10 Rules of Investing in Crypto

Investing in cryptocurrency offers unique opportunities, but also challenges and risks not found in traditional markets. Excessive volatility, technical complexity and regulatory uncertainty can deter new investors. However, through smart strategies, careful research and measured delivery, cryptocurrencies offer new long-term potential for portfolio growth and diversification.

1. Never invest more than you can afford to lose.

Cryptocurrencies are still the newest and most volatile assets and can gain or lose significant value in a single day. Although the long-term trend is bullish, there is still skepticism and opportunism in these markets. If the market goes down, only invest what you are fully prepared to lose. As a rule of thumb, limit cryptocurrency investments to less than 5% of your entire portfolio. Before investing any money in cryptocurrency, have enough emergency savings. If your investments are down by a certain percentage, be disciplined and cut your losses. Balance your cryptocurrencies periodically instead of using them endlessly.

2. Use dollar cost averaging (DCA).

The average dollar spent on cryptocurrency through small but recurring purchases on a fixed schedule, such as weekly or monthly. Automate these purchases through the exchange instead of buying them manually each time. Dollar value averaging allows for methodical positioning, avoiding the psychology of trying to perfectly time the ups and downs of the market. Therefore, he will buy relatively more cryptocurrency when prices fall, and less when prices rise, reducing the impact of volatility. Paying the extra transaction fee is usually worth it in the long run. Sometimes you can also consider opportunistic purchases when the market is down significantly.

3. Investing in cryptocurrency is different from stock market basics.

Often this includes assessing the potential for real-world adoption, reviewing technical specifications, finding founders and developers, scanning for community involvement, and evaluating competitors. Prioritizing activities that are time-tested or not easily replicated and provide exceptional opportunities that promise widespread adoption. Avoid things that are purely speculative and have no basis in reality. Key areas of research include token usage, transaction speed/scalability, network security, coding languages used, team transparency, and what differentiates it from competing cryptocurrencies.

4. Stick to major cryptocurrencies Larger.

Established cryptocurrencies such as Bitcoin and Ethereum enjoy first-mover and follower advantages thanks to their larger market capitalization and markets for their underlying financial products, such as ETFs and derivatives. These major coins have been through many market cycles and downturns over the years. While risks remain, larger cryptocurrencies tend to be more resilient than newer or smaller currencies. However, if the opportunity arises, rebalance your regular profits from core assets into new ventures that promise tangible results. As with any asset or security, avoid heavy exposure to major cryptocurrencies based on the size and risk tolerance of your overall investment portfolio.

5. Store cryptocurrency securely in hardware wallet or trusted custodian.

The leading hardware wallets are Trezor and Ledger, and some software wallets such as Electrum are also considered secure. They offer enhanced security with features like offline protection, encryption, PIN code, multiple signatures, recovery phrases and anti-fraud. Always keep your recycling program in a safe place, such as a locked safe or bank vault. Do not store your recovery phrase electronically and remember to encrypt it or password protect it if necessary. Be careful when entering important wallet information on devices. Use complex and unique passwords.

6. Exercise good judgment Be objective when evaluating cryptocurrency investments.

Don't fall victim to the fear of missing out (FOMO), conisms (e.g. proof-of-work vs. proof-of-stake), hashing algorithms, and smart contract functionality will give you better insight into a project's capabilities and limitations. Learning cryptography basics also helps you better grasp the potential of solutions like zero-knowledge proofs. Subscribe to industry publications and blogs to stay up-to-date on new technological developments in the space.

8. Monitor rules and laws for crypto regulations locally and globally.

Major regulatory actions can significantly impact prices and adoption. For example, China banning mining caused many miners to relocate operations. 1 Stay on top of governance changes enacted by blockchain projects as well. These can alter staking yields, development funding, and other dynamics substantially.

9. Technical indicators such as moving averages, relative strength, crossovers inform crypto decisions.

Moving average crossovers, for instance, may identify momentum shifts. New, crypto-specific indicators like on-chain activity, mempool size, average transaction fees, addresses by time held, and so on are also helpful. Assessing indicators can help better time entries and exits. Combine technical and blockchain-based analysis for a more complete perspective. Always maintain a long-term outlook over reacting to daily price swings.

10. Stay Disciplined Create a robust, rules-based framework.

A systematic approach based on pre-defined criteria helps remove emotion-driven decision making which can be costly. Continually refine your processes based on lessons learned. Remain flexible and open to new information rather than rigidly locking into any one system.