Cryptocurrency Investing 101: Smart Investing for Newbies – A Comprehensive Tutorial on Investing in the Crypto Market

July 8, 2024 Edward

Table of Contents

Introduction

Traditional cryptocurrencies such as Bitcoin and Ethereum are among the most popular and rapidly developing over the last three years. When Bitcoin was trading for about $1 000 per coin in the beginning of the year 2017 up to a high of $60 000 plus per coin in 2021 and beyond, it is evident that more and more people are willing to invest in cryptos.

Nonetheless, investing in crypto is quite a delicate affair, and if one does not have a clue about the market, then they stand to lose a lot. This article aims to be a humble introduction to the world of cryptocurrency and the concepts that one should be aware of before starting to trade with his or her own money. Here are the measures to take in the pursuit of rational cryptocurrency investment.

Please, try to do your own research on the Crypto projects that you are interested in investing in.

The first law of rational Crypto investment is when you want to buy any of the digital coins or tokens, first understand the project behind it. Trade thousands of cryptocurrencies with ease: at the beginning of 2022, there were over 7,000 different cryptocurrencies in circulation. However, many altcoins are not backed up by unique technologies and active development and hence the likelihood of these assets to be adopted and increase in value drastically is really small.

You feel that before investing, there must be a thorough due diligence on any crypto asset to determine if there is a great team, community and uses behind it. Research things like:

The white paper presented in this project outlining the technological plan
Founders and developers of the profiles
On-road map and timeline of the promised platform updates release
Present value and future trends of activity such as processed transactions, the number of users, etc.

Finding the time to research a crypto project and understand what is behind it means you get a chance to see if it has a chance of succeeding or is sure to fail.

Crypto Market Cycles: A Guide for Traders

The crypto trading market is characterized as very active in terms of the frequent fluctuations in demand, which can be referred to as booming and busting. Bitcoin has moved to all-time high several times, but in bear markets that follow, the losses are above 70 to 80 percent. It is worth understanding that the crypto market is cyclical and can peak at the stages of greed and go through the stages of fear and panic.

Effective with the crypto market, investors seek to buy the dips and sell during the high times to ride the waves. This means you do not want to be buying when the markets are exaggerating greed near short-term resistance levels. Be most afraid in the moments when people are greedy, and be greedy at the time when people are most afraid.

This means having the courage to enter the market and invest in major crypto assets at a time when prices have gone down significantly and the general outlook is negative. The idea that only counter trend trading works well has been widely shared by the participants of the Stock Market.

However, it’s important that one looks at its movement and the shifts in cycles when it is appropriate to take profits or open new positions.

Spend only that which you are willing to let go of in the business.

Foremost, let us acknowledge that cryptocurrency investing is a very risky business since it belongs to the highly speculative market. Even large cap coins such as Bitcoin have both the capability and precedent for 50% or far more bear market declines. This means that if you want to invest in crypto, you should only put your money in it which you can risk to lose without causing any strain financially.

Cryptocurrencies should be invested sparingly because the market has always been volatile: it is recommended that they should not exceed 1-5% of your total investment. Even if crypto can bring very high revenues in the period of ‘bull’ phases, it is not the same as a stock or bond market yet. Invest in crypto cautiously and sparingly until this kind of asset finds its place in the next 5 to 10 years.

Having a correct mental approach and selection of your asset mix also eliminates dangerous overexposure to begin with.

Diversification across many cryptocurrencies

The fact that any financial expert will explain the importance of diversification in this regard is always a good way to avoid risks. The same argument applies within the cryptocurrency market with a vast range of choices made of thousands of different competing coins.

Similarly to how you would diversify in the stock market by product type and market capitalization, regions both domestic and international, the same applies to the crypto market.

Try to maintain a portfolio of cryptocurrencies that are not correlated within the various sectors of the market such as payments, DeFi, storage, gaming, etc For instance, having bitcoin, ethereum, solana, polkadot, cosmos, polygon and uniswap all come from a different category of the market. Portfolio rebalancing also enhances the kind of returns achieved depending on market conditions in the future after investment.

Avoid Emotional Trading

Similar to any other market, sentiment can be the investor’s worst enemy and make profits evaporate or losses skyrocket in the case of cryptocurrencies. This is especially so when emotions of greed make you chase short-term gains or else the feeling of fear makes you sell at the worst time possible, Emotional trading is dangerous.

Cryptography can be extremely unpredictable and this characteristic can elicit psychological responses. Do not make the decisions to buy or sell with the purpose of just following the market, fomo, or due to hype without following through your investment plan.

Have a strategy to make profit on high price increases while avoiding a situation where the shares are sold in a moment of distress. Those that put an emphasis on the cost side of the equation should set price targets and adhere to them.

Investing in Crypto calls for self-control as it is hard to be rational during euphoric phases and bear markets. Do not trade out of emotion or out of personal feelings.

Some investors prefer to build positions gradually using their capital to ensure that they are not over exposed to a particular stock.

Dollar cost averaging is a popular and viable approach to reduce the impact of market swings, which is especially useful when one aims to slowly accumulate crypto assets as investments. Rather than committing your entire capital right away, you make proportional investments at certain times during the weeks or even months you have been granted the funding. This arrangement means you can buy crypto at various levels without struggling to time your entries and exits.

