The Basics of Investing in Cryptocurrency

2021-12-6 20:14

Cryptocurrency trading has seen a boom in recent years, with the COVID-19 pandemic having people look for alternative investments that can be done in the comfort of their homes.

However, the world of cryptocurrency, like any other fields that deal in valuable assets, have also been plagued with scams, and impulsively investing in cryptocurrency without knowing anything about it may result to huge losses.

Here are some of the basic steps you would need to do before investing in cryptocurrency.

 

Open your mind. It is important to open your mind to new possibilities because digital assets use a new form of technology, and what were not possible before, can now be done through blockchain, an innovative technology that improves processes and systems and makes a lot of things possible. You may find that investing in cryptocurrency is not just about trading digital currencies and earning some quick cash.

 

Do your research. Study up and learn everything you can about cryptocurrencies. A cryptocurrency is a form of digital asset that allows for the exchange and storage of value. However, there are some major differences in investing in traditional and digital assets. Know what the differences are in order to better navigate the world of cryptocurrencies. 

 

For one, traditional investments usually do not pose such high risks as cryptocurrency investments. But the former also do not have as fast and as high a return as the latter. And while it is all around much easier to buy cryptocurrencies and trade them, it is not as simple as most people think it is.

 

Think of an investment strategy that suits you. Diversification, or investing in several cryptocurrencies and digital assets, such as NFTs, is one strategy that most experts advise people to do. This will not only mitigate risks, but also potential losses. Investing everything you have on cryptocurrencies is also something you must not do. Just set aside a specific amount—one that you can afford to lose in case the investment fails—to put into cryptocurrencies. 

Start out small. Although at first, you will only earn a small amount, it is highly advised to start off with an amount that is not hard to lose, like maybe $100. It is recommended for you to increase your investment as you gain more hands-on experience and become more confident in what you are doing. 

 

Choose what cryptocurrency to buy. Here is where doing more research also comes in. There are over 10,000 different cryptocurrencies, and it would be better for you not only to read about market trends, but to also ask around for advice. Chances are, there are at least one or two people around you who have invested in cryptocurrency. 

 

Choose a trustworthy exchange. There are many popular exchanges out there. It is important for you to become meticulous in choosing which one to use when buying and selling cryptocurrencies. You have to look at their reputation, capabilities, the list of cryptocurrencies they carry, fiat and cryptocurrency pairs, as well as how much they charge per transaction. Do not be afraid to verify your identity as the “Know Your Customer” (KYC) regulation requires this.

 

Select a digital wallet to store your assets. There are different kinds of wallet, some can only be accessed on a web browser, on your laptop or on your mobile phone. For security reasons, some also move their digital assets to a hardware wallet that is disconnected from the Internet. Whatever you choose, ensure that it is a non-custodial wallet, which means the wallet provider does not have access to your assets. It is best to protect yourself by keeping your cryptocurrency passphrases in a secure location that only you have access to, turning on two-factor authentication and updating your software.

 

Know when to sell. The price of cryptocurrencies is volatile in nature, which is also a major factor why it is considered a high-risk investment. It is important to always monitor price trends and do some read up on situations so you can more or less feel when the price would go up or down. Just because a digital currency has fallen in value does not mean it will not rise again. As long as you do not sell, you will not lose any money. However, there are cases when you also need to sell to mitigate losses. 

 

You may know of someone who made a big payout by trading cryptocurrencies or read about someone who has become a millionaire because of it. No matter how excited you are to jump on the bandwagon and buy cryptocurrencies, it is crucial to your success to really learn about it before diving in. Although it may seem easy—as everything is done online—there are a lot of factors that come to play when it comes to investing in cryptocurrency and other digital assets.

Image(s): Shutterstock.com

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