6 Things You Should Know Before Investing In Cryptocurrency
For the past few years, there has been a lot of buzz around Bitcoin and the cryptocurrency market. The surge in demand has caught the attention of investors all over the globe from beginners to professional traders who are considering diversifying their portfolio by adding crypto to it. Even though, in theory, the crypto market can seem similar to forex or stock investments, there are a number of differences that make the crypto market a one-of-a-kind investment.
The majority of cryptocurrencies are decentralized in nature and intended as a solution to allow people to trade money, goods, and services without the need to involve banks or other third parties in the transaction. Many refer to Bitcoin as the modern era of digital currency, as it allows people to complete transactions almost instantaneously, no matter where in the world the two parties may be.
If you consider including allocating a portion in your investment portfolio to cryptocurrencies but are not exactly sure where to start, we have put together a list that covers everything a beginner should know before venturing into the world of digital currency.
So without further ado, let’s get into the 6 things you should know before trading crypto.
The Crypto Market Is Decentralized
Fiat currencies, such as the USD, Euro, AUD or GBP, are assets placed under the control of the government central banks, meaning that one single economy has the power to control the price. Cryptocurrencies such as Bitcoin are a decentralized system, meaning only those buying or selling currencies have control over the price. However, sometimes, the price of a cryptocurrency can be indirectly influenced by a number of external factors.
To better explain this, let’s take Bitcoin for example. Over the past few years, Bitcoin prices have been fluctuating a lot. In December 2017, the value of one Bitcoin exceeded $14,000, but by the start of 2019, it dropped to less than $3,600 and got into the 5 digits range again by July of the same year. This happened due to a number of events, including Brexit talks, President Trump’s election, as well as India’s demonetization.
Prepare For Volatile Swings
As I mentioned above, the crypto market has enormous volatility, meaning prices can fluctuate dramatically. On one hand, it can be a good thing, as you have the opportunity to study the market and interfere in key moments, either selling or purchasing assets, in order to make a profit.
Again, if we look at the Bitcoin example, if someone were to anticipate the rise of the currency back in 2017, and bought some coins a few years prior, they could have become millionaires by now. At the same time, if someone were to enter the market when Bitcoin prices were getting close to $20,000, only to witness the numbers getting lower and lower, the future may not have looked that bright. All in all, the key is to keep yourself informed and study the market before making any decision.
Diversify Your Portfolio
Even though Bitcoin is the most popular cryptocurrency, it is certainly not the only one available on the market. Just like with any type of investment, putting your eggs into one basket is certainly not a good idea. This is why, in order to diversify your portfolio and maximize your chances to gain profit, you need to study the market and invest in currencies that have a high chance of increasing their value.
At the moment, besides Bitcoin, there are a number of currencies that became widely popular amongst traders. The second most traded currency is Ethereum, which entered the market in 2015 and started attracting customers ever since. Completing the podium is Ripple’s XRP, which was not exactly intended to become a cash alternative, but rather be used by corporate institutions. This is why it is a more centralized currency; the supply being controlled by Ripple Labs.
Watch For Changes In Trading Volume
If you plan on trading multiple cryptocurrencies, you need to look out for the cryptocurrency’s trading volume as well. Usually, for the top 10 tokens, the trading volume should not be an issue, but if you plan to invest in new crypto assets, it is very important to keep an eye on how many coins are actually being sold or purchased every day and its fundamental value.
Currencies with higher trading volumes are much easier to buy and sell, whereas those with low trading volumes may encounter some problems along the way. If you don’t want to risk your money, the trading volume should be one of the key elements to observe. You can also take the help of trading websites such as crypto-vipclub.com.
Use A Reputable Online Crypto Exchange
As the crypto market is traded online, technology will become your best friend. For starters, you will need a computer to use for studying the market and trading. You will also need to find a good crypto wallet, which will hold all your bitcoins and keep them safe from unwanted eyes.
You will also need to find a good crypto exchange platform to make transactions. There are a number of factors you need to consider when choosing the best bitcoin exchange platform, such as coin offers, ease of use, deposit limits, as well as any additional support it provides. The best way to choose a platform is to read reviews online, look out for comparisons and pick the one that satisfies the majority of your trading needs. For more information on finding a good fiat to the crypto exchange platform, be sure to check out hedgewithcrypto.
Don’t Bite Off More Than You Can Chew
Investments are supposed to help you grow your wealth, not burn a hole in your pocket. This is why you should never invest money that you don’t have, or that you need for other purposes. Try to limit yourself to only set aside a small fraction of your monthly income for investment purposes. This way, in the eventuality of a failure, your finances won’t get hurt.
I know that, in order to make big profits, you need to commit to investing some serious amounts of money, but at least in the beginning, try to keep investments to under 10% of your monthly income. As you start accumulating more experience, you will have the confidence to invest more.
Last, but not least, remember that no form of investment will make you rich overnight, so if you plan on giving cryptocurrencies a try, keep in mind that you will need a lot of commitment in order to transform it into a profitable venture over the next 5 to 10 years.
Trading and investing in cryptocurrency is not for everyone. You can make a lot of money, but lose it just as fast. Readers should exercise caution when starting out investing in speculative assets.
As the golden rule goes, only invest what you can afford to lose and be sure to store your newly purchased cryptocurrencies on a hardware wallet for safekeeping.