The Eightfold Path to Enlightened Crypto Investing
As a new cryptocurrency investor, kicking off your shoes and taking your first steps along the Path of The Blockchain, you’ve probably found yourself asking the following questions: did the bitcoin bubble really burst, is it too late to get started, and what are the best tips to be successful in this newly emergent investment space?
While you’ve been asking yourself these questions, along with many others, you’ve probably noticed the prolonged bear market cryptocurrencies have been facing the past year, with just last month being the worst month for Bitcoin since 2011. Taking a more historical view, we see this is only the most recent bear market, of which there have been many before. Likewise, for every bear market, there is a bull market; an endless cycle of perpetual balance, akin to the Taoist yin and yang. Thus, despite the recent significant drops, cryptocurrencies are far from being finished, and the path to cryptocurrency investing nirvana stands stronger than ever.
In fact, the securities platform SharesPost reported that 72 percent of cryptocurrency investors are planning to buy more holdings in the next 12 months. You should therefore expect some traffic on your journey and pack your bags accordingly. As with any successful trip, it’s best to be as prepared as possible. In this article, we’ll give you the necessary eight tips to help reach your desired state of cryptocurrency investing enlightenment.
1. Ignore the "noise"
Many naysayers in the media and financial sectors may preach that cryptocurrency is simply a fad, over-hyped speculation, or even a pyramid scheme. On the other hand, a growing population increasingly embraces the financial prospects and practical applications of cryptocurrency assets. Both sides have loud voices and like to make a lot of noise.
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This noise level is only expected to increase, as Satis Group predicted cryptocurrency trading activity for personal investors will increase by 50% in 2019. To be a successful investor in this space, it is best to just buy and hold what you believe in (see tip 4!) while ignoring all the noise around you.
2. Expect the unexpected
However, significant volatility does exist in cryptocurrency markets which cannot be ignored. Experienced cryptocurrency investors are accustomed to huge price swings that you often don’t find in traditional markets. By mentally preparing for these unfavorable, and occasionally terrifying, investment performances, the intelligent crypto investor will be able to act rationally instead of emotionally in times of unexpected price drops.
3. Avoid a bad trade or investment strategy
A common mistake for beginner cryptocurrency investors is joining what is known as a “pump and dump” group. Certain social media communities or ‘gurus’ may even promise investment tips regarding a particular coin. You should avoid these types of places at all costs; when travelers go down these roads, they don’t often come back.
The problem is that since derivatives trading is a zero-sum game, there is always a winner, but more importantly a loser. Unless a solid trading or investment strategy is in place, heedlessly following such advice is the fast track to losing your money to modern-day snake oil salesmen.
If you’re interested in learning more about strategic trading and algorithmic strategies, check out our series of articles on our Alpha Predator Model.
4. Perform your due diligence
In this modern digital age, there is even wifi on the path to crypto investing enlightenment, hence there is no excuse to make an investment with little to no understanding of the underlying asset. Almost every single coin has easily accessible whitepapers online. And just like having maps in the car, the savvy traveler must be prepared.
From the heavily traded to the most niche, resources such as the All Crypto Whitepapers will help any individual brush up their knowledge on potential future investments. If it is impossible to tell how the coin operates and more importantly, makes money, then it would be wise to seek another investment opportunity. From the biggest initial coin offerings (ICOs) to the most niche altcoins, this site will have you covered.
5. Don’t place all your crypto-coins in one basket
Common investment wisdom prevails when it comes to cryptocurrency investment: diversification is key. Just as financial advisors recommend taking positions in multiple types of stocks and other investments, diversification is also essential for any healthy cryptocurrency portfolio.
You’ve done your research, so now seize the opportunity to invest in multiple coins. As one example, you can invest across different sectors which serve different use cases. Just like it’s always safer to travel as a group then as a single person when you’re in unfamiliar territory, establishing a diversified portfolio will help you along your path toward realizing potential future cryptocurrency gains.
6. Opt for an alternative personal email
Using a regular email account places an investor at an unnecessary risk of exposure for a data breach. To overcome this risk, it is recommended to create a unique account just for trading, especially with added two-factor authentication password security. No matter what, ensure that two-factor authentication is utilized for every service that offers it (for example both your email account and your exchange account should require two-factor authorization to access). Likewise, make sure to use a dedicated two-factor application (such as Google authenticator, or Authy) as opposed to using text messages for two-factor authorization (these are susceptible to social engineering hacks).
Additionally, when setting up your accounts, be sure to select a unique username and password that has no personally identifiable information that would-be hackers could trace back to you.
7. Understand the uses for both cold and hot wallets
Cryptocurrency can be stored via an offline “cold” wallet or an online “hot” wallet. Ease of access makes hot wallets a more desirable option for the beginner investor. However, as convenient as hot wallets are, they are susceptible to being hacked, whereas cold wallets are not able to be hacked (if prepared properly). Ideally, it’s best to store cryptocurrency you plan on saving for a long time in a cold wallet, and keep only a small amount that you might use on a daily basis in a hot wallet.
Additionally, one common mistake made by many new investors is mistaking exchanges for wallets. Although it might seem convenient keeping everything online at an exchange, a common mantra you might hear others chanting goes like ‘ if you don’t own your keys, then you don’t own your bitcoin ’. And when you keep your digital assets on exchanges, you don’t own the keys. This can become important when exchanges go down, get hacked, or both (for example, the famous Mt. Gox incident from a few years back). Take the time to research different wallet providers. There are lots of great options available today, and you can start learning more by clicking here.
8. Remain careful around mobile wallets
Trading or storing large sums of any cryptocurrency via mobile phone is simply too great a risk. Mobile phones are more prone to being compromised electronically or physically. Although convenient, convenience should not surpass the security concerns that abound with executing trades or storing assets on mobile devices.
Hopefully, these eight tips will help give you solid footing on the road toward crypto-investing nirvana. Looking for more tips? For more information about security practices, investment strategies or other best practices in the cryptocurrency trading space, please reach out to me via email at firstname.lastname@example.org.