Crypto investment is firmly on the radar for many these days. And why not? Crypto assets have been delivering healthy returns for years, with Bitcoin even crossing the coveted $100,000 price point in 2024.
But if you’re going to invest in crypto, you’ll need to know some core rules and strategies.
Some of these are broadly applicable to any form of investment in assets and some are specific to the crypto space. Either way, they should be kept at the forefront of your mind and guide your crypto investment activities.
- Decide on Your Risk Level
Crypto investments, like all investments, come with a certain level of risk and before you do anything, you need to decide how much of this risk you are willing to take. Knowing whether you are a high-risk taker or more risk-averse will help to inform the types of assets you buy. For example, high-risk high-reward tokens are plentiful in the market and many crypto investors flock to them.
As Valerie Reilly says, a high risk reward crypto can make investors a ton of profit, which is why many flock to them. At the same time, they can end up losing a lot of money, and this is something to be aware of.
- Diversify
One of the golden rules of all advertising is that you should always spread your risk around. No matter how solid a specific crypto seems, it shouldn’t be the only one you put your money into. If it is, a dip in market performance will see all your investment down the drain. Instead, you should strive for a mix of big legacy cryptos like Bitcoin, as well as smaller and newer cryptos. That way, if one is doing poorly, the other might be doing better and your investment is safe. The exact distribution of your portfolio is up to you but diversity should be the name of the game.
- HODL
An acronym for ‘Hold On For Dear Life’, HODLing sees crypto investors hold on to specific tokens for a long time, even years, waiting for them to hit certain market highs. This is not for everyone but if done for the right token, can be very beneficial. There are, for example, people who have been HODLing tokens like Bitcoin for years and with the new $100,000 price high, can make profits of tens of thousands of dollars. If you choose to try HODLing, you’ll have to find high-potential tokens and decide how long you are willing to wait out the market.
- DCA
An acronym for Dollar-Cost Averaging, this strategy involves dividing your total intended investment amount and investing these smaller amounts periodically. Let’s say you want to put $1,000 into the crypto market in a year. DCA could see you dividing it into 52 weeks for each week of the year and investing $19.23 into the crypto market every week. This allows you to buy into the market at a comfortable pace and creates consistency in your investment efforts. This strategy is especially useful for newer traders or those on a tight budget.
- Buy the Dip
The crypto market sees periods of downturn, and while it can be discouraging to some investors, others see it as an opportunity to buy the dip. Buying the dip, in this case, means that you buy crypto tokens when they are at a lower price, hoping for them to spike later. This is especially useful for tokens that have proven themselves in the market and always see a recovery. For example, some investors are waiting for the next crypto winter to buy Bitcoin as it will likely see a recovery later on. You might also want to take on this strategy.
- Research
Knowledge is power and this is especially true when investing in the crypto market. To make the best possible decisions, make sure you educate yourself about blockchain and the different assets in the market. Read articles that break down the terms used in blockchain so that you know what they mean and their relevance. Subscribe to crypto-focused media so you always know about the latest developments, including new tokens, new laws, scams, and so on. Listen to podcasts, follow crypto enthusiasts online, and join communities of fellow investors. This will make you a better investor and one who knows how to harness the market.
- Practice Wallet Safety
As you invest in your assets, the last thing you’ll want is to lose them to hackers or accidentally lock them in a wallet forever. This is why you need to practice good crypto wallet security to protect your money and your data. First, do not fall into the habit of using a crypto exchange as your defacto wallet as your access to your tokens is not guaranteed. Ideally, use a hardware wallet and keep your password and recovery phrase as safe as possible. If managing your own wallet is a hassle, you could look into crypto custody solutions and have professionals handle it for you.
- Invest What You Can Lose
This is perhaps the most important thing to keep in mind when investing in crypto. No matter how promising or profitable a crypto asset seems, there is a risk attached to investing in it. The risk is that the investment could crash to zero and all of your money will be gone. This is why, before buying into an asset, decide how much money you can comfortably lose and don’t invest any more than that. It goes without saying but your life savings, your money for bills, and other essential funds should not be used for this purpose.
Conclusion
Investing in crypto can sometimes seem like the Wild West, but it doesn’t have to be so. There are several principles, as outlined in this article, that can be applied to your crypto investment, no matter how far along you are. These will help you manage risk, maximize profit, and stay safe while doing so.