For instance, you could set a plan to autopilot a $500 investment each week for ten consecutive weeks. Over time this would strengthen your stance – some of the buys are made at the lower rates and others at higher rates.

Dollar cost averaging is also a way to avoid putting all your money into an investment at times that are emotionally driven. One of them is that it can eliminate fluctuations, especially in the long term when we hold assets.

Don’t Ignore Crypto Taxes

Even though it seems less like a currency but more like an investment when you are ‘buying and holding’ cryptocurrencies, make no mistake – crypto does get taxed. For each of these, you are likely to incur capital gain taxes anytime you sell the crypto assets for a profit. This provision comes under the category of short-term capital gains that are made within a period of exactly one year. These are achieved for assets that are held for more than one year; these are usually given more favorable tax rates.

Trading is unique in that if you are trading crypto or cashing out for big gains, the taxes can be significant. Ensure that you keep records on cost basis, date of purchase or sale, profit/loss per trade and transaction cost. Providing this data is important so that an individual will be able to determine the correct amount of capital gains and thus make the correct tax payments. Tax evasion is another calamity that befalls individuals who fail to report their crypto taxes appropriately; one ends up in trouble with the Internal Revenue Service and is compelled to pay back taxes, as well as penalties and astronomical fees.

Therefore do not neglect to pay your crypto taxes! Seek the help of a well-experienced crypto accountant if you will be needing it for the tax planning process.

Buy and own stocks over time to avoid the psychological and emotional side effects of investing.

Hardware wallets allow for storage of cryptocurrencies in a disconnected, much safer fashion that a software or web-based wallet cannot. Regarding its nature, consider them as a kind of specialized device like a flash drive but for crypto assets. Some of the most recognizable brands of the hardware wallets include Trezor, Ledger, and KeepKey, all of which are worth considering if you are in need of a reliable wallet.

For people holding large amounts of cryptocurrency, it is recommended to buy a hardware wallet for secure storage of their assets in the long term. Your coins reside in locations where the hackers do not have the capability to get in and steal from you. This enables direct control without having to trade to get the holdings from an exchange. One important thing to note is to ensure that you do not misplace the physical device.

Crypto exchange security should be given attention before investing or engaging in trading.

Currently, there are hundreds of token markets where people can trade different cryptocurrencies. But not all exchanges are the same when it comes to reliability of the platform and its protection from various threats. This brings us to the fact that some of the newer exchanges are not able to determine their long-term strategies due to the lack of certain controls, transparency and liquidity.

Before using any exchange, carefully vet critical factors like:Before using any exchange, carefully vet critical factors like:

Legal requirements and official registration in significant countries
Total trading volume in the stocks which gives an indication of the liquidity in the market.
Past and present availability and dependability rates
Reliability of investor protection if hacked
Financial auditing for reserves is independent

Investing or trading in crypto therefore should be done in exchanges with strong security measures in place, with good reputation, and high market liquidity to control the risks associated with the investment. Employing barely active and uncontrolled platforms is not necessary for regular traders as it adds a level of risk. I mean, do your research, of course!

Become Aware of Basic Concepts and Transactions and Modern Trends in Crypto Space

Smart involvement in the world of crypto assets means learning and mastering the key areas of focus associated with blockchain platforms, consensus mechanisms, hashing algorithms, Web3 applications, and the hardware infrastructure that underlines the cryptocurrency ecosystems.

Knowledge of the basics of how blockchain technology works and how it is being adopted in the real world provides you with better context to differentiate between real gems with legs from noise created by pump and dump scams.

Cryptos, although it appears to be technical, do not require any programming to be done. However, it is still mandatory that one must update himself or herself with the market trends, macro-environment and other new offerings in cryptos. Engage with the leading voices in the crypto industry, read articles written by investment banks as well as listen to podcasts from top blockchain enthusiasts every week. It is true that continuous learning proves highly rewarding in an environment that is constantly shifting and developing as is the case with the crypto world!

Conclusion

Therefore, let me present you with 11 valuable pieces of advice on how to approach the investment in cryptocurrencies in order to enhance your intellect and reduce the risk. Sophisticated actions bring large gains while reckless actions bring large losses When it comes to using available data to research projects or sustaining a long-term investing position in the face of highly fluctuating prices, one thing is apparent: skilled actions yield massive benefits, and reckless actions lead to massive losses. Constructively developing awareness of the blockchain and critically assessing the conditions of crypto markets marks the difference between a wise investor and a speculator merely toying with flames.

Now you have a full roadmap on how to invest in crypto for the highest risks suitable for your personality. And just remain calm, wait and be consistent in your thinking and actions to focus on the long-term strategy. Have a dynamic pipeline of attractive, well located properties across major property types.

Avoid getting into pumps which may only be short term and instead, maintain set price points for both purchase and selling. Provided a person adopts the right attitude and approach to investing in cryptocurrencies that is marked by a low-risk approach, it is perfectly possible to achieve exceptional returns in the longer term given that this new asset class is still evolving.