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Cryptocurrency Investing Tips for Beginners

Cryptocurrency Investing Tips for Beginners

This research was sponsored by Luno Global, a platform that allows users to buy, save and manage cryptocurrencies.

Bitcoin and cryptocurrency are all over the business news channels. It seems everyone is talking about them, and if you haven’t invested in them, you may be feeling left out and wondering where to start.

Most who haven’t invested yet usually have a few fundamental questions. The first is — what are Bitcoin and cryptocurrency? How and when do I start?

To answer the first question, Bitcoin is the largest cryptocurrency by market value. It came into existence in 2009, invented by Satoshi Nakomoto, a pseudonym representing an individual or group of individuals whose identities remain a mystery.

It was created as a trustless electronic peer-to-peer cash system. In other words, two people can send each other money without having to trust one another or a third party such as a bank to vouch for them.

Bitcoin and other cryptocurrencies are decentralized. Instead of being created by and supported by a central bank or government, they are built on and supported by a blockchain — a decentralized ledger whose records exist on many computers. Every transaction is permanently stored on the blockchain, which is transparent for those interested.

As for how and when to start, you can do so at any time by using applications on computers or smartphones that allow you to buy bitcoin or other cryptocurrencies. A good example is the app provided by Luno Global, who sponsored this research piece.

You can then store your cryptocurrency on a digital wallet on your device. One thing not every newcomer understands is that you can buy any amount of bitcoin or other cryptocurrency — you do not need to buy an entire coin.

Once the basic concept is understood, there are some pitfalls to understand.

A major threat most retail investors have is emotion. One can be so jealous of the gains of others that he or she buys an asset after it has exploded in value, often to see it crash and then sell it in a panic. Even professional investors and traders have been known to fall prey to this. To avoid bad mistakes, it is important to keep one’s emotions in check.

Here are some other basics to keep in mind:

  • Don’t borrow to invest.
  • Invest only what you are willing to lose.
  • Do your own research.

Doing one’s research does not mean watching a single video stating that a certain coin or project is going to the moon and is going to pump 1,000% guaranteed.

There are thousands of influencers across social media. Some of them are great. However, many of them are paid to promote projects. Others may favor projects because they got in early at a very low price.

It is important that past performance does not guarantee future results. Anyone stating that future prices are “guaranteed” is not actually able to see the future. Statements assuming knowledge of the future or quoting vague sources are in and of themselves a red flag.

A lot more could be said on this topic, but consulting a number of sources and spending more time learning about a cryptocurrency or the team behind it is valuable. Any activity is safer when you learn more about it before getting involved.

Plan Ahead

Set a plan and stick to it.

Ask yourself — are you trading or investing? These are two different activities, and trading, which focuses more on short-term results, is not a recommended activity for beginners.

Other good questions to ask include:

How long do you plan to invest and what is your target return on investment?

How much are you willing to lose before you sell?

Cryptocurrencies can be volatile assets, some losing 50–80% of value over the short-term, even though they may have seen massive gains over the long-term.

Cryptocurrency Investing Tips for Beginners - Money!

Dollar Cost Average (DCA)

One great way to safeguard against emotions is by using a strategy known as dollar cost averaging, or “DCA.” This is also the “lazy” or “passive” way to invest.

A great case for passive investing is the high number of active traders who fail. Roughly 85% of professional investment managers lag benchmark indexes (such as the S&P 500), when their performance is measured over a period of years, according to CNBC.

Another strategy is to select assets that an investor believes will go up over time and put money into them using DCA, which is where you invest a set amount of money on a regular basis, for example every week, for an extended period of time. This is successful as long as the asset increases in value over the long-term.

For example, let’s say one is investing in bitcoin. Instead of trying to time the market by figuring out where it will go, an investor can allocate weekly or monthly amounts to buying Bitcoin and do so at regular intervals.

In this manner, one is not impacted as much when the price fluctuates significantly in the short-term. The purchases occur regardless of the asset’s price and at regular intervals. One is also not losing sleep stressing over charts. One can even set this up automatically on many apps.

A disciplined buying strategy that leverages DCA helps an investor focus their energy on their long-term goal while ignoring the short-term volatility.

Start with Bitcoin and other Larger Cryptocurrencies

While some invest in cryptocurrency with the hope of getting rich quick, this often leads to selling for a loss after the digital currency purchased falls in value. While all cryptocurrencies are volatile, the largest in size, or market capitalization, tend to be less volatile.

Investing in bitcoin or other larger cryptocurrencies with DCA and holding them for some length, for example six months, is a good way to get started in the cryptocurrency markets.

This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

If you found this content engaging, and have an interest in commissioning content of your own, check out Quantum Economics’ Analysis on Demand service.

Author

Alexandre Lores is a personal finance writer from Tampa Bay, Florida, with the goal to help one million people achieve financial freedom. He has spent over five years studying markets and economics, finding Bitcoin in 2017 and never turning back. He frequently appears on TV and in online news articles and is a regular Twitter spaces host.

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