Cryptocurrencies were first developed in the early eighties, but they didn’t start to come into their own until the late 2000s. Since then, they have steadily grown in popularity as their use has become more widespread. In fact, investing and trading in Cryptocurrency is becoming a common hobby, and it can be incredibly lucrative when approached properly. The return on investment holds great potential for both profits and losses. Therefore, doing your research and learning more about Cryptocurrency is important. You need to minimize your risks. To help in this endeavor, we have put together the following tips. Keep reading to learn more.
Choose Your Cryptocurrency Wisely
Sometimes it can be difficult to separate genuine Cryptocurrency platforms from scams. Unfortunately, as more people begin to invest in Cryptocurrency, the number of scam options also increases. Therefore, you need to come up with a strategy to help you when deciding where to invest your money. Ask yourself the following questions: is the platform verified? How many users does it have? Does it deliver on its promises? Realistically, the best option is to stick with popular platforms like Bitcoin, Litecoin, or Dogecoin. When you have chosen your platform, you need to learn as much as you can about it. Take Dogecoin as an example; Wealthsimple has a great resource on purchasing Dogecoin in Canada, not to mention all of their other services and resources which aim to encourage financial independence.
Implement Risk Management Techniques
When you are starting out with any investment journey, it is important to minimize the risks to yourself and your finances. There are a number of risk management techniques that you can integrate into your investment strategy. Setting limits is the most effective of the techniques. You need to be strict with yourself when investing. You should never invest more than you can afford to lose. Think about your budget as a whole; what amount of money won’t make a difference to you from month to month? You need to make sure that you can get by without it. This is true of any form of investment.
Another risk management technique is diversification. It doesn’t make sense to limit your investment to one particular Cryptocurrency; in fact, doing so carries more risk. Just as you would with stocks, shares, or most other forms of investments, you need to try to spread your money out. If you sink all of your money into one Cryptocurrency, then you risk being over-exposed. The investments are volatile, and should one plummet in value; then you could lose your investment. If you have several investments, then your potential losses from one are offset with the potential profits from another. There are over ten thousand different Cryptocurrencies, so do your research when choosing which ones to create your portfolio with.
If a trading or investment platform recommends that its users go ‘all-in’, they should be avoided. They want you to sink all of your money into their platform and their currency by investing as much as possible. As mentioned above, diversification is key, and any platform that doesn’t acknowledge this is likely to be less than reputable. Overstretching yourself financially by investing more than you should or sinking all of your money into one platform is the quickest way to find yourself in the poorhouse. As mentioned above, you should only invest what you can afford to lose, and you should also build yourself an emergency fund that acts as a buffer should an unexpected expense arise; the emergency fund should never be invested.
Acknowledge That It May Take Some Time
Cryptocurrencies can be volatile. This means that the value of them experiences ebbs and flows daily. This is something that any investor needs to be prepared for. Unfortunately, this is where a lot of novices go wrong. They panic and are often duped into selling when the prices fall in an attempt to minimize their losses. This simply is not necessary. Cryptocurrencies are not going anywhere; try to get comfortable with the idea of leaving your money alone. In some cases, leaving your money in the market for months or even years might be the best move financially as it offers you the best deal. Patience is a virtue, after all.
Embrace Automation When Investing
This is another technique with applications beyond Cryptocurrency. You can automate your purchases of cryptocurrency just as you can with stocks and shares. This then means that you benefit from dollar-cost averaging. Find platforms that allow you to set up standing orders or recurring purchases. To set it up, you decide on a monthly amount and set an order using that amount. For example, you could decide that you have a spare $100 a month to invest in Crypto. This means that some months you might get a little less if the value has risen, and some months you will get more when the value drops. The cost and value average out. Doing this can help to alleviate some stress. You don’t have to worry about waiting for the right time to buy.
Be Wary of Deals
A lot of novices fall over themselves to buy because the price is low. However, this is not necessarily the best move; a low price does not always mean that you are getting a bargain. A number of other factors can affect the price of the cryptocurrency, and sometimes the price has fallen for a reason. You should also keep an eye out for Cryptocurrencies with dwindling users; it can indicate problems with the platform. Sometimes, the developers leave the platform. This means that it doesn’t receive the updates it needs, affecting Cryptocurrency and making it less secure. These platforms are to be avoided.
Develop the Right Mindset
Making money through investments is not easy and won’t always be fun. Making money through investing and trading in financial assets takes work, whether those assets are commodities, stocks, shares, or Cryptocurrency. This is something that you need to think about if you are looking for a fun hobby that you can thrive at with little preparation or work. Crypto is not easy money. To avoid making mistakes and losing out, you will need to do your best to learn more about the market and the factors that influence it. Building your knowledge base can take time, and you need to be willing to put in the work if you want to be successful.
Be On the Lookout for Scams
Unfortunately, the digital space is filled with scam artists who are looking to cash in at the expense of others. There are a few common scams that you may encounter during your Cryptocurrency journey. Knowing more about them can help you to avoid them. Firstly, ignore all phishing emails. Fraudsters attempt to contact possible victims looking for information. Ignore all offers of free money, investment opportunities, or requests for personal details.
The next scam to watch out for is spoofing. Scammers can create fake buy or selling orders for small Cryptocurrencies. This then inflates or deflates their price, sometimes sending the value sky high and other times tanking it completely. It can seem like a great opportunity to an outsider, and they want to get a piece of the action. The scammers then reverse the orders, and the price crashes. The scammers sell when the price is high and get out before the crash leaving unwitting traders to hold the bag.
To invest in Cryptocurrencies, you need a crypto wallet. The wallet keeps your Cryptocurrency safe, and it houses your personal information too. When securing your wallet, you should stick with well-known reputable providers. The lesser-known options are hard to verify; you have no way of knowing whether they are reputable or not. Furthermore, choosing to download the wrong wallet can leave you vulnerable to hacks. Scammers can access your wallet and steal your currency using codes that they have embedded in the software.
Finally, you also run the risk of encountering fake coins. Sometimes it is difficult to tell what is real and what isn’t. If you are enticed by fake coins and decide to invest in them, scammers can access your information and use it to steal your identity. This can also be done through phishing scams. If possible, you should stick to the better-known platforms. If you want to take a risk on a lesser-known Cryptocurrency, then you should do your research and be sure to consult different sources to see whether they concur.
Realistically, Cryptocurrency is still in its infancy. It has evolved since the first iteration way back in 1983, but it still holds a lot of potential. It has already changed the financial landscape, but it could do a lot more. In an increasingly digital world, Cryptocurrency could move to the forefront as a payment option – an increasing number of businesses are already accepting it as a form of payment. Worry not, there are still plenty of opportunities to secure yourself a piece of the pie.