2021 has been a great year for cryptocurrencies and crypto investors alike. With the total value of cryptocurrencies surpassing $2.5 trillion earlier this year in May, the asset class has emerged as one that provides investors with an opportunity to earn life-changing returns.
The prospect of earning great returns in a short period has attracted many investors to the crypto space, with estimates suggesting that the number of crypto investors is increasing worldwide. For instance, according to Gemini’s ‘The State of U.S. Crypto Report’, 14% of all American adults now own crypto, and this number is increasing gradually.
While the crypto market offers a great opportunity for investors, it can be a complicated experience for beginners, especially if they’re not aware of what they’re doing.
This article talks about how you can invest in crypto in 2021, the principles of crypto investing, and the steps to help you get started.
Let’s dive in!
Investing Principles You Should Never Forget
As for any investment class, investing in crypto also has principles that most experienced investors abide by. As a beginner, you must remember and follow the principles mentioned below at all times:
Invest Only What You Can Afford To Lose
A very common mistake made by beginners in crypto is that they forget about their risk appetite and go overboard investing in crypto. While crypto offers a great prospect to earn tremendous wealth, the other side of crypto, where things don’t go according to plan, can have a crippling outcome on your finances.
Most experienced investors understand that there is always an element of risk involved in an investment, but especially in crypto, an asset class with the highest degree of risk. Thus, as an Investor, you should never forget about your risk appetite and only invest what you can afford to lose. This will allow you to control your emotions at all times and thus, save you from making sub-optimal decisions at any stage of your investment journey.
Approaching crypto carefully is crucial, and thus, as a beginner, you should start small and build your portfolio over time. One of the best parts about crypto is that you can start with any amount you have. You don’t need to buy 1 BTC or 1 unit of your favourite crypto. You can get started with whatever you have right now. What’s more important than buying a lot initially is just to get started and keep buying regularly.
For beginners, starting a Systematic Investment Plan or SIP is perhaps the best investment strategy that allows them to invest in a disciplined manner. Here, an investor invests a fixed amount of funds at regular intervals.
Align Your Investments With Your Interests And Values
There is no shortage of options in terms of which asset class to choose when it comes to investing. I believe there is something for everyone, and it’s vital that you find the asset class that you truly believe in. For instance, some people have generated great returns by investing in the stock market. In contrast, some still believe investing in stocks is equivalent to gambling and stick to more traditional assets like real estate. There is no right or wrong here, and everyone is right according to their principles. Thus, you should only invest in crypto if it aligns with your interests, values, and beliefs.
Follow A Focused Investment Strategy
Diversification is key, but too much diversification can make your crypto gains seem insignificant. As an investor, you should follow a focused investment strategy that allows you to invest the core of your portfolio in a few handpicked assets followed by smaller satellite investments in other assets. This investment strategy is also known as the Core-Satellite investment strategy.
For instance, your crypto portfolio can look something like this:
- The Core – Proven and more stable projects such as Bitcoin and Ethereum.
- Satellites – Smaller projects that have great future potentials such as Terra and Solana.
How To Analyse A Project
The following points will help you evaluate whether a cryptocurrency is worth investing in. But, more importantly, these pointers will help you avoid getting rekt in crypto.
Read The Project’s Whitepaper
Once you’ve figured out a few good projects that you like, it’s vital that you go through their whitepapers. In crypto, whitepapers are like The Bible of a project, and going through one will benefit you greatly in the following ways:
- As an investor, you will learn everything there is to know about the project and how it aims to bring value to the ecosystem.
- A whitepaper that is not written well and does not really convey what the project stands for, is a signal that the project is not worth investing in.
Analyze The Project’s Value Proposition
It’s vital to check if a project brings any genuine utility to the ecosystem it will become a part of. Analyzing the project’s value proposition will help you understand how the project aims to benefit its users. As a potential investor, the more specific a value proposition is, the better it allows you to narrow down on why you’re investing in the project.
Focus On The Tokenomics
Tokenomics is a term that points to the economics of a crypto token and talks about all the qualities of crypto that make it attractive for investors. Understanding tokenomics is equivalent to understanding the true value of a cryptocurrency, and as an investor, it should be your goal.
In general, the tokens of a project are thoroughly explained in the project’s whitepaper. When analyzing the tokenomics, you should consider the following factors:
- The token allocation and initial distribution
- Token vesting period
- The supply of the token
- Market cap
- The token model
Steps To Start Investing In Crypto
Here are some steps that will help you start investing in crypto:
Select An Exchange
Crypto exchanges are platforms that allow investors to buy and sell crypto. However, due to the lack of crypto regulations, there is no fixed way of trading in crypto. Thus, it’s essential to do your research and find the best exchange according to your needs. Most importantly, you must choose an exchange that is safe to use and has the coins you want to buy.
For instance, if you are a trader, you should look for an exchange that charges low fees and allows instant withdrawals. Whereas, if you plan to HODL your crypto in cold wallets, you should look for exchanges that will allow you to take the coins off the exchange for a low fee.
Open A Trading Account
Once you’ve chosen a crypto exchange, it’s time to open a trading account with them. In general, most exchanges require sharing KYC (Know Your Customer) data and the setting up of payment options.
Fund Your Account
After opening an account, it’s time to fund an account by transferring some money into the trading account after opening it. Most exchanges allow the transfer of funds online from your bank account instantly, and you can begin trading. However, certain exchanges have the policy to keep a waiting period before allowing users to start purchasing crypto.
Buy The Crypto Of Your Choice
It’s finally time to buy your favourite crypto. You will first have to check if the crypto of your choice is available in the trading pair you currently hold your funds in. For example, a coin might only be available to be traded if you hold USDT and not your native currency. In such a case, you will first have to buy USDT using your currency.
Store Your Crypto
After you buy your favourite crypto, it’s essential to store it safely. You can either decide to hold your crypto on the exchange or go for a hot or cold wallet option. Many people are skeptical about exchanges and prefer storing their crypto off the exchange in different crypto wallets.
In Conclusion…
- In investing, education and knowledge are key. This is especially true for crypto since it’s a relatively new asset class, and a lot is going on in the industry every day. Thus, educate yourself and take the first steps.
- Our guide with the basics of investing in crypto will help you get started towards building a solid crypto portfolio.
So, what has been your experience like investing in crypto? Have you made your first crypto investment yet?
Comment below and let us know more!
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