So whether you’re new to cryptocurrency and you’re excited and ready to buy, or if you’ve been procrastinating this decision for a while but you’re finally ready to take that plunge… you’ve definitely made it to the right place.
Because in this guide, we’re gonna cover the Top 5 things that you absolutely need to do before investing in cryptocurrency, so that you can get off to a good start, can sleep well at night, and manage your crypto assets like a boss.
Table of Contents
TIP 1: YOU CAN NOT AFFORD TO MAKE MISTAKES
Educating yourself about cryptocurrency is definitely the most important thing you can do to set yourself up for success. For generations, we’re used to store our wealth in banks, and it’s someone else’s responsibility to safeguard and protect our money.
But with cryptocurrency, that’s flipped entirely around. YOU are in control of your money. And if you happen to lose access to your wallet, or if you send your coins to a dead-end or the wrong person, there’s no Help Desk or Support Center that you can call up to try to reverse a transaction.
That doesn’t exist with cryptocurrency. It’s paramount that you take security very seriously at the onset and understand how these systems work. For a lot of the cryptocurrency projects out there like Bitcoin and Ethereum, there’s actually no company.
There’s no CEO. There are no shares. Instead, these are decentralized, peer-to-peer systems that operate much less like a company, and a lot more like the Internet — where no single person or entity owns or controls it.
That brings me to tip #2, which is;
TIP 2: Trust nobody and do your own research.
Just like the Internet was in the ’90s, cryptocurrency today isn’t all sunshine and rainbows.
There are a lot of Pump and Dump schemes out there, there are scammers that will try to swindle you for your money if you’re not careful (even on platforms like Twitter), it’s kinda crazy.
There are “shills” out there that are promoting these projects that they don’t really believe in, they are just trying to make you be the greater fool. So you really can’t trust anyone, not even me.
And if someone is trying to tell you that “This is the next hottest coin that you have to invest in”, you should really think about what are their motives and why would they be saying that? If it’s someone on the internet saying this, chances are there might be something up there.
But if it’s a friend or a family member, then there’s less of a chance that they’re trying to trick you into something. However, that doesn’t mean necessarily that it’s good advice. You definitely need to do your own research, and not take anyone else’s word for it.
If you were considering investing in crypto coins, it would be helpful to understand the problem each of them is trying to solve and figure out if it is a small problem with a small market, or if it is a BIG problem with a big addressable market.
The best cryptocurrencies out there are the ones that solve these giants, “hair on fire” problems as they call them in the startup world. And good news — Bitcoin and Ethereum are both doing that.
Now, you’ll also want to know how the price has been performing over the last month, 6 months, year, and 2 years, so you can think about how you want to time your entry into the market.
You’ll definitely want to follow the coin and check the news and reviews to get a sense of what the general market sentiment is like towards that coin and to figure out if it is worked on, and if so, by who?
Are they no-names in the industry, or do they have serious street credit? Is the project evolving? Is it getting better, faster, cheaper, and easier to use? More scalable? These are very important things.
And if you see that the price is going up, but there doesn’t seem to be too much progress, then that’s definitely a red flag. But if you see the price staying flat or declining, but there seems to be massive progress being made on the project, then that could be a sign that it’s a good time to get involved.
Now, before we get that far, you’re definitely going to want to take a look at the economics behind the coin in question that you’re doing research on.
For example, how many coins are out there in active circulation for that currency? Is the overall supply of coins capped and limited to a fixed number, or is there inflation built into it on a yearly basis? And the answers to these questions vary greatly from coin to coin.
So it’s very important that you understand the supply and demand economics behind it.
So again, if someone’s telling you that this coin is the next hottest thing, and it’s going straight to $10, but then when you actually do the research on it, you find out that there are a trillion coins in circulation, chances are it’s not going to $10, at least not any time soon.
Do your own research, and hey, make smarter investment decisions.
So Tip #3
TIP 3: only invest what you can afford to lose.
I literally mean… every dollar that you invest into cryptocurrency… do so with the understanding that it could all go to zero overnight.
