10 Things to Know Before Investing in Cryptocurrencies

In these turbulent times, tech startups and individual creators should start looking at investing as a viable option to grow their businesses. This investing could either be in real estate, stocks, digital assets or gold. It doesn’t matter, as long as you are securing those profits. Today, let’s discuss one such alternative that can drive your businesses to unprecedented heights. It’s called investing in Cryptocurrencies.

If you haven’t heard Tesla bought $1.5 B worth of Bitcoin. The company said it would start accepting bitcoin as a payment method for its products. So why would an esteemed organization like Tesla take such a huge risk in the crypto market? The answer is quite simple. It is currently the top asset with a market cap of 1 trillion dollars. As long as you have an elaborate strategy and know what you are doing, you are borne to be successful. This reasoning applies not only to small businesses but to every individual too.

So ask yourself. Are you a person who is willing to double his investment in a shorter amount of time? Have you grown tired of inconsistent returns in the Stock Market? Are you a person with a sheer bit of patience who is not afraid to take risks in his life? Keep on asking the same question over and over again. If the answer is yes then investing in crypto might be perfect for you.

Here are some tips that no one will ever tell you before you start investing in Cryptocurrencies.

1. Have a clear understanding of what you’re getting into

So what are cryptocurrencies?

According to a Forbes article,

“It is decentralized digital money based on Blockchain technology. The term Bitcoin may come into your mind, but there are 5000 different other digital coins, which are collectively called as altcoins”.

These currencies do not have a physical form. To put it in economical term the word crypto associates with some sort of investment with high risk, high return and high loss if you are not careful.

What is Blockchain?

It is a persistent, transparent, public, append-only ledger. It is a system that you can add data to and not change previous data within it. This does through a method called consensus between scattered or distributed parties that do not need to trust each other. They have to trust the mechanism by which this consensus has arrived. The blockchain realises some form of challenge that no actor on the network can solve this challenge more than anyone else on the network. It randomizes the process in theory and ensures that no one can force blockchain to accept an entry to the ledger that others disagree with. It relies on a peer-to-peer network that can maintain updates to the ledger and then verifies those updates so that it is impossible to fraud and impossible to alter.

How does cryptocurrency work?

This currency is something you cannot hold in your hand. It’s a digital currency which means it only exists electronically. It isn’t attached to the government so it doesn’t have a central issuing authority or regulation.

So the question arises how does it even have a value?

These cryptocurrencies wouldn’t exist without a network of people and cryptography. You exchange currencies between computers in a worldwide peer to peer network. Just like when you download movies or music from torrent. But unlike them, it isn’t a string of file that can be duplicated. It is an entry on a huge global ledger called the blockchain. It has a record of every transaction that has happened. So if you send someone this cryptocurrency it is not like you’re sending a file. Instead, you’re writing the exchange on that big ledger. It’s all decentralized; anybody can volunteer to keep the blockchain ledger up to date. In the beginning when the cryptocurrency has less value that means no one is buying those coins or having exchanges but when more people start getting their hands into its value increases because the demand becomes greater than supply. This supply of coins is done by the people called miners. These people solve some cryptographic task on their computer. Depending on the time these transactions takes place and the technology involved we have different type of cryptocurrencies. The important factors to consider is whether the particular currency can be mined to have a finite or infinite number of coins.

2. Decide who you are and then choose the app?

Let’s understand who are the different kinds of people involved in this business. The Internet has a specific name for these people. Make sure you recognize what category you fit into.

HODlers: These group of people believe their investment will skyrocket after few years. Hence they buy and hold the currency for a long time. They don’t sell even when the prices go down instead they buy more in those dips.

Day trader: These people like the stock market buy the coins at a lower price and then sell at much higher on the same day.

Hater: These people don’t believe the coin will ever take off. He/she will always favor the investment they did. Hence will always annoy you on social media or in person.

So you have to decide for yourself who you are and according to it install the app. Suppose there is an app that charges a lot for the transaction of the day with no annual charges then this app is perfect for HODlers. Day trader should install an app that has fewer charges for the day. And if you are Hater don’t install any app.

Tip 1: Price Arbitrage: Often times you would come across scenarios when the price of cryptocurrencies differs in various platforms. This is the result of the fact that a particular currency is being traded in different amounts on different platforms. Some big investors called whales or institutional investors use this opportunity to transfer funds and gain short returns.

3. Beware of the taxes

Whenever you invest in crypto or either stock in large amounts, remember to go through the taxes. The return on your investment could be the same if you invest less in one of the assets. Whenever you sell an asset for more than you paid for, will result in a capital gain.

The following things you have to consider are :

Short term capital gains: It results from the sale of an asset owned for one year or less.

Long term capital gain: It results from the sale of an asset after one year.

Remember the tax on long term capital gain is always almost lower than if the same asset were sold in less than a year. But this could differ from country to country with different governments. Take the Biden government in the USA as an example. They are planning to increase long term capital gain to 50% on returns with six figures.

4. Read news and I mean a lot

Tip 2: Buy the rumor, sell the news

If you have finally decided that you are going to be in this market forever then I would suggest you follow some account related to that crypto. Let’s say I have invested in doge from the Binance app. I would then follow the most popular doge account, Binance, investing.com and especially Elon Musk on Twitter. You don’t have to follow anyone on Instagram. But the next two platforms are absolute must irrespective of what you prefer to invest in, either stock or crypto.

Reddit :

Join the particular community of that cryptocurrency. You will come across most of the hype & rumor over here. You have a daily discussion where people talk about the current chatter in the market. You could read memes too if you wanna laugh. They are great.

Discord & Telegram:

This is the platform where all schemes related to pump and dump and fraud generally happen. It is up to you whether you choose to follow such groups or cults. Remember to get out before instead of choosing to remain hoping you could get a much better return.

