The cryptocurrency market seems to be oversaturated since more than 20,000 cryptocurrencies exist, and others are to come. However, not all of them are a good investment since they’re not active or even valuable at all. You can determine a cryptocurrencies’ worth by analyzing its node count, demand, production cost, and regulation. If these principles outdo the risks, it means you should consider adding that crypto to your portfolio. So, in this article, you’ll learn crypto investment tips – how to invest intelligently to have a risk-tolerant income.
Crypto Investment Tips
Hereunder is the best crypto profit taking strategy for beginners you should follow:
Adopt a strategy
No matter how much experience you have in investing, a strategy is necessary if you want to avoid trouble since the market fluctuates. Besides that, the information you’ll find presented by crypto “gurus” may not always be accurate, so you may mistakenly do counterproductive things that will only put your investments at risk. Therefore, here are some of the most basic and used strategies that investors use:
- Day trading requires you to watch the market movements to have both the entry and exit points on the same day. In other words, the entering point in trade is when the price is good enough for buying, while the exit point is when you should close the trading so you won’t suffer any substantial losses;
- Building a balanced portfolio is also essential because if you have a stabilized set of assets with both low and high market cap, you’ll be less likely to risk your investments. So, be aware of cryptocurrencies with a market cap of more than $10 billion because they have higher liquidity. On the other hand, they might provide you with less income.
- Prioritizing liquidity over any other element of a cryptocurrency is crucial. Liquidity can determine how much time an asset can maintain its value depending on how easily it can be converted to cash. So, check the trading volume of a crypto asset and the investors’ overall sentiment regarding the cryptocurrency.
Manage your risk
Some risks are involved in any type of investment, along with earnings. Typically, the risk increases when you trade with more money than you can afford to lose, so it’s crucial to set some limits on the input you plan to contribute to your portfolio. To understand this concept, you must study the cryptocurrency market’s highs and lows and know that it is influenceable.
For example, most traders are tempted to take action caused of FOMO (fear of missing out), which leads to panic selling every invaluable crypto asset. So, you want to avoid the hype around a cryptocurrency when it’s not justifiable. Having a voluminous crypto wallet will not help you earn much. Instead, look for qualitative cryptocurrencies that are more trustworthy (stable coins) or ones that have proved their efficiency over time.
Finally, try to protect yourself from counterparty risk. Remember that transactions are irreversible, so you won’t be able to get your earnings back if you trade a considerable amount of your portfolio. In this case, remember to trade with only 20-30% of it to reduce casualties and still have some assets to rely on later.
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Choose a proper wallet
When dealing with cryptocurrencies, you’ll need a safe space for holding them, which is usually a digital wallet. A wallet is a combination of a public address and a private key which you usually receive upon entering the market. Here’s a short introduction to the most common types:
- Hot wallets are connected to the internet, so they may be less safe. But they’re easy to set up, and the funds are accessible. Hot wallets are usually used for daily transactions.
- Cold wallets are stored offline, so they’re less sensitive. Investors use them for long-term holdings since they’re hack-resistant.
- Paper wallets are simply printed QR codes. They’re not entirely reliable, and they don’t support sending partial funds, but they’re still an option.
- Hardware wallets are physical devices that hold the public address and private key. They look like ordinary USBs which you connect to your computer, so they’re safer than hot wallets, but they’re pretty challenging to use for beginners.
- Desktop wallets are software programs installed on devices. They require you to use an anti-virus to avoid security issues. Desktop wallets are perfect for new learners since they are easy to use, provide privacy and anonymity, and don’t involve any third party.
Be aware of the volatility
In the crypto world, volatility measures how much the price of an asset goes up and down over time. In other words, if a crypto coin has lower volatility, it’s considered riskier to invest in, but it has more potential to provide high returns. On the other hand, high-volatile coins are safer, but the returns are relatively modest.
Some factors are involved in the volatility’s chances to increase, such as positive or negative media coverage. If you remember Elon Musk’s tweet about Dogecoin, you may know that on that night, the coin’s value increased by 27% after he said that you could buy Tesla merchandise with it.
Knowing how volatility works, you should keep in mind that if you’re a loess-tolerant investor, it would be best not to aim for high-return coins and minimize the impact of volatility by practicing dollar-cost averaging, where you purchase smaller amounts of an asset over a certain period. This way, you won’t have to use all your funds to invest at a peak, so the cost of your investments will be averaged.
The conclusion to investing in crypto is always to be patient and knowledgeable when deciding. Avoid choosing assets by the overall hype and go for stable, low-volatile coins that can reduce the risks of losing all your assets. What’s your crypto profit taking strategy for investing?