While cryptocurrency’s growing popularity has increased its adoption, investing in crypto isn’t easy, especially for beginners. Crypto investing is lucrative. However, getting carried away by the hype around it or joining the crypto market without understanding much about it increases the risk of losing your capital. Discussed below are six things you should know before investing in cryptocurrency.
Learn crypto research and analysis
Identifying a suitable cryptocurrency is quite challenging. Proper crypto analysis and research can help you make informed investment choices. You can read through a crypto project’s white paper to understand its vision and goals. Cryptos are developed by a team of software developers and founders. Consider researching their professional experience to better understand how a crypto project will likely perform. To get insights into a cryptocurrency’s potential growth, find out how the technology behind it is being applied to solve consumer problems.
Considering the many cryptocurrencies available today, selecting an appropriate one is challenging because not all are legit. So, research a cryptocurrency’s leadership and team’s reputation to determine the project’s trustworthiness. Crypto prices are constantly fluctuating. As such, reviewing a crypto’s price history, including ADA price history, can help you understand the digital asset’s performance over time to identify the right time to enter or exit a trade.
Cryptos are volatile
The crypto market is considered volatile due to how fast and how much its value unexpectedly changes. This means there’s a high risk of losing money as quickly as you earn it. The value of a digital coin can significantly be influenced by its demand and supply. Cryptocurrencies are designed to have a limited cap, meaning the nearer the circulating coins get to their limit, the more the prices are likely to rise. The lack of a central regulatory authority that helps stabilize prices is another reason cryptocurrencies experience more significant, sudden value swings.
Timing is key
Timing is crucial in crypto trading because market liquidity, trading volume, and volatility vary throughout the day. While crypto markets operate round-the-clock, identifying the best trading time lets you maximize your strategies to increase profits. This is because specific time frames usually have more market activity and high trading volumes, allowing investors to trade at desired prices while capitalizing on market movements. Several factors affect trading time frames, including:
- Trading volume: High trading volume indicates tighter spreads, smoother trade execution, and higher liquidity
- Market volatility: Increased volatility could mean more significant profit opportunities, making such periods ideal for active traders
- Time zone differences: Knowing a significant crypto market’s vital trading hours helps you maximize your trading strategy
- Overlapping market hours: This happens when several primary crypto markets open simultaneously. At these times, markets are usually more active
- Trading styles and goals: Various trading styles have different trading time preferences. As such, you should consider your trading goals and style when determining the most appropriate time frame to trade
Safeguard your private key
In crypto, a private key authorizes transactions and proves blockchain asset ownership. It has encrypted properties that help safeguard you, the user, from unauthorized access to your funds and theft. Losing your private key means losing access to the wallet. If anybody else accesses your private key, they have complete access to your funds. To safeguard your private keys, you can store them in a cold wallet offline or use a trustworthy custodial service.
Beware of cryptocurrency scam
- The cryptocurrency market is characterized by scams, with over 46,000 people reporting losses of more than $1 billion in cryptocurrency to different scams from January 2021 to June 2022. To avoid falling prey to scammers, know when and how they’re targeting you and what action to take if you suspect crypto could be scam-related. Crypto scams are categorized into:
- Transferring crypto to a scammer directly because of fraudulent investment, impersonation, and other malicious ways
- Initiatives aimed at obtaining access to your authentication credentials or digital wallet, meaning a scammer will try to get any details that can allow them access to your digital wallet
Crypto scams are easily identifiable, provided you know what to look for. A legit crypto has an available disclosure containing comprehensive information regarding the blockchain plus the associated tokens. Familiarizing yourself with the various types of cryptocurrency and how they are executed can help you secure your investment.
Ensure a diverse crypto portfolio
Most crypto traders tend to focus investment positions on assets they’re familiar with. This results in inefficient portfolios that don’t capitalize on risk-adjusted returns. Diversifying across cryptocurrency assets helps control portfolio volatility and limits investment risk. A diverse crypto portfolio benefits from the industry’s growth while possibly experiencing lower price volatility.
Profitable crypto investing isn’t easy, particularly for newbies. So, understand the things you should know before investing in crypto to make it simpler.