Risk is like a conjoint twin of the investment market. However, the risk that comes with crypto investment is humongous, and so are the returns. For volatile assets, a crypto investor should learn about price fluctuation, market regulations, future crypto laws, and others. Who knows, a country might ban cryptocurrency as illegal, or some might open up rules for better usage. Every single law or change can cause a butterfly effect.
If you plan to become a crypto investor, there is much to learn more than the list of coins performing well now. Before getting into crypto trading, here are the top seven things you should know.
There are over 20,000 digital assets listed worldwide. Most crypto investors do not think of learning about the fundamentals as they believe it does not concern them. However, for a better chance of success, analyze and predict the performance of a coin or the market trends, you should be thorough with the basics.
Tokenomics deals with how a coin is created, managed, and removed from a network. Learning about tokenomics helps to understand the behavior of your asset. It would help if you knew how the network rewards the validators and miners regarding initial coin offerings, token distribution methods, and more. Tokenomics also helps a crypto investor to understand the price fluctuation, future adaption, and more. Read token whitepapers to get a better picture of the underlying potential.
Large crypto trading platforms having significant trade volumes, more market accessibility, and multiple asset types will have better liquidity. This functions as a trading security feature. In the case of digital assets, high liquidity indicates a lower probability of a price crash due to “pump-and-dump” by crypto whales.
The transaction fee depends on the coin, exchange platform, and government regulations. First, there is a credit card transaction fee if you use one to buy coins. Then, there is a minimal transaction fee, which varies with the coin. This fee is never a specific amount. Currencies with higher transaction volumes have higher fees.
IRS tags cryptocurrency as a property and as an income. If you bought some currencies and sold them, the profit is subjected to capital gains tax. However, if you receive the coins via mining, interest, or others, it would be considered an income and thus will have income taxes. However, certain transactions are non-taxable, like buying cryptocurrencies, shifting them from one wallet to another, gifting them, or donating to a tax-exempt charity.
Also Read: Generation-wise Crypto Investment Strategy
Diversity is essential to avoid complete loss when a part of the crypto market fails to perform. Experts recommend owning five different currencies. However, over-diversifying your portfolio can lead to inefficient tracking and missing out on news that can affect your portfolio. As a general rule, it is wise not to own more than ten currencies at a time.
A crypto investor should investigate the choices before trading.
Value investing is finding undervalued currencies by comparing their actual income and current prices. Purchase undervalued coins and sell when the price is higher.
Some investors pick coins with higher growth potential. It is the potential for the market capitalization of that currency. It depends on the current price and the circulating supply. A low capitalization means more growth potential, but there is also a high risk of failure.
It would be best if you learned to read market data. Historical data helps to predict the future of any investment market. It goes beyond the basic supply-demand cycle. There are several online sites where you can learn the basics of reading trading chart patterns, resistance levels, moving averages, and others. Financial literacy is a crucial element to succeed in this realm.
The crucial element of any crypto trading is learning when to enter the market (buy coins) and when to leave. It would help to leave the investment when your target cost is attained. Getting greedy and sticking to the coins even after your target cost is fulfilled might backfire.
In the case of crypto trading, people use compressed monthly, daily, or quarterly periods to trade coins. In trading, one has to make use of price fluctuations. If you are into crypto investments, you should buy and hold coins for several years or decades to increase the value of your asset.
As any seasoned investor would say, a risk-management plan is vital. It should include the risk cap you can endure for better ROI. According to a Yale study, one should allocate 4-6% of your portfolio to crypto investment. For lower risks, try 1%. A 1% investment is so small that a market crash would be less rattling to the total wealth. But as an average investor, you can enjoy double the returns.
Choosing a reliable crypto exchange to trade in crypto assets is essential. Global crypto exchange platforms like PayBito offers:
Crypto transactions occur online. And, like all other online transactions, crypto trading is also susceptible to hackers and cybercriminals. It is necessary to observe a few steps.
A crypto investor’s main problems are fear of uncertainty, panic selling, confusion regarding regulations, fake information, and hackers. It is best to avoid rash decisions and always focus on your strategy based on valid secure and effective strategies.