Things You Should Know Before Buying Your First Crypto
Cryptocurrency investments can be risky, so it is wise to abide by the adage "caveat emptor." Never invest money you cannot afford to lose - including emergency savings or funds set aside for other financial goals.
Many investors look at cryptocurrency as an investment vehicle, hoping its value will appreciate over time. Like any investment opportunity, however, its viability must be carefully assessed before being added to one's portfolio.
1. Know What You Are Investing In
Cryptocurrencies have gained in popularity and investment potential in recent years. But like any investment opportunity, their market is volatile - as such, it's important to know exactly what you are entering into before diving in and have a firm understanding of both your goals and risk tolerance before making decisions about this asset class.
Maintain a sound emergency fund, manageable debt levels, and have a diversified portfolio. Crypto can be an excellent long-term investment but should only comprise part of your overall portfolio.
Carefully research any cryptocurrency you plan on purchasing to ensure its legitimacy and security by looking at market metrics, trade history and consulting experts. Also, consider using a custody provider with audited security protocols to store your crypto and protect yourself in case the price drops and you must sell.
2. Know Your Limits
Investment in cryptocurrency can be risky, and you should only risk what you can afford to lose. This applies across all investments, but especially so when dealing with volatile cryptocurrencies that may rapidly drop in value.
Keep in mind that cryptocurrency holdings are unbacked by any government or central bank and, as such, aren't protected by the same laws that cover U.S. bank deposits and can easily be compromised through hacking attempts on online wallets.
Many cryptocurrency exchanges provide investors with the ability to invest on a per-coin basis, making investing easier without needing thousands in funds to start with. Still, it's wise to diversify your portfolio across market leaders and more secure coins to limit crypto-specific risks while increasing long-term returns from your investment. Don't overstamp yourself in one coin, thinking it will become a massive winner, as its price may collapse suddenly and dramatically if its popularity wanes.
3. Know the Risks
Bitcoin and other cryptocurrencies have grown increasingly popular over time, along with their associated risks. Unlike traditional investments, cryptos are subject to high price volatility and manipulation unregulated, meaning there are no consumer protections such as SIPC or FDIC insurance; hackers can steal cryptocurrency exchanged by other individuals, as well as wallets; good digital hygiene should be practised when handling these coins using strong passwords - while reliable exchanges offer "cold storage," making your assets less vulnerable to hacks.
New investors may wish to steer clear of cryptocurrency investments altogether; however, more experienced investors who have experience dealing with riskier asset classes such as bitcoin can incorporate them as part of their portfolios. They simply must know what they're doing and prepare themselves for an unpredictable ride - investing only what they can afford to lose!
4. Know Your Options
Though many associate the word "crypto" with Bitcoin, its definition actually extends far beyond this digital asset class. There are currently over 19,000 different cryptocurrencies out there - many of them likely won't survive long term.
When purchasing cryptos, always keep in mind the phrase: "caveat emptor". Not all cryptocurrency options are created equal and should always be treated with extreme caution.
Fraudulent actions could pose significant threats, while regulatory, counterparty, and management risks also should be taken seriously. Government action might result in severe price decline for cryptos; theft could occur at custodian locations; management risks might result from theft; diversifying your portfolio will help mitigate all of these potential hazards and help lessen any single cryptocurrency's chances of loss.
5. Know the Regulations
Cryptocurrencies tend to be less regulated than stocks and bonds, making it harder to spot scams and increasing your investment's exposure risk.
Cryptocurrencies are unique because they're traded directly between people on the internet without the protection of an intermediary - as we saw with Mt. Gox, hackers have no qualms about targeting cryptos as assets.
Due to this risk, it is vitally important that you become knowledgeable on cryptocurrency regulations and consult a financial expert. Always bear in mind the phrase "caveat emptor", meaning buyer beware.
6. Know Your Platform
Cryptocurrencies are still relatively young in terms of market development and often experience greater price volatility than other asset classes. Furthermore, cryptocurrency trading may be vulnerable to price manipulation schemes and scams.
Finding an ideal platform for you is essential, particularly online exchanges and marketplaces that prioritize security - look for those which require users to undergo identity verification processes as per Know Your Customer and Anti Money Laundering rules.
Be sure to read a cryptocurrency's whitepaper, which will provide all of its details, including use cases, scalability and plans. Join online forums dedicated to specific coins you find interesting for more knowledge about them. Also, consider diversifying your portfolio to reduce risk by diversifying across markets that tend to fluctuate wildly - this way, limiting losses significantly while investing only what is affordable to lose.
7. Know Your Wallet
As cryptocurrency transactions are irreversible, your password and cryptocurrency wallet information must be always protected. Use two-factor authentication, and don't divulge your private keys or passwords to anyone - make backup copies on an offline device such as a USB drive or paper!
Cryptocurrencies can be highly unpredictable, and their prices can change for seemingly unrelated reasons, so diversifying your investments among a range of cryptocurrencies is recommended to protect yourself.
Popular cryptocurrencies include Bitcoin and ethereum; however, over 19,000 other options have not been broadly tested yet. When making any investment decision, it is wise to do your due diligence on any new investment before committing.
8. Know Your Investment Strategy
Once you have defined an investment goal and determined how much money to put towards it, it is time to select an investment strategy that best meets both your investment goals and personal circumstances. There are various approaches available, but one must be tailored towards meeting them all.
Consider how much time and energy you are willing to put into managing your investments. Some strategies require more work than others, and if this type of commitment is beyond you, other types may offer better options.
Finally, it is essential to keep in mind that crypto investments are highly speculative and may fluctuate greatly in price. Never invest more than you can afford to lose, and prepare yourself for an unpredictable ride; remember, this market rewards those who take a long-term view.
9. Know Your Purpose
Cryptocurrencies are digital currencies that don't rely on banks to verify transactions; instead, they use blockchain technology--an online ledger that records every asset and transaction--to ensure transactions take place reliably and without fraud.
Different cryptocurrencies serve varying functions. Some serve as safe payment platforms; others, like Ethereum, provide developers with a platform to create automated apps. Tether and Stablecoin serve as stablecoins--cryptocurrencies that have values tied to real-world assets like dollars.
Before investing in cryptocurrency, take some time to determine your motivations for doing so. Remember that investing in crypto can be risky; don't put your retirement dreams or mortgage at stake just so you can join in the crypto craze! Just remember it may take years before an investment pays off; patience and persistence are required if you wish for success here, but with sufficient determination, you can make this work for you!
