8 mins read
Published on: Jun 26, 2024
#Blockchain
#Financial Markets
#Crypto 360
Before investing in cryptocurrency, you must learn the basics of the industry. This article is a guide on how to get started making your first cryptocurrency investment.
Cryptocurrencies are constantly growing in popularity and attracting an increasing number of investors yearly. However, they can also be viewed as a high-risk investment. Newcomers especially need to understand that cryptocurrency investment, especially altcoins, comes with increased risk due to their historically high volatility.
Before starting, it’s essential to perform thorough research and learn more about how the various cryptocurrencies work. This article discusses how to get started investing in cryptocurrencies, the best practices you need to know, how to keep your cryptocurrency investment safe, and more.
Before diving into cryptocurrency investment, you must dig into finance basics. As shallow as it may sound, this involves having an emergency fund, not taking on too much debt, and having diversified sources of investment. As you embark on your cryptocurrency investment journey, focus on these four critical areas:
Investing in any company is only as good as understanding the enterprise at hand, so it is necessary to have a deep understanding of the investment you’re planning to make. For stock investment research, this means going through the annual reports and the SEC filings to get an idea of the company. A similar way works with cryptocurrency investment; learning the unique value each company aims to provide to the market is critical.
Today's cryptocurrencies, including Bitcoin, are not financed by tangible assets or cash flows; their value is deemed to rise after you purchase it through market demand.
This is one of the mistakes new investors tend to make when they suppose current trends into the future. However, the fascinating story of Bitcoin, which started trading at less than a cent and rose to thousands of dollars, is not guaranteed to repeat. Decision-making on investments should be prospective, that is, to focus on future results rather than past movements.
Deciding based on emotions is a recipe for impulsive and often unprofitable choices. For example, investors acting out of fear and panic tend to sell their shares at the bottom of markets during corrections. At the same time, those influenced by greed and excitement are likely to overinvest during bubbles and not willing to exit when the profit is less than their expectation.
With its characteristic cycles of growth and fall, the crypto market is rather harsh for the emotional investor. Thus, instead of making decisions impulsively, it’s far better to take a step back and think about it.
Cryptocurrency prices can be very volatile—they can drop dramatically in response to mere rumours with no firm foundation. This environment is very favourable for skilled traders who can quickly seize the opportunity or those with the necessary knowledge of market movements. However, it can be somewhat risky for the uninformed.
For the average person who does not possess advanced trading tools or has not been in the market for long, crypto volatility is a minefield. It usually kicks out new traders who get nervous and start selling their assets at low prices, which is suitable for experienced traders who use this opportunity to ‘buy low and sell high.’
You are the only one responsible for your decisions regarding investments. In the crypto market, even the most popular coins, such as Bitcoin and Ethereum, have had their fair share of declines, negatively impacting most traders’ portfolios. For beginners, operating in the market with a well-defined strategy is essential rather than being influenced by noise. Below is a rundown on how to get started with your first cryptocurrency investment.
Never invest more than you can lose. This should not be more than 5% of your total capital. This way, you can experience the potential profit while preserving the rest of your financial position. Cryptocurrencies are highly volatile and can undergo a relatively sharp change in value within a day, so limiting your investment amount is critical.
To strengthen your knowledge of the basics of cryptocurrency and trading and investment strategies, you may enrol in a course on crypto essentials, trading, and investment or read articles like this on BitDelta. This will empower you with the knowledge to manoeuvre through the crypto market. Beginners must choose projects that have stood the test of time and offer distinctive capabilities alongside better prospects for widespread adoption.
You can rely on your research to make proper investment decisions by analysing the different factors involved in a crypto project. For example, it’s essential to consider the likelihood of adopting a particular cryptocurrency in the real world, its characteristics, the team's background that developed the project, and the level of interaction of the associated community.
The goal is to choose long-standing projects with valuable features likely to gain popularity in the short term. It is also important to consider the token's usability, the network's security, the project’s growth potential, and its competitiveness over other companies in the same niche.
