How can I start Investing in Cryptocurrencies?

Cryptocurrencies outperformed virtually every other asset class in 2021, prompting many investors to ask whether they should include Bitcoin, Ethereum, or other cryptocurrency assets in their portfolios.

Let’s start by saying that there is a considerable difference between cryptocurrencies and regular money. One of the most significant differences between cryptocurrencies and regular money is that any government or central bank cannot influence cryptocurrencies’ supply. While deflation tends to make an asset more valuable (the opposite of inflation), it makes people reluctant to spend it because they expect its price to go up further.

9 steps for investing in cryptocurrency

1. Understand what you’re investing in

Cryptocurrencies are just one of the hundreds competing for digital currencies, and they’re all powered by a technology called a blockchain. The basics of blockchain involve a secure database where transactions can be recorded without going through an intermediary such as a bank or other centralized institution.

2. Determine your investment goals

Anyone considering investing in cryptocurrency should take the time to answer some basic questions about their financial circumstances and personal goals: How much money do you have to invest? Is this money for short-term expenses, long-term needs, or an emergency fund? Do you plan on buying more cryptocurrency in the future? When will you need this money? Once these issues are addressed satisfactorily, it’s time to proceed with investing.

3. Create a budget

If you’re going to invest in cryptocurrency, it’s necessary to plan for the possibility of losing your investment. That means setting aside a small amount of money from each paycheck specifically for investing. You’ll also want to track any losses and gains on the currency market as they happen. Some people make their informal budgets by keeping records of all their cryptocurrency transactions on paper or an Excel spreadsheet. This will help you see how much your portfolio is worth at any given time and track your gains and losses over time.

4. Start slowly and use dollar-cost averaging

While it may be tempting to pour all of your savings into cryptocurrencies and hope that they increase massively in value overnight, this strategy can backfire disastrously if some correction is on the cards.

5. Go by the basics

Instead of putting all your money into a single cryptocurrency, it’s more prudent to split your investment between two or three currencies. Dollar-cost averaging involves buying a set number of dollars worth of cryptocurrency at regular intervals over a long period. The goal with dollar-cost averaging is to ride out market fluctuations without getting burned.

6. Watch that volatility

It would help if you also considered that cryptocurrency is a notoriously volatile market compared to the stock market or even gold. The fluctuations can be quite dramatic at times.

7. Manage your risk

As with any investment, there are ways to manage your risk. It’s important not to put too much money into cryptocurrency at once because if one of your investments tanks, it will take down all your other ones with it. You should also avoid buying currencies that have recently increased drastically. It could be that they’re due for a correction, but it could also be that the currency was pumped artificially to cause an early spike.

8. Study your investment

There are plenty of websites with information on cryptocurrency available through simple internet searches. It’s crucial to stay up-to-date with market conditions and avoid putting all your money at risk by investing in currencies that are likely to plummet soon.

9. Be able to walk away

Finally, it’s worth remembering that cryptocurrency is not an investment; it’s an investment commodity like gold is. It may go up or down in value, but it doesn’t give you any income unless you sell at a later date. Risk is always involved, so make sure you know exactly how much money you can afford to lose before buying your first crypto coins. If their value goes down, recognize that fact and decide whether or not the risk is worth the possible reward before investing more. The same should be accurate if their value spikes up. Don’t invest more than you can afford to lose, no matter how good the deal.

Conclusion:

As you can see, starting cryptocurrency investing isn’t as complicated as many people think it is. Once you’ve made up your mind about the long-term plan for your money and set aside some of every paycheck to invest, the next step is to research how to make those investments. The steps outlined here should help get you started on that process.

Remember that this article is NOT investment advice, but just a guide that will hopefully shed some light on newbie investors of cryptocurrencies. All users should do their due diligence before making any investment decisions.

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