Cryptocurrencies were the rage of the moment back in 2021, as some of these digital assets recorded impressive gains over the course of the year.
Solana, for instance, increased by over 9000% in 2021, serving as evidence as to why investors are always more than ready to put their funds into the crypto market.
While this is great and a sign of more good things to come, crypto-assets can sometimes be risky due to constant fluctuating prices that can pose as a massive pitfall for any investor who is unaware of the rules to implement when investing in crypto.
Also, investing in the crypto market isn’t all that different from investing in the traditional stock market, and just as there are ups and lows in the stock market, the same is quite applicable to the crypto market.
All in all, if you want to invest cautiously in crypto, bearing in mind the potential for high risks, these seven rules are a must-know for you.
Make use of the best option when storing your crypto assets
There are two ways of properly storing your crypto assets, which are through hot storage and cold storage.
Hot storage is an online crypto wallet such as theExodus wallet, while cold storage is an offline crypto wallet typically stored on a hard drive which you can insert into your desktop or laptop, such as the Ledger Nano X Wallet.
Another difference between these types of storage is that cold wallets are best for long term crypto storage. Think of it as a fridge where you keep your fruits and vegetables for a long time to remain fresh.
Hot wallets, on the other hand, are used to temporarily hold crypto, especially if you plan on engaging in crypto swaps or exchange in a short period.
Focus on cryptocurrencies with high liquidity
Investing in highly liquid cryptocurrencies is very important when you want to make the most of a potential opportunity by selling off said crypto to gain profits.
By liquidity here, I simply mean the ease with which you can convert your crypto holdings to fiat. Moving on, you can determine the liquidity of a crypto asset by checking out its recent trading volume.
A high trading volume indicated that the crypto is actively traded and can easily be converted to fiat at a moment’s notice.
Learn to utilize the power of volatility to the maximum
If you are a crypto trader, this particular technique should be of high interest to you. Since the crypto market is a market with constant price volatility, knowing the right opening to profit from these price swings is very important.
You should also know how to monitor your crypto assets, have up-to-date information, study price trends and historical charts, as these would go a long way in helping you manage the market volatility so that it does not bounce back on you in a bad way.
Have a limit
The crypto market, just like any other market, can experience a massive crash, which is why you should not invest what you cannot afford to lose. If you are wary of the risk of crypto losses, it simply means that you do not have much to invest in it.
Deciding to invest in crypto is determined in part by your income and in part by your risk tolerance. If you happen to be a risk-averse investor, then you should invest only a small amount in crypto.
This keeps things pretty even, so when things go south, you are sure to still be in charge of your finances.
Know when to keep your gains
Knowing when to keep your gains is very important as some investors do not know when to pull out of the market with their gains, no matter how big or small.
They typically have this notion that prices may soar even higher and, as such, decide to keep holding their crypto-asset for an indefinite amount of time.
This later comes back to haunt them, especially when the price falls unexpectedly, cancelling out the gains they had already made.
For this reason, always make sure to know when to pull out, as keeping your gains regularly helps you lessen the losses you would incur during investing periods.
To better understand how to know when to keep your gains, ask yourself why you entered into a crypto trade/investment and what you define as an exit point. The answer you give to this question should be a deciding factor as to when to keep your gains.
Learn to have a diversified portfolio
A rule of thumb for every crypto investor should be to never put all your investments into one crypto asset. The principle of diversity in crypto investments is to lessen the losses you would incur in the event of a market fall.
If you are currently investing in NFTs and cryptocurrencies, for instance, you would be able to benefit from the profits generated from your NFTs should the crypto market begin to decline.
These are the benefits you stand to gain when you spread the wings of your portfolio to include a very wide range of assets.
Understand Dollar-Cost Averaging
The principle of “Dollar Cost Averaging” simply means that investors should invest a certain amount of funds in the crypto market regularly rather than all at once.
What this means, in essence, is that you are trying to adjust to the market fluctuations by buying when it is bearish and selling when it is bullish.
One other important aspect of the “Dollar Cost Averaging” is that it helps to keep your emotions in check, especially when you consider the fact that the crypto market tends to bring lots of emotions ranging from fear to hope and even excitement at different points in time.
The “Dollar Cost Averaging” will enable you to see beyond all of these and, in the process, will enable you to make the best crypto investment decisions.