7 tips that every cryptocurrency investor should know
The cryptocurrency investment arena is one of the most attractive to new investors for several reasons. Its volatility, with steep crash seasons and record-breaking appreciations in record times, beats any glitzy record on Wall Street. Furthermore, they are easily accessible assets for any type of investor. This opens an avenue for novice traders, which will only be sustainable if they take the necessary steps for responsible investment. In this article, we cover 7 tips that can be useful so that your investment in Bitcoin and other cryptocurrencies adds possibilities of success.
# 1: Choose a trustworthy investment platform
One of the first steps is to choose a reliable investment platform with the right tools for your needs as an investor. Regardless of your experience level, it is always healthier to keep this number minimal, trying not to trade using more than a couple of investment platforms simultaneously.
In the cryptocurrency arena, there are two main options: brokers and exchanges. The latter specialize in investing in cryptocurrencies and, generally, the purchase is direct, obtaining ownership of cryptocurrencies that are stored in specialized digital wallets. These are best suited for those who want to have more control over their digital assets or are looking to use them for intrinsic ecosystem operations, like Ethereum. However, not all exchanges are regulated, and the security of the funds is not always guaranteed.
This is where brokers come into play. These are professional brokerage platforms and generally regulated by recognized authorities such as CySEC or FCA. In addition to regulation, brokers offer investment in financial derivatives such as contracts for difference (CFD), futures contracts, etc. This means that you invest in the possibility of prices rising or falling, without having to actually own the underlying cryptocurrency. In this way, more trading tools are available and more complete strategies can be formulated. You can consider the following platforms to get started, according to your needs and expectations:
#2: Be sure to use a robust wallet
In case you go for an exchange like Binance or Coinbase, native wallets might not be enough if you manage a very large capital or if you dare to gamble in the long term. In principle, larger capitals require a wallet with advanced security features, such as cold storage wallets, also known as hardware wallets. Those with even higher investment levels can look for institutional custody options like Bakkt or Coinbase Custody.
# 3: Access and security
Regardless of the alternative chosen to invest, one of the main responsibilities of an investor is to protect access to his cryptocurrency investment accounts. Consequently, a unique and secure password (unlike any other used by the investor) is just the first step on an armoured path.
Currently, there are options such as two-factor authentication, which allow multiple levels of security to be uploaded. In the case of brokers, your identity and the deposit method will make your investment practically armoured against hackers, since withdrawals can only be made to the same account specified at the beginning.
It is also important to be careful that websites maintain the secure connection protocol (SSL) and be careful with fraudulent techniques such as phishing. On the other hand, desktop software wallets and cold wallets often implement a seed to support single access to funds. It is a combination of keywords in a specific order that you will have to keep locked, as they are the only way to recover your account in case of loss of the device.
# 4: The technique of professional traders is to keep a diverse and concise portfolio
Diversifying an investment portfolio is a widely used technique, which is also recommended by great experts such as Fidelity, who assure that the practice “is designed to reduce the volatility of your portfolio over time.”
The digital currency industry is not just about Bitcoin. As of the date of this article, there are more than 5,500 cryptocurrencies that are listed on different exchanges around the world. Thus, it is crucial to choose carefully which are the cryptocurrencies that will make up your investment portfolio. In this article, we explain how and why to diversify your crypto portfolio.
#5: Success is achieved one step at a time
When starting your investment in cryptocurrencies you must establish realistic expectations and know that the evolution will be gradual. Great trading stories are based on trial and error, ensuring that you gain solid and sustainable expertise over time.
That is why it is recommended to start with smaller amounts to evaluate your results and make decisions when the time is right. Generally, the minimum investment amounts in a broker can be an effective benchmark to get started.
# 6: Fundamental analysis
The variety of technological proposals in the crypto industry is almost unimaginable and covers hundreds of areas. From digital money exchange, through the banking economic revolution to the decentralization of the Internet, and the way digital content is handled, solutions that have included projects such as TRON and Basic Attention Token.
Thus, it is important to look at the background of a crypto project before investing in it, without leaving out any details, including work equipment, technology, use cases, investors, founder participation, among others. Other aspects of the analysis include tracking news, partnerships, adoption, or even quarterly cryptocurrency reports that are backed by high-calibre private companies like Ripple.
# 7: Technical analysis and risk management
Although it is a subject that we do not approach with a magnifying glass in this article, technical analysis is the key piece to determine a clear and informed investment strategy that is likely to yield better results. Charting and analysis tools help determine key factors such as resistance levels, support, or trends.
Although they are not determining aspects, they are statistical and probabilistic elements that allow us to look at the different scenarios to which a cryptocurrency may be exposed. When combined with sound risk management – something many traders have historically neglected to consider – your performance can ascend to the next level.