Remember: Don’t go into these platforms hoping to make some friends. These people aren’t your buddies. They are here only for the sake of money and thrill. It sounds rude but it is the truth.

5. Do your research and come up with a hypothesis

You now know what cryptocurrencies are and the kind of person you want to be in this market. The most important thing from now is to understand the different currency in your terms. Let me give you an example.

Suppose I have decided to invest in Bitcoin and Dogecoin. After a bit of research, I made assumptions about them.

Bitcoin:

I will buy this asset for investment purposes and not for buying things like Tesla car. This currency will continue to increase in its value and 1 or 2 years from now, its evaluation would be around $100,000. This high evaluation is the result of the currency is deflationary. Thus I will invest 10% of my income in this currency

Dogecoin:

I believe this currency is a joke that rises in its price whenever someone talks about it. Its evaluation is always going to be under $1 because this currency is inflationary. Thus, I will be a day trader in this and use 1% of my income to make a quick buck.

Now some of you might argue with my hypothesis in the comments section. This is because you have different opinions about it and hence choose another strategy to invest in. There is nothing wrong with that. But remember one of us might suffer from a huge loss, huge profit, or small profit or loss. So be careful. Don’t do it if you don’t understand the technology.

6. Common tips that everyone should remember

Always invest the money you can afford to loose

Always buy or sell the crypto asset in USD.

Know the common exit strategies

Paper Hand: If you believe you have earned enough profit then it advised to get out or fold before the price falls. This strategy is for those people who can’t handle the heat of the situation.

Golden Goose: In this strategy, you invest a lump sum and after few days you take out your profit and keep the original amount. Let's say you invested $1000 in Bitcoin. After few days the amount becomes $1200 then you take out the profit i.e. $200 and keep the rest amount in your wallet.

Diamond hand: In this exit strategy you hold the position till an end goal, despite the risk, headwinds and losses.

Don’t panic sell or buy

Most of the times people buy crypto immediately because everyone around them starts buying. They panic in FOMO and so end up buying at a higher price. A similar situation happens when people around them start selling. Thus it is advised to clear your mind before trading. It is natural to have such thoughts but remember crypto is such a volatile asset. Its price bounces a lot even when it goes up or down. So always use the limiters to buy the asset.

Pump & Dump

It is an attempt to boost the price of a crypto/stock through false and misleading statements. This happens in the case of coins with low trading volume and market capitalization. This scheme is so common nowadays that everyone jumps on such a bandwagon to make those profits. What people don’t understand is, the money is being redistributed among them. In some cases, the pump and dump create FOMO between other people and many people start buying that particular asset for no reason. Avoid it if you can’t control yourself of getting out before. Go talk with people on Reddit because in some cases it might be worth a shot.

7. Brace yourselves

Buying a cryptocurrency is the same as buying an airplane ticket in bad weather. A lot of turbulence is sure to happen in this ride.

For the day traders know what you’re doing beforehand. Don’t make rash decisions that you will regret later in life.

If you are in this for the long run as a future investment then it's recommended to uninstall the app. This is so helpful for those people who can’t contain their excitement by seeing the prices go up and come down.

8. No one can predict the market

Any person on the Internet or your friend have ever told you that they can predict the movement of a cryptocurrency then you need to get away from there. Some might argue that by measuring RSI (Relative Strength of Index), they can predict the market's future. To some extent it is true. RSI use existing data to make informed decisions on when to buy and sell. Here are some common points to remember.

RSI value oscillates between 0 to 100 and can never be the extremes.

A value of over 55 is bullish and over 70 is very bullish. This means the asset is being overbought in the market.

A value of under 45 is bearish and under 30 is very bearish. This means the asset has some red flags and is being oversold.

But if it were that easy to predict the crypto market everybody would be a millionaire by now. So let me again remind you, readers. Don’t fall for this theory and apply it every time. In some cases, it would work but most times you could also end up losing your money.

9. Fraudulent activities in cryptocurrencies

Remember people who want to remain anonymous and avoid regulation from banks or the government will use cryptocurrencies to make shady deals on the black market. Money laundering is another problem too.

Cryptocurrencies are not backed by any institute. So be careful of what platform you will be choosing to invest your money in. These people can run away with your wallets and you cant even ask for a refund from the government. Always read the history of the platform before and then make a decision. Choose the platform wisely and invest only what you can afford to lose.

Tip 3: Protect your private keys and please don’t forget your password.

10. Always check the results

It is the most important step that no one follows while investing in crypto. It’s like assessing the class test and realizing the mistakes you made. Investing is the same. You will end up making mistakes and regretting them later on. But what’s more important is that you don’t make the same mistakes again. Also, make sure if you are investing in a short run to check monthly that you are getting the results you had hoped for.

Also, remember to get out if you encountered a huge loss. Don’t hope that you will recover the losses if you invest double the initial amount. Sometimes things don’t end up working for some people. Luck is something you need in this business.

Expert Level :

This category is completely different than the rest because it is only for those people who have already started investing in crypto.

Fundamental Analysis : Almost 90% of the people use this analysis when it comes to buying crypto with FIAT money. So its necessary for everyone to go through this analysis beforehand. This could be done by watching video of any youtuber or reading articles.

Technical Analysis : Some believe it is true, others consider it as a hoax made up by people in the market.

Margins or leverage

Future

P2P

Visit websites: CoinDesk , Coinbase

Conclusion

Cryptocurrency is the future whether you like it or not. It is going to stay here in the long run. But what isn’t guaranteed is which crypto will rise in the future. Maybe that coin hasn't even listed yet. So don’t blindly put everything into a single currency because someone said so. Remember your crypto can even crash to zero if everyone who invested initially felt like selling. Also, be proud of yourself because you are investing in the future of technology.