fbpx

How to start investing in Cryptocurrency: A Beginner’s Guide

Cryptocurrencies

Written by:

Theodore

Cryptocurrency is gaining in popularity and its potential for growth is huge. It has grown into a $1 trillion industry since the infamous Bitcoin whitepaper in 2008.

There’s no stopping the crypto industry as developers and businesses continue to build, even through the bear market. Hence, I think there’ll be countless opportunities for investors in the know.

That said, it is important to do your research and understand the technology behind the coins before making any investments.

This guide is designed to provide a comprehensive introduction to cryptocurrency investing for beginners, so that you can start exploring this new asset class with confidence.

What is Cryptocurrency?

Cryptocurrency is a digital asset that is used as a medium of exchange and is based on a decentralized and secure ledger system, known as blockchain.

How does cryptocurrency work?

Cryptocurrency works by utilizing a network of computers that securely records and stores all transactions. This technology is fast and secure, and it eliminates the need for a third-party intermediary, such as a bank, to process transactions.

Every time a transaction is made, it is recorded on a public record and can be seen by anyone on the network. Cryptocurrency transactions are also protected from counterfeiting or double-spending thanks to a special form of digital encryption.

If you don’t understand any of the above, it’s okay.

A key point you should note here is that cryptocurrency is not owned or regulated by any government or central bank, but rather is generated and managed by a network of computers across the globe.

This means cryptocurrency is theoretically immune to government manipulation, although we’ve been proven wrong on many occasions.

Advantages of investing in cryptocurrency

1. Diversification of your overall portfolio

Cryptocurrency can be used to diversify an investment portfolio, providing an alternative asset class to traditional investments.

2. Low barriers to entry

Investing in cryptocurrency does not require a large amount of capital, making it accessible to a wide range of investors. Cryptocurrency wallets are also easy to set up, making it easy for anyone familiar with using the internet, to hop on.

3. Ease of Accessibility

cryptocurrency is accessible to anyone with an internet connection, regardless of location or financial background.

Disadvantages of investing in cryptocurrency

1. Volatility

Cryptocurrency prices can be highly volatile, making it difficult to predict their value.

2. Lack of regulation

Cryptocurrency is not regulated by any government or central bank, making it difficult to protect investors.

3. Risk of scams and hacks

Cryptocurrency is vulnerable to scams and hacks, so it is important to be aware of potential risks and take steps to protect your investments.

How to Start Investing in Cryptocurrency?

As things move very quickly in the world of crypto, learning to invest in cryptocurrency can be a daunting task, especially if you’re new.

Here’s a simple blueprint to get started prudently:

1. Do Your Own Research (DYOR)

Doing your own research doesn’t mean hopping onto twitter and buying into whatever crypto that everyone seems to be talking about at the moment.

Instead, you should try to understand the objective behind cryptocurrency, find out who is leading the project (and whether they are trustworthy), as well as think through the potential risks involved.

Read their whitepapers, look for founder interviews, read discussions between investors on reddit and more to educate yourself before you make an informed decision.

Our crypto investor mentor, Aik Keong shares his crypto picking process at his live webinar. Join him at the next session for the latest.

2. Choose a reliable cryptocurrency exchange

2022 was the year that tested the confidence of every crypto investor as exchanges fell like dominos following the LUNA crash.

Remember we mentioned that crypto is theoretically immune to government manipulation above? Due to current state of regulations, when a cryptocurrency exchange falls, you’re usually on your own.

Which means you lose whatever you had in your account. Do your research and use a reliable cryptocurrency exchange.

3. Learn to protect your assets

This is a whole topic on its own, read my introduction to crypto security to learn more.

Unlike stock investing where there are trusted custodial platforms that are regulated and insured, crypto investors have to actively protect their own assets.

The most basic step is to get your own hardware wallet to store your digital assets.

4. Understand the risks and volatility of the market

Cryptocurrency prices are highly volatile, which means that the cryptocurrency market can be risky to invest in. Prices can rise and fall quickly, sometimes without warning or any clear reason. It is important to understand (AND be comfortable with) these risks before investing in cryptocurrency.

