As cryptocurrencies like BTC, ETH, ADA, and thousands of alt-coins became among the best-performing assets in 2021, more and more investors eagerly jumped into the crypto market to try and capture the growth of digital investments.
However, if you’re interested in becoming a crypto investor and putting some money into it, you should know that cryptocurrencies are risk assets by nature and prone to wild price swings. This is perhaps the riskiest factor that all prospective crypto investors need to consider if they want to be profitable investing in these emerging assets that currently have a total market value of around $2 trillion.
Nevertheless, if you’re on the verge of depositing your money in some of the certified crypto markets, but you feel like you might not be ready for the challenge, don’t be afraid because investing in digital assets like crypto tokens is not all that different than investing in standards assets like bonds and stocks.
Here are the four fundamental crypto investing tips to keep in mind while managing your digital portfolio to make things easier for you.
Always Prioritize Liquidity
To begin with, liquidity is perhaps the most important metric when deciding how to start investing in the crypto market. As a matter of fact, the crypto market actually moves so fast that crypto investors and traders need to move in and out of positions quickly.
This means that there has to be demand for cryptocurrencies, so that market participants can purchase at the best price available so that when they decide to sell part of their holdings, they can secure a profit.
In that context, you shouldn’t buy a currency that perhaps has great potential, but it’s not being traded, and it’s stagnating, so you find yourself in the position where you’re sitting on it and at the mercy of the market.
So, when measuring liquidity, it’s always helpful to look at the recent trading volume of a crypto asset. The currency’s trading volume indicates how much cryptocurrency has been recently bought and sold, indicating the asset’s overall interest.
Harness The Market’s Volatility
Because cryptocurrencies are emerging assets, there’s still a lot of speculation and hype going on surrounding the tokens, which can often lead to heightened volatility. However, while extreme price movements are usually seen as a risk, daily volatility is pretty common with crypto, is healthy for the crypto market, and is an opportunity to make big profits. Put differently, the volatility that characterizes the entire crypto market is, in fact, very good for savvy investors and traders.
And to manage this volatility risk effectively, you should develop your investment strategy according to the type of trader you are so that you can manage the crypto market’s price swings. This also means following all relevant news and blockchain updates and historical charts so that you can discern emerging patterns.
Invest Only What You Can Truly Afford
As you already know, cryptocurrencies are speculative assets that could entail a high degree of loss. Consequently, and in the same manner as with traditional investing, always invest in the crypto market only what you can truly afford to lose. Because if you’re not able to withstand the potential complete loss of your investment, that might be a good indicator that you can’t afford the risk of investing the amount you’re considering.
Determining risk tolerance in the crypto market always comes down to how much you earn and your expertise level. For example, someone new to crypto should allocate less of their investable income to the asset class than a committed crypto expert or a DeFi expert.
Dollar-Cost Average (DCA)
Dollar-cost averaging, or DCA, is the best crypto investing strategy that implies investing a certain amount of money continuously rather than putting your money all at once. This way, you’ll be able to weather sudden market swings in the same way that regularly taking gains smooths out pricing risks.
By implementing the DCA strategy, as an investor, you’re investing a set amount of money during bull and bear market runs. Buying when the market is down permits investors to purchase crypto assets cheaply and then sell them for a profit in the long run.
While cryptocurrencies are a relatively new asset class than brings a lot of excitement among investors, using DCA is what can keep the hype in check. It also removes any emotion from your new positions in the market and can help you ignore the short term for more prolonged positions by buying your tokens over an extended period.
Final Thoughts
Recently, crypto hit a new level of popularity and it probably isn’t going away anytime soon. In that regard, cryptocurrencies can turn out to be a fantastic investment for you if you follow the investment tips and strategies mentioned in this article.
