Cryptocurrency can be a very lucrative investment. However, like any investment, cryptocurrency can be expensive, risky, and complicated. To help you learn how to make the best investment, be sure to read this article.
According to Investopedia, cryptocurrency is digital money that is created and managed through the use of advanced encryption techniques. The first decentralized cryptocurrency was Bitcoin, which was created in 2009 by an individual or group known under the pseudonym of Satoshi Nakamoto.
I first heard about bitcoin in 2017 when I was trying to make money trading and investing in stocks. Bitcoin is a crypto currency, the world’s first, created in 2009 after the global financial crisis of 2008.
At the time, I didn’t know what the term cryptocurrency meant, so I did some research, and it turns out that cryptocurrency means money that is completely digital.
You can use them to buy goods and services online or send them to friends. And all this without a bank account! Since then, bitcoin has been succeeded by thousands of other cryptocurrencies, most of which have very similar functionality.
I later discovered blockchain, which is essentially the technology that makes cryptocurrencies work. I also learned important lessons about cryptocurrencies that later defined me as an investor in cryptocurrencies.
Cryptocurrencies are known for their extreme price volatility, both upward and downward. I bought my first crypto currency in October 2017. Since then, I’ve had days where my portfolio of cryptocurrencies was up 150% one day and down 50% the next.
With this in mind, cryptocurrencies can be an excellent asset class to invest in. However, investing in cryptocurrencies is not for everyone.
Staying in the world of digital currency requires a certain mindset, knowledge and stamina, which I have experienced first hand.
So, in this article, we will discuss:
- Is investing in cryptocurrencies for you?
- Is your character suitable for investing in cryptocurrencies?
- Cryptocurrency investment strategies to help you determine your investment goals.
Investing in cryptocurrencies is a bit like the Wild West in the investment world. Here’s everything you need to consider before you buy your first piece.
Is investing in cryptocurrencies for you?
Short-term volatility of crypto-currencies
When investing in cryptocurrencies, investors generally view changes in the market that last only about 6 months as short-term. Since cryptocurrency prices rise and fall very quickly, any good news can cause the price to skyrocket, while any bad news can cause the currency to fall.
This is because the cryptocurrency market is heavily influenced by pop culture and certain figures in society, making it a highly speculative asset.
These sudden changes in market sentiment usually explain the short-term volatility in cryptocurrency prices.
For example, I bought an XRP coin (formerly Ripple coin) last November and invested a significant amount of my capital in it. XRP was previously the third largest cryptocurrency by market capitalization, behind Bitcoin and Ethereum.
I invested in XRP for 50 cents each. After the price rose by about 60%, the market suddenly got the bad news that the US Securities and Exchange Commission (SEC) had filed a lawsuit against the company that owned the XRP coin.
The company was accused of raising funds through an unregistered offering of securities on digital content. This would officially classify XRP as a security rather than a cryptocurrency, which would defeat the primary purpose of XRP and render it useless.
Panic and pandemonium reigned among XRP investors. The XRP trial has become a big story in the financial media. XRP users stopped using the currency for payments and investors left the project. The price of XRPhas dropped from 80 cents to 20 cents in 10 days.
I could no longer resist the negative feeling and sold my XRP for 50 cents, the same price I bought it for.
This was typical of fear, uncertainty and depression (FUD), a popular terminology used in the cryptocurrency community to refer to negative sentiment. In the months since, the dust has settled and XRP has settled its accounts with the SEC.
Eventually the market recovered, giving hope for the future of the Mint. Just four months later, on the 15th. In April 2021, the price of XRP went from 20 cents to $2.00!
Due to the high short-term volatility, I missed out on the 300% return that should have been achieved in just 5 months. I sold because I was afraid of losing too much money and letting the cryptocurrency community around me influence my investment decisions.
Little did I know that these price fluctuations and headlines are nothing new in the world of cryptocurrencies.
Long-term volatility of crypto currencies
Long-term volatility covers a period of at least one year. For example, let’s look at the volatility of the long-term price of the largest cryptocurrency, bitcoin. The price of bitcoin rose from 6 cents when it first appeared in August 2010 to $30 in June 2011.
During the second uptrend, the price rose from $3 to $1,000 between November 2011 and November 2013. The third upward trend also lasted two years (December 2015 to December 2017), when the price rose from $350 to $20,000 each.
As you can see, bitcoin has not had it easy during these three uptrends. At the top of uptrends they reached 1000-2000%, but the FUD followed at the end of each trend, during which prices fell by as much as 93%. The average reduction was 85%.
Ethereum, the second largest cryptocurrency by market value, made its debut in late 2015. The price went from $1 in December 2015 to $1,400 in January 2018!
After that peak, like bitcoin, it had its rough days. The price of Ethereum fell to $83 in December 2018 and $86 in March 2020.
