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Investing in crypto sounds like either the best or the worst of ideas, depending on who you ask. The big problem is that while some people have made a fortune this way, their voices are always louder than those of people who never found success in these investments.
The key thing lies in understanding crypto investment from a different (deeper perspective). Here are a few things you need to take into consideration if you want your crypto trades to be reliable (as much as possible) and profitable.
The source of hype
Every time the value of cryptocurrencies rises, people start hyping it up, believing that now is their time to shine.
FOMO (Fear of Missing Out) causes a part of this hype. Everyone saw how some people got it big in 2017 or 2021. If people had a time machine, they would go back in time and buy BTC in 2010. Likewise, if they could move further back in time, they would buy Apple or Microsoft shares.
Since time travel is impossible and remorse is a huge motivating factor, the best they can hope for is that they’ll get a new opportunity. This means that they often see what they want to see, and every time BTC goes up again, they believe that they can’t miss out on a chance to pounce on this opportunity.
This doesn’t mean that the hype is always unfounded, but you have to learn how to tell the difference.
Presales are often incredibly profitable, and the buy-in is fairly low, which means that you won’t expose yourself to more risk than you can handle (more on that later). The key thing lies in understanding their hype and not just hopping onto a bandwagon. This way, you’ll be on the right path to making informed decisions. Kane Pepi says there are often more presales popping up during a bull market, so extra care is needed to find valuable opportunities during these periods (which is happening now at the time of writing).
Risk management
A high chance of failure is only problematic when the stakes are high. Knowing there’s a 50% chance of getting seriously injured and knowing that there’s a 50% chance that your car won’t start on the first try are both bad, but they’re not equally bad.
So, the first thing you must learn about investing in crypto is how much you can overextend.
It’s not just about the chance of failure; it’s also about the potential reward. The things here are simple – investing a bit to earn a lot is always worth it; however, defining a bit and a lot is far from simple, and they’re not the same for everyone.
It’s not necessarily even about the risk itself. In fact, it’s never about the risk – it’s about the risk-to-reward ratio. As long as you’re investing what you can stand to lose and the prospects of winning are appealing, you’re on the right path.
This also brings us to one of our most important points – never invest more than you can afford to lose.
Ideally, you would create an investment portfolio to spread your assets across a few asset types. This way, when the market shifts, not all of your assets will go in the right direction. If it shifts toward less favorable, you won’t lose as much.
At the same time, you can also diversify your crypto portfolio. This means not keeping all your crypto investments in the same type of crypto. We’ll talk more about it in the next section.
Diversity of crypto portfolio
If you’re to act like an investor, you need to make sure that you spread your investment assets the right way. You need to pick cryptocurrencies with low correlation, which will increase the resilience of your portfolio.
First, you want to look for different coin types. Stablecoins and meme coins would both be classified as cryptocurrencies, but they’re almost completely opposite. AI coins are one of the fastest-growing trends but they’re also just one in the sea of options you have available.
When really trying to diversify, you should pick coins operating on different blockchains. Sure, the majority of people are on the ETH blockchain. While going for a different blockchain sounds simple enough, the truth is that ETH just has such an enormous market share that going elsewhere sounds counterintuitive.
Different use cases are also a great feature to focus on. For instance, you could look for cryptos tied to different industries and split your investments according to this.
Market capitalization and geography are the final factors you should consider. Larger coins are generally more stable (even though this is not a hard rule in a field as volatile as this). Either way, you could look at the total market value and cap.
Purchase automation
Even if you check your phone all the time, chances are you’ll miss a massive and important shift in price change. Cryptocurrencies are in a volatile market, which means that if you want to catch them, you need to understand how to automate your purchases/sales.
The thing is that the concept of automation could mean a number of things, and it all depends on how you personally understand it.
This is a simple conditional command that operates on a relatively simple basis – if the price reaches X, you sell. If the price reaches Y, you buy. While this takes over a part of your autonomy within the process, it actually gives you a chance to be far more reactive.
Another (effective) way to automate your trades is to copy trade. Some platforms allow this function. They allow you to set up your portfolio so that it mimics the trades of another (more experienced) trader. The downside of that is that your agency is reduced and limited.
Developing a strategy can also be seen as a form of automation. While it doesn’t self-execute, it takes away some of the decision-making and simplifies the whole process.
The technology behind it
Investing in crypto without knowing the first thing about it would be like buying a property in a place you can’t even find on the map. Is it necessarily a bad idea? Well, it could turn out to be profitable, but this is more of a gambler-like behavior than the behavior of an investor.
So, start reading more about the blockchain and technologies related to blockchain.
If you are really serious about investing in cryptocurrencies, you have to stay ahead of the curve. This means tracking everything from the latest developments in blockchain to the appearance of relatively new terms with practical applications, like DeSci.
Now, you’re not just supposed to focus on the tech behind the coins but also on technology impacting the field as a whole. For instance, you need to keep an open mind regarding tools like robo-traders. With the help of analytical AI tools, even things as complex as market fluctuation can be made a lot simpler and easier to understand.
Investing in crypto takes more finesse than people assume
Investing in crypto can be an amazing opportunity for you to buy new assets with great potential for growth, diversify your portfolio, and just outright try something new. However, you need to get into it from the right perspective and with the right mindset. This is really the only way these things will work, and it’s something that you just can’t go around if you want to play it safe.
