Cryptocurrency has amassed considerable popularity in recent years, so you may be curious about the hype. However, as someone who’s never dabbled in investments or cryptocurrency, the numbers and terms may seem quite complicated. The recent market crash may also be the reason behind skepticism.
Thankfully, buying crypto has never been easier now. Once you find a suitable exchange and learn the basics of cryptocurrency, investing in the right coins can be a straightforward and highly lucrative process. However, since the world of crypto can be pretty volatile, it can be difficult to profit as a beginner.
Here are a few tips to learn before you buy crypto and make the most of your investment.
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Understand how it works
Of course, cryptocurrencies don’t work the same way as the money we use daily. Getting a grip on crypto may seem complicated initially, but understanding the technology is crucial to ensuring you make the right investment decisions.
It’s worth noting that cryptocurrencies rely on blockchain ledger technology that tracks transactions in the digital space. These transactions are unchangeable each time a new block is added to the chain. Since this technology is transparent and permanent, cryptocurrencies cannot be duplicated.
You may find that some cryptocurrencies have their own blockchains, such as Binance, Ethereum, and Bitcoin. Cryptocurrencies are also decentralized, meaning there is no central authority, such as a bank or Federal Reserve, governing transactions.
Before you learn how to buy cryptocurrency, it’s important to know that they are majorly unregulated. Unfortunately, this leaves room for scams and fraud, so staying cautious of offers that seem too good to be true is crucial.
Choose the right exchange
The broker or crypto exchange you choose can make or break your investment. You can utilize a cryptocurrency exchange platform to meet with buyers or sellers and trade crypto. Although you have to pay transaction fees on this platform, it’s typically under 1% of the transaction amount.
The interface may seem complex for a beginner as you navigate the different performance charts and trade types. Coinbase, Binance, and Gemini are a few crypto exchanges that offer simplified versions of their platform for beginners. However, it’s worth noting that these versions typically cost more than the pro versions.
Before you choose any crypto exchange, you must ensure the platform allows payments in fiat currency. You’ll find various platforms that only allow payments in crypto, which will require you to purchase crypto on another platform. On the other hand, you could opt for a crypto broker whom you trust.
A cryptocurrency broker is a much simpler way to buy crypto, as the interface is much easier to use. However, you may note that the transaction fees are somewhat higher than exchanges. Also, beware of crypto brokers that claim to be “free,” as they sell your private information to make money.
Know the risks
Investments are risky, no matter the kind. However, cryptocurrency is volatile, with big risks leading to big losses. Moreover, cryptocurrency is unlike the money we use daily, as it’s a whole new type of asset.
The value of crypto often undergoes extreme fluctuations, making it an incredibly risky investment. For example, a single Bitcoin cost $26,826 in the February of last year. Then, only a year later, the price skyrocketed to $68,991 per Bitcoin.
Beginners often feel pressured to make a decision and ensure they’re not missing out on a big investment opportunity. Unfortunately, this makes them vulnerable to scammers who may convince them that their investment in a certain crypto coin is the ideal decision for them. As a result, they end up purchasing crypto coins that never take off or return their investment.
It’s also important to note that decentralization makes crypto prone to hacks and theft. Although you can’t duplicate cryptocurrency, you can steal it as long as you have the right expertise.
Store your coins safely
Without authorities like the FDIC mandating them, crypto is vulnerable to cybercrime. As hackers cannot duplicate crypto, their only option is to steal.
Not only could you lose all your investments, but you can also lose access to your account. You must choose the right, secure storage method for your cryptocurrency. Purchasing crypto through a broker leaves you no choice in your storage method, so opt for an exchange instead.
With a crypto exchange, you have various storage options, such as hot and cold wallets, for storing them on the exchange. Hot wallets store your crypto online, requiring the internet to provide access to your assets. While this option is convenient, it’s somewhat unsafe because of its online nature.
On the other hand, you may opt for cold wallets, which store your currency offline. Cold wallets are available in physical forms, such as hard drives or USBs. However, you must be careful not to lose your cold wallet’s passcode.
Lastly, you can store your coins in a crypto wallet attached to the exchange of your choice. However, these wallets typically require a small fee and aren’t as secure.
Diversify your portfolio
Like any good investment, you must remember not to place all your eggs in one basket. Investing heavily in only one cryptocurrency is never a good move, especially as a beginner. Of course, the volatile nature of the market is the main reason behind this.
Research various coins and projects to weed out a few cryptocurrencies with potential. Another way to diversify your portfolio is to invest a percentage of your money in crypto coins and the rest in other investments in the crypto world, such as crypto lending.
Diversifying your portfolio reduces your chances of crypto investment risks, as one of your multiple investments is bound to yield profit.
A good ratio for portfolio diversity is 80:20. Which means you should put 80% of your investments in low-risk, low-reward coins and 20% in high-risk, high-reward coins. So, for example, you may allocate 40% to Bitcoin, 30% to Ethereum, 10% to Binance Coin, and the rest to Chainlink, Sandbox, and ApeCoin.
Cryptocurrency is incredibly volatile, which is why it may seem daunting to beginners. However, with the right tips, you can lower your crypto investments’ risk and better understand the market.
The most important thing to remember as a crypto investor is to only invest what you can afford to lose. Cryptocurrency has many risks involved in its investment, so don’t let it be your only source of income.
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