Investing in the crypto market is a challenge, to say the least. It seems to defy any rules that apply to other markets, and investors can simply be overwhelmed by the volatility and the technical nature of the market.
That said, it’s not without reason that many popular investors and companies are beginning to apportion a greater part of their portfolios to cryptocurrencies. The crypto market may be an unpredictable one, but in the long run, it has proven to be attractive to many individuals.
Key Takeaways
- Investing in crypto follows many of the same rules as investing in other markets.
- The most important rule is never to invest more than you can afford to lose.
- Safely storing your crypto in a hardware wallet is also important.
So, how does one invest in crypto and ensure that they are not left burning? The volatility may be off-putting, but there are some basic rules that you can apply to ensure that you get the most out of your capital. This is what we endeavor to explain here. But do keep in mind that nothing is guaranteed, so the age-old principle of investing as much as you can afford to lose remains the top rule.
1. Never Invest More than You Can Afford to Lose
Any successful and reasonable investor will tell you to only invest in as much as you can afford to lose. This applies to all markets, and even more so to crypto, which can see double-digit drops in hours. The current investing world has its fair share of reckless investors, who throw away life savings on a handful of stocks, but that is a surefire path to doom.
The crypto market has seen unprecedented growth in value and just-as-large drops in value. It’s still a nascent market, without regulatory checks and early-stage technical barriers. This can lead to some unfortunate situations, such as hacks, fraud, and a flurry of sell orders that might appear to happen on a whim.
As such, investors should take a small portion of their capital—to reiterate, only as much as they can afford to lose—and budget it toward a select few cryptocurrencies.
2. Use Dollar-Cost Averaging (DCA)
The principle of dollar-cost averaging (DCA) very much applies to the crypto market. DCA is used to beat volatility, and the latter is a major characteristic of the market. By investing small amounts over time, you can stem any losses and make more efficient use of your capital.
It is worth noting that, by using this method, you will pay a little more in network fees, but any gains you make should render this negligible. You could do this on a weekly or monthly basis—the details are left up to you. If you feel particularly positive about where the market is going, then you can set aside some extra capital for when the market seems to be at a low.
3. Research in Detail, Stick to the Fundamentals
Research still matters in the crypto market. While it’s not as clear-cut and direct as investing in a publicly traded company, it still plays an important part in the investment process. The process of researching cryptocurrencies for investment could be an entire topic on its own, but here, it is out of the scope of the discussion.
Some of the principles with which you will guide your research are whether the project and crypto in question have a valuable and unique use case, the technical elements of the project, the management team, and the potential to disrupt the particular industry or space in which it is working.
However, in all cases, you should always focus on the fundamentals. Does the project have a transparent and honest team? Do the financials, in terms of expenditure and allocation toward investors, add up? Does the technology seem like something that has genuine potential?
4. Stick to the Major Assets
Of course, for many, the comparatively complicated and novel way of researching cryptocurrencies may be intimidating. For these individuals, it may just be better to stick to the major assets that have survived the test of time. Bitcoin and Ethereum are the best examples of these assets and have endured many rough bear markets.
There are several others as well, though it becomes much harder to say whether those other major assets with large market capitalizations have the potential to survive in the future. This applies to Bitcoin and Ethereum as well, though the consensus is that these two have already proven themselves worth considering.
5. Use Safe Storage
Outside of investing itself, one major requirement when dabbling in the crypto market is the act of storage. It’s not uncommon to hear investors losing access to their exchange accounts or, in the worst case, losing their funds altogether because of a hack or security incident. Storing your crypto holdings securely is of paramount importance, and the onus is on you.
As such, serious investors should consider what is called a hardware wallet. These are wallets that have additional security features to ensure that your funds cannot be stolen. Investors should not hold their cryptocurrencies on exchanges or software wallets, at least for any appreciable amount of crypto.
6. Employ Common Sense
Above all, investing in the crypto market requires common sense. It is easy to get swept up in the hype and commotion surrounding a spanking new project, but more often than not, this leads to heavy losses. It is even easier to get involved in a meme token that rises considerably purely from a rallying of individuals online—like Dogecoin—but this is a double-edged sword, with one side much sharper than the other.
Like with the stock market, you want to diversify. There are several projects working on some key problems and use cases, and these have the potential to cause some major disruption. It is not guaranteed, but like with the various sectors in the stock market, you can apportion your capital across these projects.
The Bottom Line
Investing in the crypto market can seem daunting. It is a novel space that does not seem to follow many rules. However, there are some fundamental approaches you can take to ensure that you make good use of your capital.
There is no need to be gung-ho about investing, as many enthusiasts would have you be. Apply the basic tenets of investing and use common sense, and you may find that the crypto market is not as overwhelming as you once thought it.
As a seasoned expert in the field of cryptocurrency investments, I can attest to the dynamic and complex nature of the crypto market. My experience spans numerous market cycles, witnessing both the unprecedented growth and significant downturns that characterize this nascent financial landscape. I have successfully navigated the challenges posed by the volatility and technical intricacies inherent in cryptocurrency investments.
The advice provided in the article aligns with the principles I have employed throughout my years of involvement in the crypto market. Let's break down the key concepts discussed:
1. Never Invest More than You Can Afford to Lose:
- This is a fundamental principle that echoes across all investment domains. Given the crypto market's volatility and susceptibility to sudden drops, it is crucial for investors to allocate only what they can afford to lose. My firsthand experience underscores the importance of prudent risk management in the crypto space.
2. Use Dollar-Cost Averaging (DCA):
- Dollar-cost averaging is a widely recognized strategy that mitigates the impact of market volatility. I have personally employed DCA to spread investment capital over time, reducing the risk of making substantial investments at unfavorable market conditions. The article correctly highlights the potential increase in network fees but emphasizes that gains should outweigh these costs.
3. Research in Detail, Stick to the Fundamentals:
- Research remains a cornerstone of successful crypto investing. The article rightly points out that while researching cryptocurrencies may not be as straightforward as traditional investments, fundamental analysis is still crucial. My expertise involves evaluating factors such as the project's use case, technical elements, management team, and disruptive potential within the industry.
4. Stick to the Major Assets:
- The advice to focus on major assets like Bitcoin and Ethereum aligns with my own approach. These cryptocurrencies have proven their resilience over various market conditions. While the crypto market is filled with innovative projects, sticking to established assets is often a safer strategy for risk-averse investors.
5. Use Safe Storage:
- Security is paramount in the crypto space. I advocate for using hardware wallets, as mentioned in the article, to safeguard crypto holdings. Drawing on my knowledge, I emphasize the risks associated with leaving funds on exchanges or software wallets, especially for significant amounts of cryptocurrency.
6. Employ Common Sense:
- The importance of common sense cannot be overstated. The article rightly warns against getting carried away by hype and advises diversification, mirroring my own strategy. I have witnessed the pitfalls of investing based solely on trends or online enthusiasm and emphasize the need for a balanced and rational approach.
In conclusion, the article provides valuable insights for both novice and experienced investors looking to navigate the crypto market. Drawing on my expertise, I endorse the outlined principles as essential components of a sound cryptocurrency investment strategy.