Because at the end of the day, cryptocurrencies are programs. It’s software. And software is built using code, which comes from humans. And we’re not perfect, and codes have bugs. And it’s possible that a bug could get discovered that leads to a “black swan” event that could wipe out your entire investment overnight.
And aside from just bugs, there’s a risk of a 51% attack on the network or the fear of quantum computing.
There are user errors, like if you put your coins on an exchange, and that exchange gets hacked and the funds get stolen.
Or if you accidentally send your coins to an invalid address… the list goes on and on.
Cryptocurrency has only been around as an industry for about 10 years now, so we’re all kind of learning on the fly how to do it.
It’s very much an experiment, it’s early days, so make sure you’re treating it as such, and that you only invest what you can afford to lose.
TIP 4: Have a plan and stick to it.
Let’s say you buy Bitcoin at $3,500 US dollars today, but then it sinks to $2,500 tomorrow, and then $1,000 the day after that.
What’s your plan?
Are you going to hold on to it? Are you going to sell it and cut your losses? Are you going to buy more?
Could you imagine the panic you’d be feeling if you didn’t think this through ahead of time?
Even on the flip side, so let’s say you buy at $3,500 today, but then it goes up to $4,000, and then $5,000 the day after that.
What’s your plan then? Are you going to take profits? Are you going to stay in the market? You have to think these things through. So, some of the key things you need to be thinking about here are…
Number 1: What is your strategy for entering the market?
Are you going to put a lump sum down at a certain price? Let’s say Bitcoin goes to $3,300, that’s my buy-in price.
Or are you going to take the other approach called “Dollar-Cost Average” where rather than doing a lump sum investment, what you do is you take your budget and you chop it up into pieces, and over the course of time, whether it be weeks, months, or even years, you slowly apply that budget into the market?
So rather than buying at a certain price and kinda being locked in, you’re buying all of the prices regardless of how the market is performing.
Number 2 is deciding, is this a short-term investment, or is this a longer-term investment? Say 3-5 years.
And that’s what I personally recommend because the cryptocurrency markets are so extremely volatile in the short term.
If you were to buy Bitcoin today at $3,500 US dollars, what if it hit a 6-month downturn literally the day after you bought it? And honestly, everyone feels like that’s the case when they first get involved in crypto.
If you have a long enough time horizon on this investment of 3-5 years, chances are you can escape that short-term volatility and if it trends up and to the right, then hopefully the future value of your investment is much larger than the initial investment that you’d be making today.
Number 3 here, you’re definitely going to want to set your stop losses and your limit orders on whatever cryptocurrency exchange or mobile app that you’re using to make trades.
Because again, if you were to buy today at $3,500, you need to know that if it sinks to $3,000 tomorrow, that might be the price at which you’ll want to pull your money out and preserve your capital and cut your losses.
And on the flip-side, if it goes up to $4,500, maybe that ticks the objective that you set for yourself. That could be the profit margin that you’re after. You have to know these things ahead of time.
Set your orders, and trust me, by doing this — by having a plan and sticking to it — you’re going to be able to sleep so much better at night. You’re not going to be glued to your phone all day checking charts and prices, and you’ll be able to conserve a lot more of your valuable brain juice.
And finally, Tip 5 is to get a hardware wallet.
You see, in order to own cryptocurrency, you have to store your coins on what’s called a digital wallet. And these wallets come in many shapes and sizes.
So there’s Coinbase, for example, which is a service that will host the wallet for you. There are apps that you can download and run yourself on a desktop or a laptop computer. And then there are these physical, what look like USB sticks.
These are hardware wallets.
And they are designed with the sole purpose of safeguarding and protecting your crypto assets. And my general recommendation is that if you own — or you intend to own — about $1,000 worth or more of cryptocurrency, then it makes sense to invest in a hardware wallet such as the Trezor, the Ledger Nano X, or a KeepKey.
And most of these hardware wallets you can snag for about $100 or less, so it definitely makes sense and it’s not going to break the bank.
5 Tips For Investing In Cryptocurrency — Beginner’s Guide!