Deemed the largest and most successful financial diversifier, cryptocurrencies continue to attract investors around the globe. In fact, as per a recent investment survey by CNBC, it was revealed that now 1 in 10 people have invested in cryptocurrency. This now puts this relatively new asset class just behind more traditional investments like real estate, stocks, mutual funds, and bonds. Inarguably, this reflects crypto’s powerful appeal that has both new and experienced investors jumping abroad.
That said, while crypto does bode well for investors looking for a more accessible and inclusive asset, it shouldn’t be underestimated. Known for being as unstable as it is valuable, crypto can very easily become a loss for inexperienced investors. Consequently, if you’re a first-time crypto trader who wants to dive into this bustling market without going bust, here are some essential tips to keep in mind:
Only invest what you can lose
A classic investment tip, that is especially relevant in crypto, is to only invest what you can afford to lose. All investments are a risk, but this is especially true for an asset like crypto which is still relatively new. Far too often, excited investors use up their savings or take out loans just to put more money towards crypto. But this is a dangerous and downright reckless practice. Instead, finance resource AskMoney, which covers cryptocurrencies in detail, suggests only allocating between 5-10% of your investment budget to crypto. In this way, the fluctuations of the crypto market won’t adversely affect the rest of your portfolio or your personal savings. If you want to be more aggressive with your crypto investments, optimize free resources like crypto podcasts instead. In this way, you can pick up helpful investment strategies to use. Doing so will help you make the most of your investment without overspending.
Anticipate dips in coin value
Consider that while the crypto market cap has hit an all-time high of $3 trillion, it has also seen historic dips. To illustrate, in early 2022, Bitcoin dropped 50% from its peak valuation in a mere 24-hour window. According to business authority Forbes, this is because crypto remains a speculative asset. As such, it is easily swayed by abstract influences like reputation, adoption, and even popularity. This is also why a single tweet has been capable of hugely affecting the performance of various cryptos. Hence, if you were only to focus on the positive news about crypto, you’d likely end up on the losing end once these volatile dips occur. Keep in mind that anticipating dips doesn’t mean you have to become scared or put off. But, rather anticipating such rapid changes allows you to appreciate the bigger picture and be prepared accordingly.
Explore indirect crypto exposure options
A clever but not as publicly common crypto investment route is to put your money towards crypto-related assets instead. This means that rather than putting your entire investment money into tokens, you invest some in crypto stocks, blockchain companies, or organizations with crypto assets. In this way, you’re able to diversify your portfolio, increase your crypto exposure, and reduce risk. Admittedly, exploring these assets can be a bit intimidating. However, it helps to make determinations based on the company itself and on the crypto assets they’ve acquired. In this way, you can better decide what suits your investment strategy. Thankfully, there are a number of options to consider. Recently, Isabelle Acosta’s list of best crypto stocks included Hut 8 Mining Corp (a Canadian mining company), Tesla (a long-time crypto champion), and Coinbase Global (a trading platform). As an added bonus, since these assets are more well-established, investing in them offers more contingencies should issues arise.
Invest in hack-proofing efforts
Many people have the misconception that crypto and blockchain are impervious to hacking. However, the truth is that the blockchain only really discourages ledger tampering. This means that both cryptocurrencies and blockchains are still just as vulnerable to cybercriminals. In fact, CNN reports crypto heists are becoming more common. Just last year, about $550 million worth of crypto was illegally extracted. As such, it’s important for new investors to double down on their security. No matter how lofty a crypto exchange or wallet’s cybersecurity promises to be, it’s better to add your own precautions. Some of these include opting for a cold wallet (so that it is not connected to the internet) and implementing multi-factor authentication. In this way, you can personally review all your transactions both online and offline.
With governments and industry leaders all slowly embracing cryptocurrency, there’s no doubting its longevity. However, considering that crypto remains a decentralized and unregulated token, preparedness is critical for any budding investor who wants to go along for the ride.
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