Are you looking to master the success formula of investing in crypto?
.Well, if you are interested in crypto investing and want to stay safe & secured, you must follow some golden rules to avoid common mistakes. The best part is that we have you covered.
In this article, we will cover the 5 golden rules of investing in crypto.
#1 Start Slowly
This is the cardinal rule of any investment, but especially for crypto. Cryptocurrencies are very speculative and risky, meaning their prices can change drastically in a matter of minutes. There is no guarantee that your investment will increase or even maintain its value.
In fact, there is a possibility that you could lose all your money if the market crashes, the project fails, or the coin gets hacked or delisted.
Therefore, it’s always a bad idea to invest more than you can afford to lose.
This means you should not use your savings, retirement funds, emergency funds, or borrowed money to buy crypto.
You should only invest a small portion of your disposable income that you are comfortable losing. This way, you can avoid financial stress if things go wrong.
According to a survey by TripleA, 39% of crypto owners choose to hold their crypto assets rather than use them for transactions.
This indicates that many people view crypto as a long-term investment rather than a medium of exchange.
#2 Do Your Own Research (DYOR) Before Any Crypto Investments
All cryptocurrencies are not the same. There are thousands of different coins and tokens in the market, each with its features, use cases, advantages, and disadvantages.
Some are backed by futuristic technology, strong teams, and loyal communities, while others are nothing but scams.
Before you invest in any coin, you should do your due diligence and research it thoroughly.
This includes reading its whitepaper, checking its website, following its social media accounts, exploring its roadmap, analyzing its market cap and trading volume, and comparing it with its competitors.
You should also look for independent reviews, ratings, and opinions from experts and other investors.
By doing your research, you can avoid falling for scams or buying into worthless projects. You can also identify the coins that have real potential and value propositions and align with your investment goals and risk appetite.
According to Coinmarketcap, there are around 23,000 cryptocurrencies as of 2023.
However, only a fraction of them have significant market share and adoption. The top 10 cryptocurrencies by market cap account for over 80% of the total market value.
#3 Use Dollar-Cost Averaging (DCA) to Invest in Crypto
Dollar-cost averaging (DCA) is a way of investing that involves buying a fixed amount of crypto tokens at regular intervals, regardless of their price fluctuations. This way, you can reduce the impact of volatility on your average purchase price and benefit from the long-term trend of the market.
DCA is especially useful for investing in crypto, as the market is very volatile and unpredictable. By investing small amounts over time, you can avoid buying at the peak or selling at the bottom of the market. You can also take advantage of dips and corrections to accumulate more coins at lower prices.
You can choose the frequency and amount of your DCA investments based on your budget and preference. For example, you can invest $100 every week or $500 every month in Bitcoin or Ethereum. You can also use automated tools or platforms that allow you to set up recurring purchases of crypto.
According to EarthWeb, over 300 million people own crypto as of 2023. However, not all of them are active traders or investors. Many people use DCA as a passive way of accumulating crypto over time.
#4 Diversify Your Portfolio
One of the best ways to reduce your risk and increase your chances of success in crypto investing is to diversify your portfolio. This means that you should not put all your eggs in one basket but spread your investments across different coins and sectors.
Diversifying your portfolio can help you balance your exposure to different types of risks and opportunities in the crypto market.
For example, if one coin performs poorly or gets hacked, you can still benefit from the gains of other coins that perform well or are more secure. Similarly, if one sector of the crypto industry faces regulatory challenges or competition, you can still profit from other sectors that have more favorable conditions or growth potential.
Some of the factors that you can consider when diversifying your portfolio are:
- Market cap: You can invest in a mix of large-cap, mid-cap, and small-cap coins that have different levels of liquidity, stability, and growth potential.
- Sector: You can invest in a variety of sectors that have different use cases and applications for crypto, such as DeFi (decentralized finance), NFTs (non-fungible tokens), gaming, metaverse, Web3 (decentralized web), etc.
- Strategy: You can invest in a combination of coins that have different strategies and goals, such as store of value (e.g., Bitcoin), utility (e.g., Ethereum), governance (e.g., Polkadot), privacy (e.g., Monero), etc.
According to Coinbase, the total market capitalization of cryptocurrencies is around $835 billion as of December 2022, down 62% from $2.2 trillion at the end of 2021.
However, this also means that there are more opportunities to diversify your portfolio and find undervalued or emerging coins.
#5 Use a Reputable and Secure Platform
Using a self-custodial wallet has many advantages over a custodial wallet. You can enjoy the benefits of decentralization, such as privacy, security, and censorship resistance. You can also avoid the drawbacks of using a custodial wallet, like fees, hacks, freezes, or compliance issues.
A self-custodial wallet is a cryptocurrency wallet that gives you complete control of your private keys and funds. You don’t have to rely on a third party to store or manage your crypto assets. You can access your funds anytime, anywhere, and choose from a variety of crypto assets and features.
To use a self-custodial wallet, you need to find a reliable self-custody wallet provider, such as Trust Wallet, BitPay, or Brave Wallet. You need to set up your account and back up your recovery phrase. You need to transfer your crypto assets from an exchange or another wallet to your self-custody wallet. You need to manage your crypto assets using your self-custody wallet.
According to Investopedia, there were over 420 million crypto users worldwide in 2023. However, not all of them were using secure platforms or wallets to store their crypto. In fact, there were several major hacks and thefts that occurred in 2022 and 2023, resulting in hundreds of millions of dollar worth of losses.
Investing in crypto can be rewarding yet challenging at the same time. Following these five golden rules can increase your chances of success and avoid common mistakes.
Remember only to invest money you can afford to lose, do your research before buying any coin, use dollar-cost averaging to buy crypto, diversify your portfolio across different coins and sectors, and use a secure & reputable platform to buy and store your crypto.
That’s a wrap for today. In case you liked this article, you will definitely find the following resources helpful: