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10 Things to know when investing in Cryptocurrencies

Prices of cryptocurrencies have skyrocketed in the past few years. The year 2009 saw first fully decentralized cryptocurrency called Bitcoin. Since then the entire crypto market cap has gone from nothing to to a whopping $165 billion.

It is a gold rush. New millionaires are being made every other day. Price jumps of 500% is a regular occurrence. It is clear, cryptocurrency market is highly volatile and not suited for regular investors who are looking for stable returns.

There is a good chance you might losing all the money you “invest” in this market. That being said, by following the right strategies you can certainly minimize risks and loses.

So if you have some money lying around, you could give crypto a shot. In case you play your cards right you could also end up being a millionaire.

Here are 10 things to must know before going about investing in crypto market:

1.Invest what you can afford to lose

There are many skeptics that believe crypto market is a bubble which will burst sooner or later. Billionaire investor Mark Cuban in the past compared cryptocurrency market to the dot-com bubble.

Of course, not all the 900 cryptocurrencies will survive over the years, but dozens will and their prices will skyrocket in the future. Yes, there is a chance we are living in a bubble. So make sure you don’t put in your life savings into crypto. Only invest the amount you’re willing to lose.

2.It all starts with acquiring Bitcoin

If you wish to buy other cryptocurrencies, you will first need to purchase Bitcoin using fiat. The best way to do it is through a local exchange in your country. In the US, exchanges like Coinbase, Bitstamp and Kraken are go-to options for most people.

You can check exchanges in your country here. Although you can directly buy other coins from these exchanges directly, but the options are very limited.

If there is no bitcoin exchange in your country, you could always use localbitcoins.com and buy Bitcoin from other people. It is an escrow service which helps to match buyers and sellers. You can either pay the seller by cash or bank transfer.

Most of the sellers advertise whichever payment method they prefer.

Note: You don’t have to buy one whole Bitcoin ($4112 at the time of writing); you can purchase Bitcoin in fractions known as Satoshis. 100k Satoshis is equal to 0.001 bitcoin. For instance, if you want to buy $500 worth of Bitcoin, you can.

3. Buy crypto on multiple exchanges

Once you have some Bitcoin, you could either hold on to them or buy other cryptocurrencies with it. If latter is the case, transfer Bitcoin to one of the exchanges like Bittrex or Poloniex to buy other lesser known cryptocurrencies like Stratis, Monero, Siacoin etc.

4. Learn about the cryptocurrency

This is probably the most important thing. Learn about the cryptocurrency you want to invest in. There are so many scams aka pump and dump schemes going around. Make sure you don’t fall for those.

Read the white paper and the roadmap of the project. It can be found on the official website of the cryptocurrency. Understand the tech, idea and team behind the project before putting in your hard earned money.

5. Figure out the real world use cases

Another important factor is to look at the real world use cases of that particular token you want to buy.

For instance, there is one token that’s supposed to be used for parking only. These types of coins have no real value and will die in the coming years. Look out for coins that can be used in real life and have a community behind it.

6. Diversify your portfolio

Just like you’re advised to diversify your stocks, same goes for cryptocurrencies. More diversified your are better the chances you have of surviving a market crash.

If you want to have a balanced portfolio at one point in time, it might be a good strategy to simply reflect the ten most valuable currencies in your portfolio.

More interesting however is it to take some time, read about those coins, decide, if their vision gets you and make this to the base of your asset selection.

For example, you’ll find some coins focused on privacy, like:

  • Dash
  • Monero
  • Zcash

Some are based on smart contracts, like Ethereum and Ethereum Classic, and some on scaling payments, like Litecoin and, again, Dash. Some coins, like Ripple or Nem or Bitshares, seem to be less open and decentralized as Bitcoin and other coins.

Keep your portfolio diversified covering all the major niches.  

7. Keep track of your investments

There are a lot of apps that can help you track all your crypto investments. My personal favorite is Blockfolio, available for both android and iOS. It has major exchanges integrated to it and almost all the coins.

Keeping track of your purchases and sells will help you learn from your mistakes. Investing isn’t crypto isn’t a cake walk.

You won’t be getting returns overnight. It is a long tedious process. Recording your past trades will only help you make better trades.

8. Have a long term vision

Having a long term vision is key while trading cryptocurrencies. Ask yourself how much return are you expecting 4 or 5 years down the line from a particular crypto. Once you do that, the short term price swings will not affect you as much.

9. Safely secure your coins

There are many wallets you can use to keep your coins secured.

  • Hardware wallets (trezor, ledger): These are the most secured.
  • Hierarchical Deterministic wallets (Electrum, Bitcoin Core client, Mycelium)
  • Paper wallets

10. HODL

If you believe in a coin, you’d want to hold on to it long-term because a good coin will always rise back up again.

Doesn’t matter how experienced of a trader you are, you will make some mistakes and lose money. Learn from those mistakes, get back up and make sure not to repeat them.

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