It’s safe to assume you’ve heard of Bitcoin before. Created in early 2009, the digital financial instrument was the world’s first cryptocurrency. Although it took several years for Bitcoin to take off, its market value reached an all-time high in late 2017 of some $19,800. While the price of Bitcoin might have dipped to just above $3,000 a year later, the Bitcoin market has since rebounded, breaking the $12,000 mark in Aug. 2020.
Whether you’ve played around with the idea of investing in Bitcoin or another cryptocurrency for a while or you’re fresh to the crypto scene, you should thoroughly educate yourself on the topic before investing. We’ll discuss basic investing concepts and how they apply to cryptocurrency in this article.
When Should You Invest?
Put simply, investing is the allocation of assets in hopes of generating income. Some examples of investing include:
- Buying a dilapidated home with the intent of restoring it and selling it for a profit.
- Purchasing long-term bonds.
- Placing funds into bank accounts that bear interest.
The return you can generate from investing is almost always lower than the rate at which consumer debt grows. If you have debt, you should pay it off before even thinking about investing. You also shouldn’t invest unless you have an emergency fund, a store of cash that can afford three to six months’ worth of living expenses.
Don’t Invest to Get Rich Quick
Some people believe that if they pay close attention to crypto markets, they can trade their way to wealth. While cryptocurrency day-trading success stories might inspire you, you shouldn’t invest in cryptocurrencies to get rich quick.
Cryptocurrencies are incredibly volatile, meaning their prices change rapidly with little to no warning. Although this high volatility can lead to great short-term gains, you can’t rely on good fortune to last in cryptocurrency. Don’t buy into these financial instruments with a get-rich-quick mindset.
Don’t Put All Your Money Into Crypto
Diversification is the keystone of investing. It’s a risk management strategy that keeps investors from suffering catastrophic financial losses if one or more of their holdings takes a nosedive. Even though any financial advisor or finance professor will tell you diversification is key to long-term investment success, many people interested in cryptocurrency completely ignore the principle of diversifying.
You may think buying into several cryptocurrencies is a sufficient diversification strategy. This couldn’t be further from the truth. Only you can decide how much money you’ll place into cryptocurrency, but many experts warn investors not to tie more than 10% of their portfolios into crypto.
Always Keep Cryptocurrencies in Your Wallet
Most people keep their money in bank accounts. With cryptocurrency, you don’t have to trust your money with big banks to keep it safe. All you need is a digital wallet.
Typically, investors purchase cryptocurrency from exchanges. These exchanges, such as Coinbase, Binance, and CoinDesk, track trading activity and current events to determine current trading prices of virtual currencies like Bitcoin, Monero, and Ethereum. Immediately after purchasing these cryptocurrencies, exchanges place your funds in their in-house online wallets.
While it’s true that every cryptocurrency exchange is incentivized to keep buyers’ virtual currencies safe, you should never leave your coins on digital exchanges. Always pull them out immediately after purchasing them and store them on your wallet.
It’s normal to have several wallets for different digital currencies. You can access them from anywhere as long as you have login credentials. Write these credentials down and store them in at least two safe places that nobody else has access to.