Cryptocurrencies draw the interest of many people, especially novice retail traders and investors, because of the stories they hear about the massive gains one can make in the crypto market. However, the flip side is often left ignored, and the reality is that investing in cryptocurrencies can also make you lose money, much more than traditional markets.
Tips for the novice crypto investors
As a novice crypto investor, you should know the basics of investing in the crypto market to establish expectations and avoid disappointments. We have gathered for you the best advice, tips, recommendations, and everything you need to know about the crypto market from years of experience being in this market.
First of all, the crypto market is still in its infancy and is subject to massive price volatility. If you cannot stomach it, it is simply not for you. If you are just starting to look at cryptocurrencies as a safe investment asset, you should know the main basics about this market:
- The price of most cryptocurrencies mainly depends on the demand for bitcoin due to its dominant position in the market.
- Investing in cryptocurrencies comes with a high risk that an investor should consider. Exchange rates on exchanges fluctuate from hundredths to hundreds of percent over several month.
- To invest in crypto you need an investment plan. You need to clearly understand how quickly you want to make a profit, how much you are willing to invest, and what asset to use.
- The crypto market is unregulated and can be manipulated by the big players. It also has no shortage of scammers and crypto scams, so you should conduct your due diligence before investing in a specific crypto project.
Here is what we would also advise if you have crypto investments:
- Don’t take the price predications of influencers too seriously; they are often more wrong.
- The market is a complicated beast; no one can tell you how it will behave.
- It is essential to stay in the market rather than timing the market. The market doesn’t wait for those who are late to the party. If you miss it, wait for a correction.
- Don’t invest during greed; if anything, you should be taking profits during the good times and adding stacks during fear and anxiety.
- Don’t add your eggs to one basket. You should invest in multiple markets and multiple assets within each market.
- If you are a crypto trader, think about the risk before the reward. Have a risk management plan and execute without hesitation, and accept losses as much as gains by closing position at a loss.
- Have a plan, and don’t go all in. This strategy is risky in crypto. It is better to dollar-cost average every week or month, especially during downtrends.
- The good news in a bear market is short-lived, and in a bull market is long-lived.
- Research the projects that interest you and act with convictions.
- Invest in education. Learn about technical and macro analysis, investment strategies, and trading psychology.
- Patience and discipline are your best friends. Don’t FOMO in and wait for a correction; it will eventually come.
- Don’t invest more than what you could afford to lose.
- Small-cap coins are a lot riskier than large caps. Expect an 80% drop during major correction or bear market territories.
- Understand that investing in projects with good fundamentals over the long term is the best investing strategy despite market volatility and unrealized losses incurred in the short term.
Fundamental analysis guide
The fundamental analysis method is used most often to assess the state of a particular cryptocurrency project by checking its:
- Whitepaper e.g. roadmap, token economics, and team members
- Partners and Backers e.g. VCs
- Development prospects and development activity e.g. Github.
- Use case and userbase e.g. wallet addresses.
- Media and Social media presence.
Be careful of false information spread online by bots or advertisers. Stay away from projects that focus on marketing and promise high returns. They are often just pyramid schemes and exist for a short time, bringing profit only to their owners.
Where to buy cryptocurrency
There are many ways to buy cryptocurrency. The first thing you need to do is convert your fiat currency to cryptocurrency. After that, you can hold the cryptocurrency, trade it, exchange it for other cryptocurrencies, or stake it to earn. Let’s take a closer look at the types of cryptocurrency exchanges.
Centralized exchanges (CEX)
The concept of a centralized exchange may confuse you with its name since cryptocurrencies are often described as decentralized. In a nutshell, centralized exchanges are online platforms with a central command, authority, or leadership that facilitates trading by connecting buyers and sellers. Examples of centralized exchanges include Binance, Kucoin, and Coinbase, among many others.
Decentralized exchanges (DEX)
Decentralized exchanges (DEXs) are built differently. Working on the DEX does not involve any intermediaries. A more accurate name for this type of exchange is a non-custodial exchange. Trading on the DEX is carried out as follows. Instead of depositing funds to a wallet on a centralized exchange, you trade directly by connecting your own wallet to a decentralized exchange such as Uniswap.
Since there is no intermediary on DEX to store your funds, some users consider this option to be more secure than CEX. Another advantage of this kind of platform is that most decentralized exchanges do not require you to provide any personal information other than a wallet address. On the other hand, keeping funds requires certain knowledge and skills from you – after all, only you are responsible for your savings.
For more information read:
- Difference between decentralized and decentralised exchanges
- Type of crypto wallets
- How to buy bitcoin
A peer-to-peer (P2P) exchange is fundamentally different from CEX and DEX. In this case, the exchange itself does not participate in the transaction process but is only a connecting component between the buyer and the seller. They, in turn, can carry out the transaction in any way at their discretion. Thus, the method of payment and the deposit are determined by buyers and sellers independently for each transaction.
Before investing in the crypto market, it is essential to conduct due diligence on each cryptocurrency as they are unregulated assets with volatile prices. Many people have achieved significant success by investing in cryptocurrencies. However, you can also lose everything when trading these assets if you don’t know what you are doing.