Whatever room you invest in, be prepared for some major ups and downs. As an investor, there are three things you need to decide before you buy a room:
- Why should I buy the coin? (Do you want to sell it quickly or keep it long-term).
- What is my highest or lowest price? (If a currency reaches a certain bottom, sell, or if it rises to a certain point, sell).
- What is my risk tolerance? (Can I handle the daily maintenance of the cryptocurrency market, or would I be better off investing in a less volatile asset?)
But before you invest in a cryptocurrency, you need to decide if the cryptocurrency market suits your personality.
Is your identity suitable for cryptocurrencies?
Not all investments are suitable for everyone. And you need to understand who you are as an investor before you can succeed in any asset class. Otherwise, you risk losing a lot of money, which can make you anxious and unwilling to invest.
Below is a list of scenarios that can help you decide if investing in cryptocurrencies is right for your personal investment needs.
- If you are an emotional investor, investing in cryptocurrencies may not be for you. The price volatility of any cryptocurrency can be as high as 30% per day and 70% per week in extreme periods. So if you tend to sell your investments quickly in panic and fear, you may miss out on important price trends. In that case, it is better to invest your money in something more stable than cryptocurrencies. And if you’re an emotional investor, you might be tempted to invest an amount you can’t afford to miss and turn your investment into a gamble. I had invested more in XRP than I could afford to lose, so I took the news with emotion at the time. Believe me when I say that if you can’t afford to lose money, you shouldn’t invest it. This applies to all your investments.
- If you are a perfectionist, investing in cryptocurrencies may not be for you. That’s because you’re always looking for the next best thing. So you may not be able to keep your investment permanently. And if you keep looking for better options, you may sell your current investment too early in hopes of buying it back cheaper, or you may sell your piece and buy more, missing out on significant price changes by just keeping your original investment.
In the first half of 2021, I unfortunately missed the 10-20x price spikes in dozens of cryptocurrencies because I thought they were already expensive at the beginning of the year and sold my portfolio to buy cheaper later.
So, if you want to invest in a particular cryptocurrency, make sure you make a plan in advance. Your goal may be to sell this piece in a few months, but this is a predetermined strategy. It’s not something you decide to do when something bigger and better comes along.
As we have seen, even the biggest and best pieces can fall off.
Not everyone does, but you’ll fall into the eternal trap of buying and selling cryptocurrencies if you don’t make a plan first. Then make sure you stick to that plan no matter what. You can always make small adjustments over time, but if you change your strategy frequently, investing in cryptocurrencies may not be the right choice for you.
- If you have a temperament that is afraid of missing out on something, investing in cryptocurrencies may not be for you. This means that you should never go after other coins that are skyrocketing in value. This feeling is called FOMO, also known as the fear of missing out on something. You should avoid FOMO at all costs when it comes to investing in cryptocurrencies. FOMO can cause you to invest in a game that is about to peak and may decline tomorrow. When you buy cryptocurrencies at or near the highest prices, you typically lose up to 70% of your capital. Instead of going for FOMO, refine your goals and determine why you’re investing in a particular room before you go there. And if you feel like it’s too late to buy a part because prices are skyrocketing everywhere, just wait for the price movement to calm down and take the next bus….. I myself am a victim of FOMO this year and have become impatient after all the big parts rallies of late. I put my money into a number of companies that still looked cheap and had solid fundamentals.
After my investment, the price of bitcoin fell 50%, dragging all other coins down with it (that’s how the crypto currency market works), and other coins fell 70% on average. I lost most of my 2020 accomplishments. I have resigned myself to it, I believe in the projects I have invested in, and I will patiently wait for the market to recover. But for you, it may not be something you enjoy doing.
You have to make a decision and stick to it. If you try to correct one mistake (giving in to FUD or trying to time the market perfectly) at the expense of another mistake (FOMO in cryptocurrencies), you will not easily survive in a volatile environment. Such mistakes are less costly in more stable money markets, but in cryptocurrencies the volatility will quickly evaporate your capital.
Investment strategies in cryptocurrencies
Short-term investments VS long-term investments
No one knows the long-term potential of a room. Should I sell it tomorrow or keep it forever? It all depends on your goal as an investor and your ability to achieve that goal over the long term.
Statistically, if you were a long-term investor in cryptocurrencies, you would have made significant gains over the past 5-6 years. In 2015, bitcoin was worth just over $300. Today, even with an annual minimum, it’s worth about $34,000!
But it is not easy to withstand these price fluctuations. When you look back, you see that 1000-fold price increase and you can see that: I would have rather invested $10 each in Ethereum in 2016.
Along the way, however, you will have to survive a drop in your investment to 93% of its historical maximum value, which was more than 100 times the value of your original investment.
- If you can’t bear to see your all-time wealth melt away from cryptocurrencies, you’re better off being a short-term investor, a year at most, and selling your investment as soon as you make a big return. You can become a seasonal investor; you can buy at low prices, sell at high prices, and then come back for another season when prices become favorable again. These activities are referred to as trading.
