Since being introduced, cryptocurrency has been extremely volatile, but you can take advantage of this volatility by trading these digital assets for profit. Bitcoin and Ethereum, as well as other popular digital currencies, have risen a lot since their debut, but are down significantly from their highs. If you’re a newbie to the crypto market, how do you get started speculating on cryptocurrencies?
Investing in cryptocurrency comes with significant risks that you need to be aware of. Here’s how to get started.
5 Steps For Investing In Cryptocurrency
To get started, you need to arrange your finances if you’re looking to invest in crypto. In order to achieve this, you will need an emergency fund, a manageable debt level, and an investment portfolio that is diversified. Hopefully, your crypto investments can contribute to raising your total returns as part of your portfolio.
As you begin investing in cryptocurrencies, be aware of these five other things.
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Invest Wisely
Understanding exactly what you’re investing in is essential for any investment. Reading annual reports and other SEC filings is important if you’re buying stocks. Because there are literally thousands of cryptocurrencies, each functions differently, and new ones are created daily, plan to do the same with any cryptocurrencies. Each trade needs to be analyzed from an investment perspective.
- Keep Your Eyes on the Present, Not the Past
Newest investors make the mistake of extrapolating from the past to the future. When Bitcoin was worth pennies, it was worth a lot less than it is now. A crucial question to ask is, however, “Will that growth continue, even in a less meteoric manner? ”
Assets are not evaluated by their past performance, but by their future performance. Future returns will be driven by what? Traders who buy cryptocurrencies today require gains from tomorrow, not gains from yesterday.
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Keep An Eye On The Volatility
As volatile as assets get, cryptocurrencies are no exception. In seconds, they could be wiped out by a rumour that proves to be untrue. A sophisticated investor can take advantage of that by executing trades rapidly, understanding the market’s fundamentals, and analyzing where the market is headed and where it could go. The world of investing is a minefield for new investors without these skills – or without the high-powered algorithms that guide these trades.
Traders on Wall Street compete to outmanoeuvre other rich investors when it comes to volatility. New investors can easily lose money due to volatility.
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Risk Management
It’s always important to manage your risk when you trade short-term assets, and that’s especially true with volatile assets like cryptocurrency. You’ll need to develop a process for mitigating losses as a newer trader. Every individual’s process is different.
It may simply be a matter of never selling, regardless of the price, for a long-term investor to manage their risks. In order to stick with a position, the investor needs a long-term mentality.
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Keep Your Investments Within Your Budget
Lastly, avoid investing your money in speculative assets. Investing in speculative assets, such as cryptocurrency, is risky if you cannot afford to lose it – all of it.
The money you’ll need in the next few years for a down payment on a house or a major purchase should be kept in secure accounts so it’s readily available when you need it. When it comes to earning an absolute return, paying off debt is the best option. If you pay interest on your debt, you’re guaranteed to earn (or save). It’s a no-lose situation.
Cryptocurrency Investing Options
Cryptocurrencies aren’t just for investors; traders can join the crypto game in many other ways, some more directly than others. The following are among them:
Using the power of leverage, you can generate massive returns (or losses) by wagering on Bitcoin futures. The fast-moving nature of futures markets exacerbates the volatility of the crypto market.
Bitcoin can also be backed by Bitcoin funds (such as the Grayscale Bitcoin Trust). Through funds-like products, they can make buying crypto easy with the help of a Bitcoin wallet.
An interesting option is to invest in stock in a cryptocurrency exchange or broker that will benefit from cryptocurrency’s rise regardless of who wins. That’s what an exchange like Coinbase or a broker like Robinhood, which is primarily dependent on crypto trading, can provide.
An ETF that invests in blockchain companies could be a great way to capitalise on the emergence of blockchain technology in the future. You can get exposure to some of the key publicly traded blockchain companies by investing in the top blockchain ETFs. Although these companies are often involved in much more than cryptocurrency-related businesses, this dilutes your exposure to cryptocurrency, decreasing your potential upsides and downsides.
You’ll need to make sure that each of these methods fits your needs and that they’re not too risky.
