Bitcoin, Ethereum, and many other digital currencies constantly make headlines. With crypto prices increasing again, it’s natural that the sector drew your attention and you consider getting into action.
You’re not the only one considering joining the crypto sector; blockchain-based currencies have drawn the attention of seasoned investors and ordinary people with no previous experience in investing for a couple of years. Bitcoin is the first cryptocurrency introduced on the market and has maintained its status as the largest digital coin by market cap, but if you register with an exchange platform like Binance, you’ll notice that many other crypto projects are available for investing, including Ethereum, Solana, and Tether.
Before going on a shopping spree for cryptocurrency, it’s paramount to answer a couple of questions because this asset category is risky and volatile, and you must ensure you’re prepared to engage in this endeavor.
Why am I investing in digital currencies?
If you want to build a crypto portfolio or mine cryptocurrencies like Bitcoin, do it for the right reasons. Do you want to join the crypto market because you believe blockchain technology has great potential or because you want to make a profit?
Research shows that the most successful investors are those passionate about blockchain technology’s advancement to industries and don’t buy digital currencies only to make a quick buck. Therefore, the right reason to invest in digital currencies is that you are thrilled to see where the journey takes this innovative technology. You’ll make a profit from anticipating market trends, studying projects’ white papers and investing according to the road maps developers laid down for their tokens. If you think the demand for a digital currency like Bitcoin will increase in the following years, it’s worth putting your money in it.
However, it would help if you also dedicated time to researching the market to make decisions based on trends and events.
How much do I afford to lose?
No secret that digital currencies are volatile assets, so you’ll add to your portfolio some high-risk commodities. Most crypto investors are in the red because they don’t research the market and ignore the trends and events in the sector.
This investment opportunity is risky, and your credit card issuer might deny you from purchasing digital currencies with the credit card, even if you want to use it to acquire Bitcoin or Ethereum, which are two of the most well-known digital currencies in the sector. However, the credit card issuers that allow crypto purchases enable investment solely in Bitcoin.
Considering that digital currency prices can go up and down overnight, it’s crucial to be prepared for the possibility of losing some of your funds. Bear in mind to establish the amount of money you’re comfortable to lose when investing in crypto. Suppose you want to spend a large amount of money on purchasing cryptocurrency, and spread it out over several projects to lower the risk. Seasoned investors advise never to invest more than you afford to lose because there’s always the chance the crypto market to enter a winter overnight and not recover for a long time.
What digital currency should I invest in?
Be thoughtful when picking the cryptocurrencies to add to your portfolio, especially if you want to stick with a shortlist. There are countless options available, including the most popular cryptocurrencies, Bitcoin and Ethereum. Before buying blockchain-based coins, study them extensively to understand how to exploit them to your advantage.
Here are the investors’ favorite projects.
Bitcoin. Bitcoin revolutionized how people transfer money because it removes the need for an intermediary and enables more secure and faster transactions. The first cryptocurrency was designed with the purpose of offering an alternative to traditional currencies that are subjected to inflation and centralized control. Bitcoin and most digital currencies are deflationary and decentralized, and adding them to an investment portfolio can turn lucrative because they can maximize your return.
Ethereum. Ethereum was introduced as an alternative to Bitcoin, which should offer more utility cases and enable the creation of smart contracts and decentralized apps. Ethereum is a successful crypto project because it enables developers to create censorship-resistant, secure, and transparent blockchain-based applications.
Cardano. Investors have often named it the best Ethereum killer coin because it offers similar solutions for lower fees. Unlike Ethereum and Bitcoin, its consensus allows it to be less computationally intensive, more energy-efficient, and process transactions faster. Considering that it focuses on scalability and sustainability, it has the necessary qualities to become a leading network in the future.
Solana. Solana is also similar to Ethereum in features, but it makes coding easier and has lower transaction fees. It uses a hybrid consensus mechanism of PoH and PoS to allow for secure and quick transactions.
What investment strategy suits my portfolio?
If your portfolio includes diverse commodities, you must think about how digital currencies will fit into your grand investment plan. Do you add blockchain-based assets to the portfolio because you want to diversify it or as a speculative bet? The approach you adopt will impact your investing strategy. It would be best to position yourself as someone who buys cryptocurrency intending to hold it in the long term because you think that the underlying technology can revolutionize sectors and all assets based on blockchain will register a value spike.
However, if you’re a speculator, you should time your actions perfectly with the market to make quick profits from the moments when the prices move. Speculation is a popular endeavor among people investing in the financial market, but you must ensure you don’t commit solely to this strategy. Speculating on prices is fine, but you should also have other methods in place and a solid plan to protect your investment.
Do I have an exit strategy?
Sometimes it’s challenging to sell crypto assets, especially when the market goes through a bear phase. Will you be able to sell the assets when the time comes? Establish an existing strategy before venturing into investing in crypto. Considering how much crypto prices fluctuate, an exit plan is crucial to prevent losing money.