Image: Hand pointing at market indicators, by Token Metrics
Cryptocurrency trading for beginners is rather challenging, and even more so for newcomers. Using efficient crypto market indicators can help you increase the chances of making near-correct market movements. Some of these are crossovers, moving averages, and relative strength indexes; for example, a crossover of moving averages shows a market direction shift.
As a beginner, you should familiarise yourself with indicators like mempool size, on-chain activities, and average transaction fees. This will help you track the best time to enter or exit a market to make profits. Technical analysis will assist you in making an informed decision on daily price fluctuations.
Dollar-cost averaging is one of the most recommended crypto investment strategy. This strategy makes investing more accessible by allowing you to make small and frequent investments at specific intervals. Most crypto exchanges have adopted these transactions to prevent investors from making manual entries. The process of dollar-cost averaging involves gradually investing in the market without trying to time the market.
This crypto investment strategy is most useful during a market downturn since you can use low prices to purchase more assets and limit the purchase of assets at higher prices. Dollar-cost averaging helps minimise the risk of investing in volatility and allows you to take advantage of intense market drawdowns.
The largest cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), are safer than others. These cryptocurrencies have a first-mover advantage, huge market capitalisation, and are widely used. Although aggressive trading approaches may generate profits in the crypto market, the key tokens have shown stability during the crisis. However, it is advised not to overload the big names in the market by considering factors like risk tolerance and the total available amount for cryptocurrency investment.
Do not fall prey to FOMO, which means making hasty investments in risky coins or joining a hyped-up bull run. Avoid cryptocurrency investments that promise high returns because they are usually scams.
New investors may need help determining the authenticity of every crypto project, and this is where crypto consultants or financial advisors can come in handy. These experts can guide you through the processes of the crypto world and protect your investments from the most common scams.
The soundest cryptocurrency investment strategy says to invest only the funds you can afford to lose. Do not use the funds required for essential expenses like payment for a house or groceries for such investments. These funds should be kept in safe and easily accessible bank accounts. So far, the security of the platforms through which digital currencies are traded and stored has been of great concern.
Focusing on short-term price fluctuations is a common practice in cryptocurrency trading for beginners. Since cryptocurrencies are highly volatile, risk management should be done carefully, as risk management can significantly reduce the likelihood of adverse effects. On the other hand, buy-and-hold investors keep their investments in the market and wait for prices to rise over time. Short-term traders should apply strict risk management measures, such as having clear guidelines on when to take profits or cut losses due to market volatility.
For anyone looking to get started in cryptocurrency investment, the beginning can be confusing. Yet, carrying the right knowledge, you can start investing without much anxiety.
There are two main options when trading cryptocurrencies: brokers and exchanges. Platforms such as BitDelta and Binance make trade easier. These platforms are ideal for beginners and advanced traders as they provide easy-to-use tools to help with trading and offer relatively low fees.
Image: BitDelta platform sign-up page
First, you must open an account, register, and complete the KYC (Know Your Customer) procedure. This usually requires providing information from your driver’s license or passport. You may also need to upload a selfie or an ID picture to prevent impersonation and fraud.
Before investing, you need to deposit funds into your account through various modes, such as providing bank account details, transferring money, or using debit/credit cards. The period for these funds to be available for trading varies with the deposit method and platform used.
After the account has been funded, you can buy the cryptocurrency of your choice. For example, if you wish to buy Bitcoin, you will use the code BTC and input the amount you want to spend. Both brokers and exchanges offer fractional cryptocurrency investing, meaning that even those with a small amount of funds can buy some more expensive assets, such as Bitcoin and Ethereum.
To minimise the risks of losing your cryptocurrency investment, trade only on reputable exchanges and keep the funds in reliable wallets. To strengthen account security, use strong passwords, two-factor authentication, and login only from secure networks. Be on the lookout for phishing schemes designed explicitly for cryptocurrency trading for beginners, and do not disclose your password or private keys at any cost.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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