These days, a lot of investors are adding cryptocurrency to their portfolios, and for good reason. Bitcoin was the top-performing asset of the 2010s, even surpassing gold and stocks. So for any young investor, cryptocurrency should be considered as part of a well-balanced investment portfolio
- Choose a Crypto
- Choose a Risk Level and Investment Strategy
- Choose a Storage Method
- Avoid Scams
But how do you go about investing in cryptocurrency and making the most of it? First, it is worth understanding the basics of cryptocurrency, which are digital currencies based on distributed ledger technology. These assets number in the tens of thousands and the market is known to be quite volatile. Still, you can be on your way to investing by following these steps.
Choose a Crypto
Your first step is deciding which crypto you want to invest in. As we’ve said, there are thousands in the market, and you’ll very much be spoiled for choice. There are the cryptos with the most market cap like Bitcoin and Ether that have been operational for years and tend to be many’s first choice.
At the same time, the crypto market is filled with upcoming tokens that show a lot of promise. It is many crypto investors’ dream to buy into a newer token right before it explodes in popularity so they can make a lot of money off it. Ideally, you should aim for a balance of ‘safer’ tokens that have proven themselves in the market and the newer ones that have potential.
But with any token that you invest in, it is important that you do your due diligence and look into it. What are its use cases? Who is the team behind it? What is its token distribution process? Scams abound and while you want to make gains with crypto, you need to be safe.
Choose a Risk Level and Investment Strategy
Another thing to keep in mind when you invest in crypto is the level of risk you are willing to take on. Like all investments, there is the risk of losing your principal, so you have to be careful. First, decide on how much in total you want to put in cryptocurrency and how much you can comfortably lose. Then, decide how you plan to divide your investment. Will you invest equally in Bitcoin, XRP, Dogecoin, and Ether, or will you put more money in one over the other? Have a think about this before you begin.
Also, consider what your investment strategy will be. The crypto market is notoriously volatile and investors are usually in it for the long or short term. Decide whether you want to buy and sell your cryptos in a matter of weeks or months or if you will HODL (Hold on For Dear Life) and hang on to your tokens for years until they reach a certain level of value. Knowing what your investment strategy will be will guide you during the harsher period of the market’s movement and will make your crypto investment experience better overall.
Choose a Storage Method
After you’ve bought your crypto, whether from an exchange, a P2P marketplace, or so on, you have to think about storage. This is one of the most important parts of owning crypto. Cryptocurrency is stored in crypto wallets and there are several types of these, including hot wallets, cold wallets, paper wallets, and so on. Each has its benefits, but generally, crypto users are advised to store their funds in cold wallets, especially if they are HODLing.
This is because cold wallets are not connected to the internet and this means that there is less chance of them being hacked and emptied by thieves. Hot wallets, on the other hand, are more vulnerable to attack and paper wallets (which involve writing your crypto storage details on paper) can get lost. So make sure that you choose a crypto storage solution that is safe and works for you.
It should also be one that is fairly accessible in case you want to sell or buy tokens to take advantage of market movements or if you simply want to monitor your balance from time to time.
As we’ve said before, the crypto industry is rife with scams, and it is best that you stay alert to avoid them. While this is not exhaustive, some of the common scams include fake giveaways that ask you to connect your wallet to receive free cryptos but steal from you instead. There are also malware hackers that try to get you to download fraudulent software that hacks into your wallet and steals your crypto. There are also pump-and-dump crypto scams and shitcoins that have no value but are pushed unto crypto investors by greedy founders. Make sure to educate yourself about all of these and how they work so that you can spot and avoid them.