In the past few years, cryptocurrencies have been gaining a foothold. At the end of 2021, the total number of daily transactions with cryptocurrencies amount to close to a billion dollars. That is for trading alone. This does not include the cryptocurrencies that are sold on FX markets or other unregulated markets.
It makes sense to invest in cryptocurrencies.
However, you must understand the terrain of the cryptocurrency world before you invest. Like most things in finance, understanding the basics would help a lot. This post will show you seven things that you need to know before getting into the crypto field.
Learn How to Make Basic Transactions
The first thing you need to know about cryptocurrencies is knowing how to buy, sell and exchange the cryptocurrency for local currencies.
This looks straightforward. But, it is not. You have to understand that there are multiple cryptocurrencies. In fact over 7000 of them. Although the basic way it works is that you pay to an address that is available publicly on the blockchain, it might be more complicated than that.
While you can get cryptocurrency through peer-to-peer, in recent years there has been a proliferation of crypto exchanges that make it easier for you to buy and sell cryptocurrencies. Depending on your level of exposure to cryptocurrencies, it could muddy the process or make it easy for you. Since not all cryptocurrencies are supported by major exchangers, you would need to find a way to transact on your own – exposing you to risk.
You should know how to transact with your chosen cryptocurrency. Some crypto users simply buy cryptocurrencies without knowing how transactions work. Then, when it is time to make a profit or minimize loss, they become stuck because they couldn’t withdraw at that point. Don’t be one of those people!
Manage Your Risk
Risk management is the first thing most financial advisors would drum into entrants into the financial world. You should know how to manage risk. Especially in a volatile region like cryptocurrency, risk management could be the key to going bust or going big.
The following are some ways you can learn to manage risks when it comes to cryptocurrency.
Use Cold Storage
These days most cryptocurrencies are stored in the exchangers. However, this puts your money at risk. Using cold storage to store your cryptocurrency would make it safer. For the particular cryptocurrency, check which cold storage option is suitable.
Diversify Your Portfolio
There is nothing worse than putting your eggs in one basket. Not even a cryptocurrency. When you have your funds in different cryptocurrencies, your portfolio would be a bit safer as not all cryptocurrencies get hit the same.
Know the Percentage of Your Asset that Should Be in Crypto
Some financial advisors would advise you to not keep more than 5% of your assets in your crypto portfolio. You should know the amount that is comfortable for you. However, if you are not ready to lose the amount, don’t put it in crypto.
Plan to Trade
Do not just put money into cryptocurrency and go to sleep. You should plan on trading cryptocurrency. Some of the biggest cryptocurrency owners in the world are among the biggest traders of cryptocurrency. Trading could help you increase the value of your crypto holdings. It might even help you reduce your loss.
Know When to Cash Out
Perhaps, this is the best thing to know about cryptocurrencies. Knowing the best time to cash out could be the difference between losing and keeping your money. Sometimes it is better to keep 80% of your money than to lose everything. Know when to cash out.
Know that You Will Experience FOMO
Fear of missing out is a real thing in the world of crypto. Some lost millions of dollars from cryptocurrency because they were afraid of missing out on an opportunity. For instance, Ruja Ignatova made investors lose over $4B in OneCoin by promising it would grow to surpass Bitcoin.
There are many situations where you would want to think it is stupid of you not to invest in a particular coin when others are on it. It might even be that you feel that you are late to the party.
Other times, it might simply be that everyone is selling their cryptocurrency and you are not, or vice versa. Ensure that whatever action you carry out that relates to buying and selling a cryptocurrency is well thought out rather than you feeling a sense of losing out on what is popular.
Rather than joining the herd, get your information on the cryptocurrency you are involved with from a reputable source. Then, you sieve the tip with common sense. That way your actions become logical and way better than others. The key to making money from cryptocurrency is to ensure that your actions are better than that of others.
Be Conscious about Timing
You should understand the timing. In the crypto world, timing could be the key to either losing your investments or increasing your assets.
While most enthusiasts of cryptocurrency would buy immediately if they sense something great happening in the crypto world, it would help if you monitor the currency before moving in to invest in it.
Watch out for important moments that could affect the financial market and use that to guide your investment accordingly.
Paying attention to the market with a strong focus on timing would give you an edge over other investors. It is better you ride on the wave of an established cryptocurrency project than on new cryptocurrencies that have shown little promise. Aside from the fact that it can go bust, it might be hard to cash out as the nascent cryptocurrency might not have built the ecosystem suitable for exchange like established projects. At that point, you should be resolute in your decision.
Know that Criminals Abound in the Crypto World
It is worth mentioning that cryptocurrency is largely unregulated. While in many cases, you might be in the refuge of a crypto exchanger, there are a couple of times when you would want to trade on a peer-to-peer basis. Assume that you could be defrauded in that case as you might be unable to trace a fraudster once your money is gone.
The US FTC has a page dedicated to cryptocurrency scams. There it mentions many cases where fraudsters have used cryptocurrencies with evil intentions.
Many malicious actors prefer using cryptocurrency for their evil aim. Since cryptocurrencies offer anonymity, especially outside an exchange where the user does not have a government-backed identity, tracing becomes a hard thing to do.
You should also know that cryptocurrencies have become a choice for money launderers to use. In February 2022, a couple was arrested for trying to launder stolen cryptocurrencies in New York. The US Justice reported in August 2022 that a Russian Alexander Vinnik was extradited from Greece to the US for allegedly operating a crypto exchange platform that helps cyber criminals obtain fraud proceeds anonymously. If you are not careful, you could be an accessory to cybercrime by helping criminals launder their funds when you buy cryptocurrency from them. Only trade cryptocurrency peer-to-peer as a last resort and only if you trust the trader. Be vigilant!
Understand the Cryptocurrency as Much as You Can
One way to easily lose money from cryptocurrency is to invest impulsively into a cryptocurrency while knowing so little about the cryptocurrency. That is a recipe for failure. Learn about it. You should know much about cryptocurrency that you can explain to anyone.
It doesn’t mean you should know everything about the cryptocurrency but knowing enough about a cryptocurrency would open a door to benefit from any opening the cryptocurrency offers.
For instance, many users were able to cash out from the early days of NFT because they understood the underlying technology of Ethereum. While others were learning about the concept, those that knew were building. That is how to cash out of opportunities.
The whitepaper of a cryptocurrency project is the best way to learn about the cryptocurrency project. Besides, it also helps you avoid a cryptocurrency project that will turn out to be a scam as things would not add up when you probe further.
Be a Member of a Crypto Community
Perhaps one of the most significant benefits of the internet is that you can join a group of anything. The cryptocurrency world is no different. Being in groups on cryptocurrency would give you insights into things you would have missed. You also get to learn from crypto veterans. Discussions in the group could provide you with an understanding that you might not get from reading multiple articles on the subject.
The trick is to join as many groups as possible. Join groups that are dedicated to general cryptocurrency. Then, others on each cryptocurrency that you have an interest in. You can also join groups on financial markets and use them to predict how that might affect cryptocurrencies.
Trying to succeed on your own in the cryptocurrency domain is difficult. Many times, you need the help of others to help you avoid making costly financial mistakes.
So, What Now?
Getting into cryptocurrency without solid directions is like playing with fire. Hopefully, this guide would form a roadmap for you as you plan to invest in cryptocurrency.
