When it comes to crypto investing, one of the most challenging things for people to avoid is getting trapped in the hype. Cryptos have swiftly become a prominent part of many individual and institutional investors' portfolios.
If you've chosen to invest in the crypto market, just like any other investment, you should do your homework before turning over any money. In this article, we'll go over the things you should know before investing.
Things to Keep in Mind While Investing in Crypto
If you think that cryptocurrency use will grow in popularity over time, it's probably a good idea to invest in some crypto as part of a balanced portfolio. Make sure you have an investing strategy for each cryptocurrency you buy. There are other methods to profit from the crypto explosion if acquiring cryptocurrency looks to be too risky.
Below are some important things to keep in mind while investing in cryptocurrency:
#1. Portfolio allocation for cryptocurrency
One of the most crucial things to consider when investing in cryptocurrencies is how much to invest. Overinvestment in any asset class is frowned upon. We must also recognize that cryptocurrency is a highly volatile asset class. The market is open at all times, and prices change based on worldwide demand and supply. As an asset class, cryptocurrency is significantly riskier than conventional financial assets such as mutual funds, stock markets, gold, and property investment.
The majority of experts feel that cryptocurrencies should not account for more than 5% of an investor's whole portfolio. This assures that you make a large profit on the upside while minimizing your risk on the downside.
#2. Choosing the right project
On coinmarketcap, there are currently over 11,000 crypto projects in the market. Only a small percentage of the 11,000 tokens are worth investing in. Here are a few things to look for while looking for a strong cryptocurrency startup.
The most crucial factor to consider is the project's team: are they experienced entrepreneurs, are they developing a long-term firm or are they just looking for a quick profit, have they worked on previous projects, do they have decent social media accounts, and so on. It is critical to look at the people behind the project before determining what the project solves. The project itself, as seen through its white paper, is the next key factor to consider. Are they addressing a major issue? Is blockchain going to be a game-changer in the industry? Do they have early adopters? The majority of the time, we see companies add a blockchain layer to their business without a clear use case. It is preferable to avoid such initiatives.
#3. Gas/ Network fees
If you've ever transacted on a blockchain network, you've almost certainly encountered network fees. These are the fees that are collected from each user in order to facilitate their transaction and are typically used to maintain the blockchain working smoothly. Now is the time to consider the gas fee, as a high gas fee could deplete your funds. We've just observed an increase in Ethereum blockchain gas prices, making it more expensive to transfer Ethereum now than it was five years ago. To save money on petrol, try batching your transactions and sending them all at once rather than making numerous transactions.
#4. Stay away from Fear of Missing Out
The cryptocurrency market is drenched in the hype. We have always observed a fresh trend every month because it is a worldwide market. We saw this with Elon Musk's dogecoin excitement, then with Elon Musk's bitcoin popularity, then with NFTs becoming a craze, and strangely enough, with a non-existent coin called Shiba Inu garnering momentum from nowhere. People don't tell you that as the hype wears off and the smoke clears, you'll have lost so much money if you engaged in the hype when it was at its peak. So, rather than succumbing to these hype cycles, do your own study and invest in a platform that you trust for a long time.
#5. Stay away from scams
The cryptocurrency market is not a regulated market, and there is no regulatory authority in charge of it. As a result, investor safety isn't a top focus in that sector. Every investor should first learn about the initiative, research the staff, and then consider investing in the company. Scams abound in the crypto world; if something appears to be too good to be true, avoid it.
Crypto is risky and unpredictable, but a well-informed investor who conducts thorough due diligence can limit his risk and make intelligent investments.
#6. Safety and security
Because cryptocurrencies are unregulated, it's critical to take extra safeguards to invest safely and securely. Investors have lost thousands of dollars or more as a result of major hacking occurrences, and hackers have gone free in many situations. The most critical initial step is to find a trustworthy and reliable digital wallet. Some of the greatest solutions are wallets that also exchange, enabling you to store and exchange your bitcoin assets in one location. Web-based platforms, on the other hand, are less secure than their counterparts.
#7. Market trends and investor perception
Cryptocurrencies, unlike equities and other traditional financial assets, are subject to public opinion and large-scale patterns. Market capitalizations and performance data are useful when choosing companies to invest in, but not so much when it comes to cryptocurrencies. Alternatively, cryptocurrency investors should pay attention to the news headlines about a specific coin and try to predict trends.
The crypto market has taken over the world during the last few years, with coins such as Bitcoin, Dogecoin, Ether, Shiba Inu, and others gaining huge popularity among investors. In all fairness, cryptocurrency has ushered in a new era for worldwide business transactions, with well-known personalities such as Elon Musk promoting it. Cryptocurrencies, on the other hand, are highly volatile and prone to market risk. As a result, cryptocurrencies are classified as hazardous investments, and investors should be aware that investing in them entails risk.