Investing in cryptocurrency: the keys to making wise investment decisions

With the mainstream coverage of cryptocurrency over the past few months, it’s safe to say there are many newcomers into the crypto space. With easy to use exchanges such as Coinbase, it’s never been easier to buy a whole or fraction of a Bitcoin and hope for the future.

With the influx of new investors, I thought it’d be good to quickly educate (or a friendly reminder) on investing wisely:

First — Funds for Investment

1. One of the biggest questions that most new investors ask is, “How much money do I need to get started?” It’s pretty simple actually. The amount of money you need to invest in really depends on how pricey the cost per coin is for the cryptocurrency or currencies you are looking at. If you want to invest into ( ) but only have $100, it might be beneficial to just buy a fraction of a bitcoin, or aim for another cryptocoin altogether.
2. Next, people usually ask, “How much money should I invest into cryptocurrency?” Again, the number is highly dependent on your situation. The golden rule is to invest only what you can afford to lose. There are definitely riskier investors out there who take a $15,000 loan and dump it all into cryptocurrency and that may be okay for them; however, best practices typically state that you should only invest what you can afford to lose.

Second — Conducting Research

Before you decide to dump $100 (or even $10,000) into a cryptocurrency, it’s best practice to conduct your research. Although the market is relatively young, you should exercise your due diligence and read as much as possible about a coin you are about to invest in.

Research is and has always been the key to investing (for anything!). You can’t predict the market, and analyst reports are just educated guesses but you can do as much as possible to guide your portfolio toward expected high-achievers. That means researching past performance, recent news out of the company, seeing what the key decisions makers are talking about on their social platforms, etc. All of this information can help steer you the right way.

Our Cryptocurrency Research Pages lists many of the top cryptocurrencies in the market today to assist in your research. We only list the official websites of each cryptocurrency so that you know you are going to an accurate (and safe) website to read about the currency.

Here are a few things you should ask yourself when conducting your research:

1. What real-world problem is this coin trying to solve?

• While many coins use popular terms & phrases, e.g. “we will disrupt the grocery food market by decentralizing payments,” you should really see if what they are doing is unique to the market and if it solves a problem that’s worth supporting
• With the hype these days & dozens of new coins launching every week, it’s possible invest in a ‘fake’ coin so conducting research is key to success

2. Will the coin be associated with a product, market place, or real use case?

• If a coin is claiming they will decentralize arcades, you really need to think whether that case is legitimate or just fluff.

3. Does the team behind the coin have the necessary experience (and even credibility) to pull off what they are claiming to do?

These are just some of the questions you should be asking yourself before deciding to invest in anything, but especially cryptocurrency.

Third … diversify your portfolio!

You’ll hear it from us & you’ll hear it from a traditional investment adviser, “Diversify your portfolio!”

If you put all your eggs in one basket, you have no chance to recover any losses if that one investment tanks.

For instance, you might be down 50% in an alt-coin with a $500 investment (so you’ve lost $250 so far) and at the same time, you may be up 30% in your $1000 investment in Ethereum (+$300). Because you’ve diversified your investment choices, you’re actually still up $50 even though one basket is sinking. This is the benefit of diversification, you are managing your risk and that is smart investing.

And finally, be able to manage your emotions

This step is probably the greatest hurdle you will face when investing. You need to be prepared to see big swings in the cryptocurrency market, especially since many of these teams are essentially just start ups with no history of success. You’ll also see swings tied to general news about the overall market, and definitely from any regulatory decisions against the use of cryptocurrency.

We know that investing is emotional. You’re putting your hard earned money (or maybe easily earned money) into something you are uncertain of and it’s very easy to panic and sell at a loss as soon as you see your portfolio tanking.

This is a mistake that is made too often with both new and seasoned investors. Do your best to control your emotions because more than likely, that moon you’re looking for won’t happen overnight. It’ll take time for the markets to mature and for these crypto projects to come to fruition. Just because you invested $5000 and see that the markets are down 50% today, doesn’t mean you lost any money.

Remember, you do not lose anything until you decide to cash out. Next week, that same coin you invested in could be in a bull run & you’re up 80%.

So, do your best to keep your emotions in check and don’t get swept up in a rally. You should not be investing more than what you can afford because you feel like it’s a potential winner. Emotional investing is the riskiest form of investment.

Stay the course — as long as you have a long-term plan you feel good about.

Knowing how much you want to invest in a certain coin, and setting milestones/goals on how high or low you’re willing to let a coin go before you sell will limit your risk and help you succeed in your investment decisions.

I hope this helps many of you who are new to investing. Or if this served as a reminder for the more seasoned investors, great!

* I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. This article is not considered financial advice.

Originally published at clearcrypto.com on January 16, 2018.