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5 steps for investing in cryptocurrency


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First of all, if you want to invest in cryptocurrencies, you need to get all your finances in order. This means having an emergency fund, a manageable level of debt and ideally a diversified portfolio of investments. Your crypto investments will be another part of your portfolio that will hopefully help increase your overall income. When you start investing in cryptocurrencies, pay attention to these five other things.

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1. Understand what you’re investing in

5 steps for investing in cryptocurrency

As with any investment, understand what you are investing in. When you buy stocks, it is important to read the prospectus and analyze the companies carefully. Plan to do the same with every cryptocurrency, because there are thousands of them, they all behave differently, and new ones are created every day. You need to understand the investment case for each trade.

In the case of many cryptocurrencies, they are not backed by fixed assets or cash flow. This is the case with Bitcoin, for example, where investors only trust someone who will pay more for the asset than they paid for it. In other words, unlike stocks, where a company can maximize its profits and manage returns for you in this way, many cryptoassets rely on the market to be bullish and bullish for you to make money.


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Some of the most popular coins are Ethereum, Dogecoin, Cardano and XRP. Solana is also a very cool coin. So before you invest, understand the potential pros and cons. If your financial investment is not backed by an asset or cash flow, it will be worthless.

2. Remember that the past is gone

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A mistake many new investors make is to look at the past and extrapolate it into the future. Yes, Bitcoin used to be worth pennies, but now it’s worth even more. But the key question is: “Will this growth continue in the future, even if not at such a meteoric pace?”

Investors look to the future, not what an asset has done in the past. What will drive future returns? Traders who buy cryptocurrency today need tomorrow’s profit, not yesterday’s.

3. Observe volatility

Cryptocurrency prices are almost as easy as acquiring the asset. They can fall instantly in seconds with nothing more than a rumor that ends up being unfounded. This can be great for sophisticated investors who can trade quickly or have a good understanding of market fundamentals, how the market is evolving and where it is headed. For new investors who don’t have these skills — or the high-powered algorithms that drive these trades — it’s a minefield.

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Volatility is a game for high-powered Wall Street traders, each trying to outperform other deep-pocketed investors. A new investor can easily be crushed by volatility.

This is because volatility shakes traders, especially beginners, in fear. Meanwhile, other traders can come in and buy cheaply. In short, volatility helps sophisticated traders “buy low and sell high” while inexperienced investors “buy high and sell low”.

4. Manage your risk

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When you trade an asset in the short term, you need to manage your risk, and this can be especially true with volatile assets like cryptocurrency. So as a new trader, you need to understand how to best manage your risks and create a process to help you minimize your losses. And this process can vary from individual to individual:

Risk management for the long-term investor can never sell, regardless of price. Long-term thinking allows an investor to hold onto a position. However, risk management for a short-term trader can set strict rules on when to sell, such as when an investment drops 10 percent. The trader follows the rule immediately so that a relatively small reduction does not turn into a crushing loss later.

You can still be a crypto millionaire

New traders should consider setting aside a certain amount of money to trade and then only use a portion of it, at least initially. If the position goes against them, they still have money in reserve that they can sell later. The last point is that you can’t sell if you don’t have money. So keeping some cash in reserve means you always have the bankroll to fund your trade. Risk management is important, but it is worth the emotional cost. Selling a losing position hurts, but it can help you avoid worse losses later.

5. Don’t invest more than you can afford to lose

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Finally, it is important to avoid putting the money you need into speculative assets. If you can’t afford to lose it all, you can’t afford to put it into risky assets like cryptocurrency or other market assets like stocks or ETFs.

Whether it’s a down payment on a house or an important future purchase, the money you need in the years to come should be kept in secure accounts so it’s available when you need it. And if you’re looking for a certain return, your best option is to pay off the loan. You are guaranteed to earn (or save) any interest you pay on the loan. You won’t get lost there.

Get started with Bitcoin and cryptocurrencies

And finally, don’t forget the security of any exchange or broker you use. You can legally own property, but someone has to secure it and its security has to be tight. If they don’t think their cryptocurrency is well secured, some traders choose to invest in a cryptocurrency wallet to keep their coins offline so hackers and others can’t access them.


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