6 rules for investing in cryptocurrencies

In the last decade, the financial world has witnessed an unprecedented revolution: the emergence and rapid proliferation of cryptocurrencies. These decentralized digital currencies have captured the attention of investors and enthusiasts alike, promising both substantial profit opportunities and unique challenges. In this article, we will explore six fundamental rules that any cryptocurrency investor should consider before diving into this ever-evolving world.

1. Never invest more than you can afford to lose

Any successful and reasonable investor will tell you to only invest in what you can afford to lose. This applies to all markets, and even more so to cryptocurrencies, which can suffer double-digit drops in a matter of hours. Today's investing world has its fair share of reckless investors, throwing away their life savings on a handful of stocks, but that's a sure path to perdition. The cryptocurrency market has seen unprecedented growth and falls of equal magnitude. It is still a nascent market, without regulatory controls or technical barriers in the early phases. This can lead to some unfortunate situations, such as hacks, fraud, and a flurry of sales orders that might seem like a whim. Therefore, investors should take a small portion of their capital and allocate it to a few select cryptocurrencies.

2. Make average purchases (DCA)

The principle of dollar cost averaging (DCA) largely applies to the cryptocurrency market. DCA is used to beat volatility, which is one of the main characteristics of the market. By investing small amounts over time, you can contain losses and make more efficient use of your capital. It's worth noting that when using this method you will pay a little more in network fees, but the profits you make should make this negligible. You can do it weekly or monthly, the details are up to you. If you feel particularly positive about where the market is heading, then you can set aside some extra capital for when the market appears to be at lows.

3. Research in detail, stick to the basics

Research remains important in the crypto market. Although it is not as clear and direct as investing in a publicly traded company, it still plays an important role in the investment process. The process of researching cryptocurrencies for investing could be an entire topic in itself, but here, it is outside the scope of discussion. Some of the principles that will guide your research are whether the project and cryptocurrency in question have a valuable and unique use case, the technical elements of the project, the management team, and the potential to disrupt the particular industry or space. which you are working on.

4. Stick to core assets

Of course, for many, the comparatively complicated and novel way of researching cryptocurrencies can be intimidating. For these people, it may be best to stick to top assets that have survived the test of time. Bitcoin and Ethereum are the best examples of these assets and have endured many difficult bear markets. There are many others too, although it is much harder to say whether those other big assets with large market caps have the potential to survive in the future. This also applies to Bitcoin and Ethereum, although the consensus is that these two have already proven themselves worth considering.

5. Use secure storage wallets

Apart from the investment itself, one of the main requirements when entering the cryptocurrency market is storage. It is not uncommon to hear of investors losing access to their exchange accounts or, in the worst case, losing their funds entirely due to a hack or security incident. Storing your cryptocurrencies securely is vitally important, and the responsibility falls on you. Therefore, serious investors should consider what is called a hardware wallet. These are wallets that have additional security features to ensure that your funds cannot be stolen. Investors should not hold their cryptocurrencies on exchanges or software wallets, at least for any appreciable amount of crypto.

6. Use common sense

Above all, investing in the cryptocurrency market requires common sense. It's easy to get caught up in the hype and commotion surrounding a new project, but more often than not this leads to big losses. It's even easier to get involved in a meme token that rises sharply just from the mobilization of individuals online, like Dogecoin, but this is a double-edged sword, with one side much sharper than the other. As with the stock market, you have to diversify. There are several projects working on some key issues and use cases, and these have the potential to cause some major disruption. It is not guaranteed, but as with the different sectors of the stock market, you can distribute your capital between these projects.