How not to lose your money when entering a crypto market
Crypto trading is on the rise, no one can deny that. There are much more investors on the market than it has ever been. Hence, it is not surprising that many new crypto products appear in the industry, making it even more difficult to decide when to invest, what to invest in and when to release your holdings. However, we are not here to give you advice on which cryptocurrency you should favor or which crypto trading strategy to choose. Instead, we will be focusing on the technicalities of safely trading on the market. It means that we are going to cover the importance of conflict of interest while trading, the amount of starting capital the traders are recommended to invest, how to purchase the cryptos and safely store them, etc.
What to avoid?
First of all, avoid all loans! The idea of using loans that allow you to purchase crypto-related assets is evidently a bad option, as you could ruin everything because of your own errors. If you’re looking to boost your adrenaline, you could test a moderately conservative leverage investing strategy by investing a small part of your portfolio by using margin trades in exchange, meaning you’ll lose only the collateral you hold.
Do not invest everything you have in a single asset. The idea of investing all your savings into crypto assets in a single day is not a smart option unless you’re relatively young, your earnings are growing quickly and you’re fascinated by cryptos, while the market itself is overvalued on a major upward trend.
Beware of CoI (Conflict of Interest) while consuming cryptocurrency-related content because, in the unregulated market, individuals typically don’t provide full disclosure. There’s nothing wrong with making money from educational content by advertising things that are valuable to the viewers, however, certain people encourage their followers to day trade actively with the understanding that the vast majority of novices are losing money in a zero-sum betting game. Others advocate Ponzi schemes and earn a profit and lose their followers their money. Always consider why the person who is promoting this particular coin or platform?
What to keep in mind?
Plan your entrance strategy carefully. Even though the recommendation will differ for crypto day trading strategies and for long-term investment strategies, the Dollar-cost average (DCA) can be the most secure way for newbies to begin investing in crypto. It’s extremely profitable in the bull market however it’s not the best method for investors with experience.
The concept behind DCA is to break down an entire amount into smaller pieces and to invest in fixed amounts every week (or each month) over a prolonged duration (e.g. 6- 12 months) to limit the risk that is associated with volatility as well as rookie mistakes, such as sending cryptocurrency to an incorrect address. With DCA you’ll sleep better and will not have to keep track of prices on a regular basis.
Remember that the strategy of dollar-cost averaging works best for coins with relatively low transaction costs, otherwise your profits will be wiped out by excessive costs. In the last two years, all cryptocurrencies had minimal transaction fees, but this could change if the crypto-mania comes back in the near future, as solid scaling solutions for scaling are in development on several chains. We’ve had massive network congestion before.
Another aspect to consider is the timing. The timing isn’t important in investing using the DCA strategy. However, should you wish to enhance the effectiveness of the strategy you can purchase every downturn in an upward trend? This is very popular among crypto traders who are experienced.
It is easy to spot these adjustments as the majority of coins go red on graphs within a short time period and remain green on graphs for 30 days. The buying opportunity at this time can be very profitable, in the event of an inverse trend.
How do you store your cryptos?
The initial step for every cryptocurrency investor is to buy a physical wallet, as it’s the safest method to store cryptocurrency at the moment. The delivery time could be a couple of weeks, so you should make sure you purchase it prior to being prepared to purchase any cryptocurrency. So you’ll be prepared for the next dip in the market.
But a physical wallet is not a 100% secure solution because you could lose it, as well as the recovering seed. Hackers may discover critical flaws and steal your funds without physical contact with the device. On the other hand, Custodial exchanges store all your cryptocurrency assets (private keys) for you, and transactions are conducted off-chain. This is why the majority of hardcore crypto enthusiasts do not trust custodial services.
Storing large sums of money on exchanges is considered to be a “red flag” except if you’re trading on a daily basis, however, keeping a part in your account on central exchanges could offer you certain advantages like the capacity to:
- Convert certain crypto assets to stablecoins if the market is overpriced.
- You can buy a lot of altcoins during an upswing in the market
- It is easy to exchange crypto assets in the midst of network congestion
- Balance your portfolio and avoid additional fees
- You can access funds even if don’t have a physical wallet in your pocket
- Create 2FA and whitelisted addresses, and withdrawal addresses.
- Use APIs
Furthermore, if you spread your crypto portfolio across different wallets that are non-custodial as well as custodial it will lessen the risk of losing everything due to a single failure point.
There are many alternative options for storing cryptocurrencies however for the majority of users, a physical wallet, a custodial account as well as an online wallet provide enough flexibility and diversification. But, if you want to make use of cryptos as a payment method, it is recommended to purchase an electronic wallet for your device as it can provide a better user experience.
Be wary of the in-browser Ethereum wallets, as any site can tell you’re an Ethereum user, and may even look up your balance after you open your wallet.