Tipping the Odds in Your Favor When Investing in Crypto
The expansion of the digital assets market has turned crypto investment into a very popular activity for institutions and individuals. There’s no denying that digital currencies hold great appeal due to their novelty, the unique characteristics that differentiate them from traditional asset classes and, most importantly, their high return potential. Many people have amassed fortunes by profiting off the cryptocurrency boom.
On the flip side, others have lost all their life savings by betting on crypto. That has prompted skeptics and critics to deem crypto a losing game because volatility is so high that one can’t foresee what will happen next. Values can swing wildly from one day to another without prior warning, making crypto investing feel like walking on thin ice. The Ethereum price today can change at any moment, depending on trade volume and activity, and that applies to all other cryptos available on the market.
But even though the risks are ever-present, one thing’s for sure: cryptocurrencies are here to stay and people will continue to invest in them, regardless of the fluctuations in the market. So, if you’re considering adding crypto to your portfolio, here are a few steps to minimize risks and increase your chances of success.
Explore your options
By the latest count, there are over 12,000 digital currencies on the market, so which one should you choose? Which such a large number of options at your disposal, it can be difficult to distinguish between the cryptos that have real investment potential and can yield consistent returns in the long term and those whose prices and popularity are inflated by social media hype could plummet unexpectedly.
While you obviously can’t examine every single crypto project in existence – and you shouldn’t, given that many of them are not active or valuable – you do need to shop around before making a decision.
According to experts, the safest route would be to stick to reputable currencies such as Bitcoin and Ethereum, which are generally stronger than lesser-known coins, even though the latter might promise higher returns. On the other hand, this approach can limit your investment options considerably and cause you to miss out on some good investment opportunities.
The smartest thing to do is to conduct in-depth research of the projects that catch your interest by looking at a few essential metrics such as the team of developers, the whitepaper and road map, the use cases, the social media presence, current market cap, trading volume, community and developers support. This should help you better understand each crypto’s viability as an investment instrument and decide on the best path to follow.
Look under the hood
The cryptocurrency environment is incredibly complex and intricate and is getting more labyrinthic by the day as technology evolves. Therefore, understanding how crypto works takes time and effort and can be very hard, especially for non-tech-savvy audiences. Most people only have a vague idea of what the blockchain technology that underpins cryptocurrencies entails and make no effort to get educated in this respect. This makes investing in digital assets all the more complex and hazardous.
While you don’t have to be a tech expert in investing in crypto, you do need to have a proper understanding of what’s happening behind the shiny virtual façade that draws people in. that’s why you need to do a bit of digging, learn about the technology behind each project. If something seems off or doesn’t make sense to you, it’s best to move on. It’s simple, if you don’t understand it, don’t buy it.
Invest, don’t speculate
Since digital currencies represent a relatively new technology that still has a long way to go before it reaches maturity and a certain level of stability, they have often been labeled speculative assets. The fact that many people treat crypto trading as gambling, trying to time the market and opting for short-term strategies has reinforced this belief.
Buying and selling cryptocurrencies has always involved some degree of speculation. However, how you approach crypto can make it more of an investment and less of a speculation.
If you’re relying on short-term volatility to make a profit, you’re speculating. If you do your due diligence before purchasing a coin, focus more on long-term performance and hold onto your assets instead of selling and buying every time the wind changes direction, you’re investing. Although all cryptos experience regular highs and lows, chances are their value will appreciate in time, so if you keep them in your wallet for a longer period, you’re much more likely to make a profit.
Diversify your crypto portfolio
Don’t put all your eggs in one basket – the golden rule of investment also applies perfectly to cryptocurrencies. It’s not wise to put all your money into one single currency. If its price dips or the project crashes, as has happened with so many cryptos over time, you risk suffering major losses.
The smartest approach is diversifying your portfolio by spreading your investments across multiple coins, tokens, or projects after conducting detailed research on each. If one of them doesn’t perform as you expected, at least it won’t wipe out all your investments, and you have better chances of recovering.
As a final piece of advice, you should avoid emotional decision-making. FOMO, social media hype and sudden price swings can increase your heart rate and cause you to behave recklessly. So, you must keep a clear head and base your investment decisions on facts, not feelings.
Investing in crypto might be a more risky and complicated endeavor than other types of assets. Still, if you do your homework and approach things cautiously, you can tilt the balance in favor and become a successful investor.