The cryptocurrency market is drawing an awful lot of attention around the globe. As it is open and accessible to millions of people, it provides numerous opportunities to invest and make money, all from the comfort of your own home.
Better still, for many people, all you need to achieve this is a mobile phone.
If you’re thinking about investing in cryptocurrency, this guide is for you. Below, we’ll look at four things that you should know about before you begin making investments.
1. The market is volatile
The cryptocurrency market is one of the most volatile, and that’s the case for several reasons.
Firstly, it’s a new and emerging market, with limited historical data to inform predictions about future performance.
Additionally, the market is largely driven by speculation, with individual investors and traders buying and selling based on what they perceive to be valuable. This can lead to sudden shifts in demand and prices. For example, Elon Musk famously took to Twitter to denounce Bitcoin for its environmental impact, which caused the price to crash.
Part of the reason that the market is so susceptible is that it’s not regulated in the same way as traditional financial markets. It’s decentralized, meaning it effectively regulates itself.
Part of the issue of running an online cryptocurrency exchange is that it can suffer hacks and other security breaches, which can also contribute to volatility in the market.
One way to address market volatility is to do some research on the best crypto South Africa currently has available. You may find some investment suggestions that are more stable. We’ll go into more detail on researching cryptocurrencies below.
2. Try to build a diverse portfolio
Creating a diverse cryptocurrency portfolio can help reduce the risk and increase the chances of achieving a positive return on investment.
By spreading investments across multiple cryptocurrencies, you reduce the risk of losing money if one coin performs poorly. For instance, if you invested all your money in Ethereum and its value suddenly dropped, you would lose a significant amount of money, especially if it didn’t recover.
However, if you had diversified your portfolio by investing in multiple coins, the impact of that poor performance would be lessened by the performance of other coins.
Additionally, diversifying your portfolio can also help you take advantage of the growth potential of different cryptocurrencies. Different coins have different characteristics, use cases and target different markets. By diversifying your portfolio, you can invest in coins that have different growth prospects.
In short, a diversified portfolio can help you manage risk and maximize returns.
3. Do research
Before investing your money, you need to be sure you’re going to get a return, or at least have a good chance of getting a return.
Here are some steps you can take when researching a cryptocurrency:
- Understand the technology behind the coin – Before investing in a cryptocurrency, it’s important to understand the underlying technology and how it works. This will help you evaluate the coin’s potential for long-term success.
- Look into the team behind the project – The team behind a cryptocurrency project can be a good indicator of its potential success. Look at their backgrounds, experience and track record to get an idea of their capabilities. They may not be committed to the project.
- Check the coin’s adoption and usage – Look at how widely the coin is used and how it is being adopted. A cryptocurrency with a large and active community is more likely to be successful in the long run.
- Check the coin’s performance and volatility – Look at the coin’s historical performance and volatility. This will give you an idea of the coin’s stability and potential for growth.
It’s important to note that research should be ongoing. Keep track of news, updates and changes related to your coins.
4. Plan for the long term
While cryptocurrency trading can, in some cases, yield profits quite quickly, in the majority of cases, it can take a long time to see returns on your investment.
So, it’s wise to prepare a long-term strategy. In framing your mind this way, you avoid the risk of falling victim to shortcut-promising scams, such as rogue investment tips, courses or pump and dump schemes.
Many top investors recommend focusing on coins that have a purpose and solve a problem. They’ll be in it for the long haul. Also, look for coins with big communities around them. That’s a good sign they’ll be around for a while.