Cryptocurrencies are fast becoming a valuable asset class that provides its investors a chance to enjoy huge returns. While many governments still remain skeptical of its potential and refuse to provide much-needed backing, cryptocurrencies are emerging as a promising asset class among the millions of people investing from different parts of the world. The substantial returns it promises for a short period is inspiring more investors to lay some of their eggs into crypto baskets.
As a beginner, here are a few basics that you need to learn before investing in cryptocurrencies.
Learn about Cryptocurrencies to Select the Best One to Invest In
While there is no organized structure to trading in cryptocurrency, it is a must to perform due diligence before diving into the world of new-age currency. As you would for any type of investment on the market, you need to gain clear understanding of what you’re investing in. For starters, it is vital to learn about the investment case of some of the most cryptocurrencies.
Since cryptocurrencies currently have no government or private institutional backing, it is important that you need to realistic expectations. If you are looking to invest in Bitcoin for instance, you need to understand that as an investor, you will largely depend on people who are willing to invest more than what you paid to get in the game. In essence, cryptocurrencies wholly rely on market trends for you to enjoy profits.
Apart from Bitcoin, other popular cryptocurrencies include Ethereium, Dogecoin, Cardano, XRP, and many more. It is also crucial to learn about the different crypto exchange platforms where you can buy and sell digital currency. The most popular ones include Binance, Kraken, Coinbase, Kuber, Gemini, and many more.
Open a Trading Account
To start your digital currency investment journey, you need to open your own trading account. Pick a crypto exchange platform you are most confident to use for investment. A crypto bank account works similarly to a traditional bank account. You need to provide information, financial credentials on the services you are looking to invest in, the total amount of financial investment, and the availability of coin trading options at the time of your registration. In most digital currency exchange platforms, you are required to submit the usual KYC (Know Your Customer) data and arrange your payment options.
Closely Watch your Investments
One important thing that you need to know about cryptocurrencies is that they are highly volatile in nature. On some days, their value can drop astronomically and suddenly skyrocket once again. Unless you are a well-informed or sophisticated investor that can execute trades rapidly or have an in-depth grasp of the digital currency market, it’s always better start as a cautious and practical investor. You can get easily crushed by the volatility of cryptocurrencies, so bear in mind to tread lightly at the onset.
Hold Cryptocurrencies with Other Assets
If you have the finances but lack the time to dig deeper into the crypto market, there are traditional online brokers that you can seek help from. There are many companies that enable investors like you to hold cryptocurrencies alongside bonds and stocks. Websites like SoFi Invest, Robinhood, and TradeStation for beginners and active and advanced traders alike.
Evaluate your Risks
When trading an asset on a short-term basis, any good investor knows well enough to manage their risks. In volatile markets, such as digital currency, this is an important activity that you should never overlook. Plan accordingly by creating a backup strategy to mitigate your losses. Here are a few processes that you should remember when investing in cryptocurrency:
- If you are planning to invest in cryptocurrencies in the long run, a good tip from experts is to never sell regardless of price.
- If you are a short-term crypto investor, you need to have a strict set of rules on when to sell. A drop of 10% might be more than enough for you to sell what you have. This is a practical move if you don’t want to experience a huge loss at a later time.
- It is prudent to set aside a certain amount of money for trading cryptocurrencies. For beginners, you may want to use only a small percentage of that trading money budget. If you experience any loss, you will still have financial assets that you can use to trade in the future.
Never Invest More than What You Cannot Afford to Lose
Avoid putting all your money into speculative assets. No matter how profitable the cryptocurrency market is, it can still hurt you if its prices drop exponentially. With this in mind, don’t concentrate your investment efforts into one digital currency.
Safe Cryptocurrency Storage
Never forget to evaluate the level of security of the online broker or exchange you’re using. Legally, you are the owner, but a third party is mainly responsible for keeping your digital assets secure. If you are not confident in their security features, you may want to store your cryptocurrency in a crypto wallet so that you can hold your coins offline where it is safe from hackers.
As a trusted business consulting company, Damalion is prepared to help investors open a crypto account and grow their assets across a dynamic range of opportunities, including cryptocurrency. To get you started, call a Damalion expert today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.