Investing in cryptocurrency is a monumental step for people unfamiliar with Bitcoin and alternative currencies. Starting one’s journey in this industry requires preparation and clear goals. Following a few basic guidelines can go a long way in this volatile industry.
Table of contents
Educate And Learn
There is no reason to enter the cryptocurrency space without the necessary preparation and knowledge. This industry is unlike any other and comes with a bit of a learning curve. It is a matter of understanding the industry jargon and fathom the need for concepts such as a private key, cold storage, trading indicators, and so forth.
Educating oneself about cryptocurrency is essential. This industry can be ruthless and unforgiving to those who approach it without a second thought. There are no safety nets if things go wrong or if the user messes up. Financial freedom comes with a lot of responsibility, and one should never take it lightly.
Trading And Investing Strategies
An essential part of the educational aspect is figuring out why you want to get involved in cryptocurrencies. Whether it is for investing or trading makes a huge difference. Traders often seek out quick profits, whereas investors approach the industry with a long-term game plan. Distinguishing between the two before making any financial contribution is essential.
For those who want the long-term approach, the objective is simple. Buy the cryptocurrency of your choice, store it in a secure wallet, and don’t look back for a year or longer. HODLing is a powerful option with cryptocurrencies, as they often tend to perform relatively well over time. This applies mainly to the top crypto assets, such as Bitcoin and Ethereum. For more minor currencies, altcoins, or DeFi tokens, a long-term approach may not always be viable.
Investing-wise, there are many opportunities for building a personal trading strategy. Finding the approach that works for you makes the difference between success and facing adversity along the way. Options such as day trading, swing trading, and others will only work well when using technical analysis and other approaches.
Embrace The Volatility And Take Profit
The cryptocurrency industry is well-known for its wild and sometimes legendary price swings. Seeing a market swing up or down by 10% or more is far from uncommon, yet most people don’t have the stomach to handle this momentum. If one wants to invest or trade crypto-assets, embracing the volatility is an essential step. Never let emotions influence financial decisions, as it will often backfire.
With the massive volatility found within the cryptocurrency industry, there will be multiple opportunities to take profit. It is never a bad idea to profit when the opportunity arises, regardless of what the overall market sentiment might indicate. In fact, it is often better to make a profit right away instead of leaving money on the table. Crypto markets can turn around when people least expect it, negating any potential gain in the process.
Work On Your Timing
If you are serious about trading or investing in cryptocurrencies, it is essential to get the timing right. Market opportunities will regularly arise, yet they might not remain available for very long. The right timing can make the difference between minimal profit or maximizing one’s gains. Those who seek out the maximum potential will have to get their timing right through trial and error.
For those who approach a long-term strategy or perform dollar-cost averaging, timing is less critical. If you are building up your portfolio, there is never a right or wrong time to add more crypto-assets to one’s portfolio. While some may think the ship has sailed already, that is not necessarily the case. Anything can happen in this industry, and the future price potential is virtually limitless.
Pick The Correct Trading Platform
When investing or trading cryptocurrencies, it is essential to pick the right trading platform that suits your needs. There are hundreds of exchanges, brokers, and trading platforms to choose from today. Not all of them will prove viable, depending on one’s region, fiat currency, or access to means of getting money to and from the exchange.
Furthermore, it is crucial to look at the company and which fees they may charge. It is not uncommon to pay a fee on deposits, withdrawals, and trades. Those costs can add up quickly over time. To pay for these fees, one has to be prepared to part with some of their earnings. Fees are always deducted before suers receive the money they expect, and planning accordingly is more than required.
Regardless of which exchange one picks, it is pertinent to remember these companies can be hacked or attacked. Keeping too much money on an exchange or other trading platforms is ill-advised. Moving your crypto-assets to a wallet under your control and of which you own the private key must always take priority.
Don’t Ignore The Privacy Aspect
It may seem attractive for newcomers to share the details about their cryptocurrency venture and investing with the world. Doing so is not advised, as o one needs to know about your portfolio, let alone what is in it or in which quantities. Every cryptocurrency user or investor will need to take privacy seriously, especially now that blockchain analysis firms are becoming more commonplace.
Protecting one’s privacy is often tricky, though. Public blockchains, including Bitcoin, Ethereum, and Litecoin, make it nearly impossible to mask one’s activity unless you’re willing to use third-party solutions. Whether that is worth the effort will depend on personal preferences, but the option is there for those ready to go the extra mile.
