If you’ve recently developed an interest in cryptocurrency, we can’t blame you! Truth be told, it’s pretty difficult not to be attracted to it, given its massive popularity. However, before you get too excited, it’s important to remember that investing in crypto is risky and comes with different pitfalls and challenges that you want to be prepared for.
As a popular saying goes, you need 10,000 hours to master a skill until you can call yourself an expert. In the crypto landscape, these hours are represented by the market cycles, which all investors are exposed to when navigating the world of digital currencies. Of course, one of the most important things when investing in crypto is first ensuring that your finances are in order: you want to have an emergency fund in place and a diversified portfolio, with crypto representing only a small portion of it. Below are some rules you should consider before you start investing in digital assets. Whether you invest in Bitcoin or any other crypto, the rules remain the same, and you should follow them rigorously. You can visit binance.com/en for more information on how to buy cryptocurrency.
Make sure you understand your crypto
You’d never invest in something you don’t understand, right? At least, that’s what you do if you invest in stocks, for instance. You’d read the annual report and take as much as you need to analyze the companies. Well, the same rule applies to cryptocurrencies. Given that thousands of digital assets are available – and they all function differently- you need to understand the one you will invest in.
Let’s say you want to invest in Bitcoin. You may have heard that this digital asset is reliable, and your only motivation behind buying it is because everyone else has done so. However, this isn’t a valid reason to choose Bitcoin over other cryptocurrencies. You don’t want to follow the herd but rather make an informed decision that aligns with your own goals and motivations. So, take advantage of the resources available online and read all you can about it, listen to podcasts, ask as many questions as possible, and learn from others who are more experienced with cryptocurrency.
Use common sense
As mentioned previously, investing in cryptocurrency carries risks, and although there are opportunities for substantial profits, it’s important to remember they aren’t guaranteed. Therefore, you should always use common sense, and instead of getting swept up in the hype, always do comprehensive research and carefully consider each of your moves. It’s a good idea to diversify instead of putting all your money into a unique asset, as this helps you spread risk, weathering market volatility.
It is very common for investors to experience FOMO in their investment journey, which only leads to irrational decisions and, ultimately, to losses. FOMO can also take a toll on investor’s mental health, so it’s essential to combat it by developing a well-thought-out strategy, relying on major assets that are already well-established(and thus, safer), and realizing that it isn’t possible to win all the time in the crypto market. Embracing a long-term approach, keeping your emotions in check and practicing patience will ultimately help you make better decisions in this dynamic and evolving market.
Manage your risks
We can’t stress this enough: risk management is one of the most critical parts when investing in cryptocurrency, and that’s due to its volatile nature. As a beginner investor, you need to acquire knowledge on how you can mitigate potential losses. This will look different for each individual, depending on their investment journey. Suppose you are a short-term investor; in this case, you need strict rules about the right time to sell (like when an investment falls 10%). On the other hand, for a long-term investor, risk management may mean not selling at all, no matter the price.
Also, as a crypto newbie, it is always advisable to set aside a specific amount that you will allocate to investing only and use a small portion of it at the beginning. This allows you to ensure you will have enough money in reserve in case a position moves against you. The idea here is that you can only invest in cryptocurrency as long as you have money.
Don’t expect the market to perform like it did in the past
More often than not, experts and investors rely on the past performance of a digital asset to make assumptions about its future price. While this information can be valuable, it’s vital to remember that the crypto market is volatile by nature, so it may not be realistic to expect it to repeat the same behavior. For example, the market goes through cycles( bull markets and bear markets), which are influenced by a series of factors and can lead to the rapid growth of prices followed by dramatic declines.
That is not to say that it’s not a good idea to analyze the historical performance of a specific asset. Doing so can give you valuable insights, but it shouldn’t, however, be your sole basis for making a decision regarding your investments. You should approach the market cautiously and be prepared for all the uncertainty.
Remember to maintain a healthy balance
Your life shouldn’t revolve around cryptocurrencies, so remember to keep a balance. Just as it is essential to diversify your investment portfolio, it also matters to ensure your everyday experiences aren’t all about crypto. Sure, you want to watch out for the best market opportunities and take advantage of them, but that doesn’t mean you should sit in front of the computer screen all day.
After all, most big moves in the industry occur in a matter of days or weeks, and for the rest of the year, there are sideways markets. So, after conducting comprehensive research, don’t let greed take over and make you think that you need to dedicate all your time to boosting your profit. Remember, embracing a long-term mindset will allow you to build your wealth more efficiently without putting too much pressure on yourself. It will help you make smarter decisions, allowing you also to enjoy time – which is the most valuable commodity you have.
Takeaway
Investing in cryptocurrency requires careful consideration because your money is involved, and you want to ensure that you won’t suffer dramatic losses that will impact you in the long run. Following the rules above will help you avoid common mistakes and be prepared to handle the challenges in the crypto market.