Digital currencies are a revolutionary force that holds enough potential to probably redefine the mainstream economy. Launched little over a decade back, digital currencies speak for democratization of finances to make the economy accessible for people of all economic strata. As digital currencies are protected by cryptographic encryption on blockchain platforms, these currencies are also termed as “cryptocurrencies”. A crucial aspect of cryptocurrencies is extreme volatility that endows digital currencies with mighty profit potential- much higher in comparison to traditional trading vehicles. You can either go for long-term or short-term investing in digital currency- the long-term investing option in crypto is officially termed as “HODLing”.
While cryptocurrencies garner applause for excellent profit returns, the crypto market has also sparked criticisms for huge losses. The wild volatility of the crypto industry can lead to both colossal profits and mammoth losses, based on the specific status of the market. Thus, if you are planning for investing in digital currency, you need to tread carefully to avoid loss risks as much as possible.
Brief on safely investing in digital currency
Study and research
Digital currency is an innovative asset class. You have probably got to know about it just a decade back. Additionally, the crypto scene is extremely volatile; the market can swing down or up at any moment. Put simply, digital currency is a high-risk asset class. Thus, when you are planning to step in, you should proceed with strong knowledge on digital currency, the underlying blockchain technology, benefits of crypto, the purpose that it solves, and also the future of digital currencies. The research will offer you a basic picture on the science and art of digital currencies. In fact, the study will help to fathom whether or not you should put money in digital currency.
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Choose the right crypto
This point will cover a lot of discussions.
Understand the crypto types
First, you should understand that there are different kinds of digital currencies when you are investing in digital currency. There are legacy coins that are the highest rated coins that offer the strongest returns. Then, you have stablecoins. These are comparatively more secure than other regular cryptos as these are tied to stable commodities such as USD, EUR etc. Besides, a new type of digital currency has come up today, called meme coins. However, when it comes to the word “currency”, it mostly refers to the cryptos that can be used for making payments. In that case, the legacy coins like ETH or BTC are the most viable options.
If you have been acquainted with the trading world, you know about the significance of diversification of assets. The same rationale applies when you are aspiring to investing in digital currency.
You have to divide your investment capital into at least 3 digital currencies. One of them should be legacy coins like ETH or BTC. It’s because these two coins are constantly surging in value, pulling in higher market demand, have proven their mettle after crashes- and are poised to hit stellar figures in the coming years. Now, it can’t be denied that coins like Bitcoin command higher prices. But, the beginner investors would be relieved to know that you can invest in a fraction of Bitcoin (Sats) as well.
Be mindful while choosing
Crypto is a constantly evolving and highly competitive market. A coin that’s commanding a rally at present might not last after a couple of years. The crypto industry only has room for meaningful cryptos that do serve a realistic use case. Put simply, focus on cryptos that can assure a sustainable future in the crypto scene. You must carry out fundamental analysis on your chosen cryptos before finally investing in digital currency.
The fundamental analysis involves study of the crypto project, about its team, its goals, upgrades, the roadmap, and so on. Your chosen digital currency should be backed by an expert team with sound knowledge on tech, fintech, and crypto. A reliable crypto project will never shy away from mentioning its team and their credentials on its website or white paper. Besides, make sure the project is focused on realistic goals and aspirations that are viable to attain in real life.
How much to put in?
Now, this is the most obvious question for every beginner planning for investing in digital currency.
There are certain golden rules to remember when it comes to funding your investment in cryptocurrency.
First, Do not ever develop this assumption that your crypto investment would help to fund your mortgage or higher education or car EMI or even travel plans. If it can do that, it’s fantastic. But, do not depend on investment in digital currency to meet your dreams, goals, and major expense areas. It’s because, since crypto is a wildly volatile market, you could lose money any time. If you are able to make money through investing in digital currency, it will be your additional money.
Put simply, do not put that money on your investment in digital currency that you would need to fund your goals and aspirations in life. Now, of course, if you are planning to investing in digital currency, you must be mentally prepared to allot a certain section of money into crypto. It’s a good idea but do not put more than 5% of your investment capital into investing in digital currency. In fact, when you are a newbie in the crypto world, you should stick to 2%. Wait and check whether crypto investment is comfortable for you. If you think it is, you can exceed the investment share to a certain extent.
Another important tip is that, no matter the size of your target investment capital, please don’t put the entire money aside initially. Allot a small share of it first to test the waters. If the crypto enters a bearish phase, wait till the market is able to overcome the bearish part. Then, as it shows signs of improvement, put the reserved amount in the market. Patience is a big word when you are aiming to investing in digital currency.
The last tip would be to focus on PoS cryptos like Ethereum while investing in digital currency as these cryptos offer room for passive income.