What About Trading Bots?
There are tools to make the investing in and trading of cryptocurrencies autonomous. Such software is referred to as trading bots, which can support various exchanges and trading platforms. Using a trading bot is not mandatory to be successful in the crypto industry, yet it can be a valuable tool for those with more experience and a higher risk appetite. As more people use trading bots, the opportunities to make money will become less apparent.
If you are intent on exploring the different trading bots on the market, thorough research is required. One cannot go by the first user review that comes to light, as there will always be different opinions on whether the software performs as expected. Additionally, it is essential to determine if there is a flat fee, monthly subscription, or reduction in earnings when using the tool.
How Are Crypto-assets correlated?
To the untrained eye, it may not be apparent how Bitcoin correlates to other crypto-assets, including Ethereum, XRP, and so forth. While there is a clear difference between the world’s leading cryptocurrency and altcoins or DeFi tokens, they all follow a very similar price path. When BTC goes up, the other markets are likely to follow, although there may be a delay between the two trends.
Over the years, there seems to be a disjointed correlation at times. It is common to see the value of Bitcoin move up, whereas alternative markets tend to go down. That is normal, as many people buy altcoins and DeFi tokens to increase their BTC holdings. However, when BTC goes up, they tend to liquidate most other assets in their portfolio to preserve that Bitcoin amount.
Similarly, it is possible to see alternative currencies rise in value when Bitcoin’s price is coming down a bit. It is for the same reason: traders are trying to increase their BTC stack by any means necessary.
It is always advisable to keep an eye on this correlation as it can take novice traders by surprise when different markets begin to move all at once.
Finding Sources Of Information
In the cryptocurrency world, there is always a plethora of information to keep tabs on. Finding the right news sites or subReddit can make a difference between understanding a currency’s price and volatility or remaining oblivious. There is always news, content, updates, rumors, and accusations to be aware of. Whether they are always true is a different matter, but keeping tabs on as many sources as possible will yield the best results.
One aspect to consider is not to take advice from self-professed crypto influencers. These are usually people who invest in a particular coin and will try to use their social circles to attract others, allowing the influencers to cash out at a higher price. Ignoring these kinds of people and “trading signal groups” is often the better option. Some people in this industry will share advice free of charge and without ulterior motive, yet they are rare.
Information can also pertain to learning more about trading, indicators, patterns, and so forth. Many resources exist for these topics, and here at Vaultoro, we have a few dedicated guides pertaining to these concepts. Make sure to check them out and start exploring how to build a trading strategy that may suit your needs.
Don’t Make Rookie Mistakes
Whether one is new to cryptocurrencies or experienced in the field, rookie mistakes can get the best of anyone. When investing in Bitcoin, altcoins, DeFi tokens, or other options, there are several golden rules to follow at all times.
The first rule is to never trade based on emotions. Never grow attached to a coin or let it blind you, as it will lead to bad financial decisions. Diversification is crucial in this industry, although risk-averse users can always opt for one currency such as Bitcoin or Ethereum and stick with it. Speaking of emotions, try to avoid any hype surrounding specific projects, as the peak is often already over.
Second, one should never invest more money than one can afford to lose. It may seem appealing to get a mortgage and buy Bitcoin, but the reality is often very different. These are incredibly volatile markets, and the momentum can always shift against you. Many traders will go through an “overtrading” phase to compensate for their portfolio decreasing in value, yet that will only make the situation worse. Making more trades incurs more fees and yields less profit unless you are either very lucky or catch a market reversal.
Third, it is essential to pay attention to whether your income from crypto investing or trading is taxable. That situation is unclear in a lot of regions today, but make sure to contact local authorities to make sure what the current guidelines are. Ignoring taxes can have serious consequences, both financially and with a jail sentence.
There are many good reasons to invest in cryptocurrencies today, either for speculative or store-of-value purposes. Finding the right approach depends on personal preferences, risk appetite, and expectations. No right or wrong approach exists by definition, yet one can’t always account for user error or erratic behavior. Cryptocurrencies empower users but also bestow much responsibility upon them. Finding the right balance between the two can be very difficult, particularly for novice users.
Finding one’s groove in this industry never comes easy. There is a learning curve associated with getting involved in crypto and not optional in the slightest. Entering this industry without sufficient knowledge or understanding of what cryptocurrencies entail will not end well. Take the necessary time to educate yourself on these concepts is essential.