5. Diversify your portfolio

As a safe rule-of-thumb, no single cryptocurrency should make up more than 10-15% of your cryptocurrency portfolio. And it shouldn’t take up more than 30 to 50% of your entire portfolio.

Diversifying your cryptocurrency investments is a smart way to reduce risk and ensure long-term success. It’ll also keep you sane during periods of insane drawdowns, like those we saw in 2022.

6. Stay informed about market trends and news

Crypto moves quickly and often times, news and trends can have a dramatic effect on cryptocurrency prices.

Curate your own feed to stay ahead of the market, and more importantly to stay aware of any changes that might affect your investments.

On top of that, you should keep abreast of updates in cryptocurrency regulations.

Best Practices for Beginners

Do your own research

This is worth repeating. With so much going on constantly in the markets, it is easy to jump into bad investments impulsively. Don’t invest into a cryptocurrency just because everyone is doing so. Make sure you understand what you’re investing in and are comfortable with the rest.

Don’t give in to FOMO – it’s better to skip out on profits that risk losing your capital. There’ll always be the next project coming round even if you miss the current one.

Ultimately, you are solely responsible for your own investment returns.

Start small and invest only what you can afford to lose

Cryptocurrency investments can be highly volatile, and you should only invest an amount that you are comfortable with losing.

Start small and gradually increase your cryptocurrency holdings as you gain more experience and knowledge.

Keep your private keys safe and secure

You should be the only one who has access to your private keys. Never share them with anyone, or risk losing all of your cryptocurrency assets.

Make sure to back up your private keys and use two-factor authentication whenever possible.

Have a long-term investment strategy

While there have been exceptions, you shouldn’t treat cryptocurrency investments as get-rich-quick schemes.

Understand the cryptocurrency market and develop a long-term investment strategy that accounts for cryptocurrency’s inherent volatility.

3 Risks of Investing in Cryptocurrency

1. Market Volatility

The cryptocurrency market is known to be volatile, with rapid changes in cryptocurrency prices taking place in a matter of days or even hours. This makes it difficult to predict cryptocurrency price movements and can lead to losses if you’re not careful.

2. Security Risks

Cryptocurrencies are digital assets, and as such can be susceptible to cybercrime and hacking. Be sure to take steps to protect your cryptocurrency assets, including two-factor authentication and cold storage solutions.

3. Regulatory Risk

Cryptocurrency regulation is an ever-evolving landscape, with countries around the world taking different approaches when it comes to cryptocurrency trading and taxation. As a result, cryptocurrency investments can be subject to unexpected regulatory changes, potentially leading to financial losses.

3 Pitfalls beginner crypto investors should avoid

Crypto markets are characterized by their volatility which has led to outsized gains. With everyone shilling their crazy gains during the bull market, it is easy to give in to greed and end up in the following pitfalls:

1. Over-Leveraging

Leverage multiplies gains (and losses) which can be great when things are going your way, but horrible when markets turn against you.

2. Investing in Pump-and-Dumps

Pump-and-dumps are illegal operations designed to artificially inflate cryptocurrency prices by traders manipulating the market.

If one had gone all-in with a meme coin in the bull markets of 2020, one could have captured over 10,000% returns. But what was more common back then were punters who went in after the run and ended up holding bags of worthless meme coins.

If the upside sounds too good to be true, it usually is.

3. Going All-In

Don’t go all-in with a single coin. Ensure that your cryptocurrency portfolio is diversified, and not overly reliant on a single cryptocurrency or coin.

With a diversified crypto portfolio, you stand the chance to recover from 1 or 2 bad coins.

Conclusion

I have provided the fundamentals for you to start learning to invest in cryptocurrency, and make the process a little less intimidating for you.

And remember, as with any form of investing, cryptocurrency investing involves risks and and understanding of what you’re doing with your capital. It’s essential to always do your own research before investing in cryptocurrency.

Now, go forth and explore the world of cryptocurrency investing – good luck!

Leave a Comment