By now, everyone knows what cryptocurrencies are and what they are about, as they have been around for more than a decade. Cryptos have become so popular that they are now regarded as commodities and, as such, an investable asset used to grow wealth. However, it is more complex than merely exchanging your fiat money for Bitcoin or Ethereum, HODLing, and then cashing out. There are nuances to trading that you must understand before even attempting to dip your toe into this world; otherwise, you stand to lose a significant amount of money. This post will discuss six helpful things you should understand before spending your first dime.
Learn What They Actually Are
A cryptocurrency is a digital form of currency that a central bank does not regulate. It is possible to send and receive them without needing an intermediary like a bank or payment processor, and they are not tied to any country or asset.
However, this school of thought is taking a back seat as current events seem to indicate that they wax and wane in relation to the broader stock market geopolitical events, but that is a story for another time. The use of cryptocurrencies is growing worldwide due to their ease of use, transaction speeds, and lack of central control. Their value is determined by supply and demand, just like other currencies, but they can’t be printed like paper money and are instead created by an immutable consensus mechanism. The two primary forms of consensus include:
- Proof of Work (PoW): Proof of work is a mechanism that verifies that a computer calculation has been completed. It is a fundamental component in the design of the original cryptocurrencies, such as Bitcoin and Ethereum. PoW is considered environmentally unfriendly due to the massive amounts of raw computing power required to solve the complex sums that verify a new unit has been created.
- Proof of stake (PoS): Proof of stake is an algorithm that replaces the traditional mining process with a system where people who own coins validate transactions. It relies on “coin holders” to verify transactions and create new blocks instead of relying on miners to do so. It is far more energy-efficient than PoW and is generally regarded as the future of crypto.
Join Forums Groups
You can often learn a great deal by joining relevant forums and groups with the best benign:
When you join these groups, you can ask questions or read what other seasoned traders are discussing and use that information to learn more.
Only Invest What You Can Afford To Lose
The golden rule with any form of investment, be it stocks, ETFs, or crypto, is only to invest what you can afford to lose. You will hear this wherever you go and for a good reason. If you are inexperienced and bet the barn on something you read on a Twitter feed, you stand to lose more than your shirt! The best thing to do is allocate a small sum of money to use as a practice and see what happens.
For instance, you could put aside $200 and purchase a few tokens you have researched and see what happens. Although you can never (nor should ever) predict the market, you can sometimes calculate crypto profit by using a range of online tools that allow you to input some figures and see what your potential return on investment might be. This will provide you with a reasonable starting point.
Understand The Inherent Volatility Involved
The crypto market is volatile; there are no two ways about it. You stand to win big but also lose big. Nevertheless, by performing some due diligence and understanding the inherent risks, you can often come out the other side with a profit or, at the very least, not a massive loss. But the question remains, what constitutes research?
Learn How To Analyze Them
Learning how to analyze is fundamental to any sound investment strategy. Only the uncannily lucky have ever won big from a gut instinct, and no matter what you’ve seen on the screen, those who invest time researching are the ones who win. While it isn’t glamorous, you are investing, not gambling, and investment requires time behind a computer screen looking at fundamentals. So how do you analyze cryptocurrencies?
Fundamental Analysis
Fundamental analysis is the process of analyzing the underlying characteristics of a cryptocurrency, including its technology, market capitalization, and price trends. It is common practice in the finance sector and is used to assess a cryptocurrency’s value and future potential, especially by looking at whitepapers and potential applications of its blockchain tech. This field of study has been around for a while, but it has recently become more popular because cryptocurrencies are becoming more mainstream.
Technical Analyses
Trading cryptocurrencies using technical analysis is one of the most popular methods. It provides insights into what might happen next by considering current market trends and patterns and thinking about what might happen next to help you make better decisions. However, as a rule of thumb, you should go technical if you want to trade and fundamental if you’re investing. Nevertheless, a combination of the two is generally preferable.
Sign Up For A Good Exchange
As a beginner, you will need to sign up and get verified at one of the many crypto exchanges. The most rep[utable include:
- Kraken
- Binance
- Coinbase
- Gemini
Once you become a bit more experienced, you can look elsewhere to trade your crypto assets for lower fees, but it is highly recommended to choose one of those mentioned when you begin.
Stay Clear Of Joke “Meme Coins”
Meme coins became all the rage after Elon Musk inadvertently (or purposefully) discussed Dogecoin on a TV show, and its price shot up; as a result, making a lot of people a lot of money. This has happened to other meme coins like SHIB and SQUID (which turned out to be a huge scam), but their prices have fallen massively as people begin to realize they have no value outside of speculation. In essence, stay away from meme coins and focus on those with real-world uses.
Invest As Part Of A Broader Portfolio
There are many sayings in the investment world, and the most famous is don’t put all your eggs in one basket. In fact, this saying is arguably the most valuable for investors because diversification equals long-term profit. It always has and always will. Therefore, cryptos should only ever be one part of a broad portfolio of investments, including stocks, mutual funds, IRAs, and more.
It is fun investing in cryptocurrencies as you can often see the rises and falls in real-time. There is no closing bell, no regulation, and many options to choose from. However, these positives can add up to the negatives if you don’t know what you are doing. However, if you learn to invest correctly, you should find your wealth accumulation nicely over time.
