, the higher the value will be.
What exchanges is it listed on?
It is crucial to consider this before investing in any crypto asset.
Try to check for the exchanges that the coin is being listed.
Let me set an example: if a coin is listed on exchanges like Binance, Coinbase, and Bybit exchange, the price will do well sometimes.
But if it is listed on a single exchange, it will gain little adoption, and trading volumes will be low.
Compared to when a coin is listed on an extensive exchange like Binance and others, the coin will gain more popularity.
Conclusion
Cryptocurrency is a new revolutionary asset class.
After reading this article to this point, you should be able to understand What is the most important rule when starting investing in cryptocurrency.
Research is the best way to find solid crypto investments.
Sadly, there is much fake information on the internet these days.
So you have to take time to do your research till you are convinced about a particular crypto project before you dive in to invest in it.
Always remember to use these few tips as your backup before investing in any crypto.
- Research to understand the Fundamentals of a project
- Make a Conscious Decision to choose a Safe Storage
- Build a solid financial background first
- Choose the Best Entry Point
- Never you invest more than what you can afford to lose
- Develop Your Own Strategy
- Diversify your investments
- Avoid FOMO
- Take profits at regular intervals
- What exchanges is it listed on?
- Look at the coin market cap and its tokenomics
Those are the significant things to consider first before any investment occurs.
Also, read about how to earn cryptocurrency for free.