In the vast and intricate world of investing, crypto has earned a reputation as a highly controversial but equally appealing asset class. Much newer and vastly different from their already established counterparts, digital currencies led by industry initiator Bitcoin have come to represent the new frontier in finance. But as with all things that are innovative and unusual, the crypto market is still going through some very obvious growing pains which translates into larger-than-normal volatility and subsequently higher risks for investors.
According to Binance the BTC price experiences constant fluctuations that no one can predict and the rest of the coins exhibiting similar tendencies, market players often have a difficult time navigating the turbulent crypto waters. The opportunities for more substantial profits are somewhat overshadowed by the risk of large losses caused by these extreme price movements. There are unique challenges to crypto investing that one wouldn’t encounter with other types of assets, and so you might not know where to begin or how to behave if you decide to get into crypto.
Fortunately, in the 15 years since digital currencies have been around, we’ve come to learn a few things about how the market functions and what one should and shouldn’t do when trading or investing in crypto assets. Some of these rules apply to all types of investments, while others are specific to the crypto squad. So, here are 7 so-called unwritten commandments of crypto investing you should follow if you want to make your journey as smooth and safe as possible.
Set healthy limits
Since we’re talking about an asset category that’s classified as being high risk, crypto should make up but a small portion of your total portfolio, ideally no more than 5 to 10%. Anything above that exposes you to more risk than you might be able to handle, especially if you’re a beginner. By keeping your crypto investments under 10%, you can gain enough exposure to digital currencies to make a nice profit while also limiting the impact of losses. The rest of your portfolio should be spread between uncorrelated or negatively correlated investments to lower overall volatility and uncertainty. Also, if you can’t afford to lose it all, should things go south, you should probably stay out of it.
Diversify within crypto
It’s obvious from the first recommendation that you shouldn’t put all your funds into one single asset, be it crypto or more conventional instruments. Well, the same rule also applies within an asset class. This means you also need to diversify your crypto investments. You might be tempted to bet it all on Bitcoin since it’s the most reputable and valuable coin in the market, but doing so makes you more susceptible to major losses. There are plenty of other coins available, so don’t disregard their potential. However, try not to over-diversify either, as this can limit your earning possibilities.
Always be learning
Digital currencies present unique traits that make them significantly different from other investment vehicles. You need to familiarize yourself with these characteristics to understand exactly what you’re getting into and look into aspects that can help you assess the viability and potential of crypto projects, such as technical features, development team, vision and objectives, use cases, security, community engagement, etc. Besides, with the crypto industry constantly changing and evolving, learning never stops. You have to keep up with events and developments as they can have a notable influence on the performance of different cryptocurrencies and even change the rules of the game.
Look beyond the hype
Crypto is a space where hype and FOMO run the show and can sway investors in one direction or the other. Meme coins provide a most relevant example in this respect. This crypto subset inspired by popular memes created quite a stir in the market with their astonishing rise, but the buzz fizzled out just as unexpectedly along with their value, and now these coins hardly make the news anymore. The lesson here is to avoid following the crowd or giving in to FOMO and instead resort to rational thinking and research when making any investment decision.
Stay in the loop
The crypto market never sleeps. Apart from the fact that it operates 24/7 and transactions are ongoing, there’s always something going on in the industry, be it project upgrades, new crypto launches, scandals, regulatory developments, and so on. You need to keep up with the ebb and flow of the market and check relevant crypto indicators to identify trends and adjust your strategy accordingly. This doesn’t mean you should think about crypto all the time and check metrics obsessively, as that’s not a healthy approach to investment. But you do need to stay on high alert since things move much faster in the crypto space than in other markets.
Prioritize security
Crypto investing takes place in the digital space – a realm that is also inhabited by cybercriminals who are constantly on the lookout for new victims and vulnerabilities, and cryptocurrencies happen to be quite appealing to them. This should serve as a warning to keep security at the forefront of your mind when investing in crypto. Store your crypto funds in a safe wallet, preferably a hardware wallet with strong safety features like multi-factor authentication, encryption, and recovery phrases. Keep your private keys safe, and be cautious when you connect your wallet to different devices.
Be ready for a wild ride
It’s often said that crypto investing is not for the faint of heart, and although this might sound a bit disturbing, it’s not too far from the truth, given the volatile nature of the market. That’s why you shouldn’t go into crypto investing if you don’t feel prepared. It’s better to take your time to educate yourself on the topic thoroughly and decide if it’s a good option for you than to jump head first and regret it later.
Ultimately, you have to do your best to maintain an objective perspective, set realistic expectations, keep an eye out for common pitfalls, stay informed and look out for potential opportunities. If you manage to do all of this, you have good chances to achieve your goals.