- If your stomach can handle your cryptocurrency assets hitting an all-time high that melts like hot cheese, which can feel like throwing up on the most volatile of days, you can become a long-term cryptocurrency investor and hold onto your investment for the rest of your life (in the cryptocurrency world, this is called HODLing).
The choice you make also depends on your character, which we discussed in the previous chapter. If you are an emotional investor and still somehow invest in cryptocurrencies, your returns will be far greater than you can afford to lose. In that case, you may have to pay out a significant portion of your income if you make a lot of money. This is something you need to consider when deciding whether to stay in cryptocurrencies for the short or long term.
If you want to become a successful cryptocurrency investor, it is important to know your goals and create a plan based on those goals. If you want to become a short term trader, you need to know your limits and stick to your lowest buy or highest sell points.
If your goal is to become a long-term investor in cryptocurrencies, you should do the same. Decide what you are comfortable with and invest as much as your plan allows. And don’t forget it: Whichever option you choose, imagine your money gone and not getting it back once you’ve invested. So you only invest what you can afford to lose, and never invest the money you really need today.
Additional points for consideration
Whatever type of investor you want to be and whatever your investment plan is, perseverance is the most important thing to achieve your investment goals. Keep these factors in mind when making a plan for your next cryptocurrency investment:
- If you invest in the most popular and valuable cryptocurrencies, namely Bitcoin and Ethereum, you will find it relatively easier to remain resilient as these two cryptocurrencies have the least price volatility that you can tolerate compared to other coins. In other words, they are best suited for HODLing if you want to become a long-term investor.
- On bad days, days when FUD prevails, the selling pressure on small parts is much higher. By the way, if you want to invest in a new small crypto coin that you think has great fundamentals, be prepared to lose all your 10x, 100x gains during downturns. Chances are you’re going to suffer losses, not to mention the loss of all your profits, so prepare your investment goals accordingly.
- If you strongly believe in the fundamentals of a cryptocurrency project, which you believe has the potential to replace traditional currencies, then you could get motivated with this factor, invest your money and then forget about it for a few years. You may find out one day that your returns are much higher than Bitcoin and Ethereum. So the higher the risk, the more perseverance is required and the higher the return can be.
The crypto currency market is rising and falling rapidly. I have encountered this numerous times in my own experience and I can assure you that investing in cryptocurrencies is not for everyone.
However, cryptocurrencies are an emerging asset that can be a great place for long-term traders and HODLs to make steady profits. So, to become a successful crypto-currency investor, here’s what you need to consider:
- Are you up to the volatility of cryptocurrencies?
- Can you make a plan and stick to it without chasing the shiny new pieces that pop up?
- Are you afraid of missing out on something you can control?
- Can you be persistent in achieving your goals?
Your success will depend on your perseverance. If you don’t meet some of the above criteria, you may be more successful investing in another, more traditional asset class, such as stocks, commodities or real estate.
I am becoming a better investor in cryptocurrency with every transaction and investment. These digital assets are still so new to the investment world that there is still much to discover and experiment with.
Whether you are a short-term or long-term investor, the world of cryptocurrencies has a lot to offer. And whatever investment you choose, we are all investors with the same goal in mind: We are trying to create wealth!
So be consistent and learn to deal with all the consequences of investing, the good and the bad, and one day you could be the first cryptocurrency billionaire!
- The best apps for experienced crypto traders
- Secure processing of crypto-currencies
- What are cryptocurrencies and why are they important?
The post Things to consider before investing in cryptocurrency appeared first on Minority Mindset.
Frequently Asked Questions
Is Cryptocurrency a good investment 2020?
Cryptocurrency is a good investment 2020.
How can I make $100 a day with Cryptocurrency?
There are many ways to make money with cryptocurrency. You can mine, trade, or invest in cryptocurrency.
how to invest in cryptocurrency 2021cryptocurrency investment strategyinvesting in cryptocurrency for beginnerssafest way to invest in cryptocurrencyquestions to ask before investing in cryptocurrencyfactors to consider before investing in cryptocurrency,People also search for,Feedback,Privacy settings,How Search works,Bitcoin,Ethereum,Litecoin,Bitcoin Cash,See more,Coinbase,Binance,Kraken,CoinDesk,BitMEX,LocalBitco…,CoinMark… OpCo, LLC,Robinhood,GitHub,Reuters,U.S. Securities and Excha…,The DAO,Grayscale Bitcoin Trust (Btc),Galaxy Digital,Shenzhen Forms Syntron,questions to ask before investing in cryptocurrency,factors to consider before investing in cryptocurrency,what to know before investing in cryptocurrency,how to invest in cryptocurrency 2021,cryptocurrency investment strategy,what to look for when investing in cryptocurrency,investing in cryptocurrency for beginners,safest way to invest in cryptocurrency