Read for 4 minutes
The opinions of entrepreneurs' contributors are their own.
With so much news about cryptocurrencies – from the rise of Dogecoin to recent Bitcoin wins – many newbies want to join the action. While investing in crypto can be very rewarding financially, there are a few things a new investor should consider before venturing out.
More and more people are blindly investing in the assumption that it is easy to see or hear success stories from a friend or family member who is making a big profit. If it were really easy, everyone would be a crypto millionaire.
If you are thinking about investing in cryptocurrency, there are five things to keep in mind beforehand. The last thing you want to do is step in blind and unprepared. Don't believe everything you see on social media – investing in crypto is far from easy.
1. Never invest more than you can afford to lose
I like to tell people to make a conscious decision to lose anything and only invest an amount that you are 100% happy to lose. Most people won't get their way after their first few trades.
Sure, there may always be novice luck, but the market is very turbulent and there are many things to consider, many of which are learned from live trading. You can study charts and trends, but nothing compares to what happens when you have real money at stake.
Think of your initial investment as tuition fees. It is an investment in learning to invest in cryptocurrency by trading with real money. If you lose it, credit it as an expensive lesson. However, the last thing you want to do is invest money that you cannot afford to lose, as there is a chance that it could happen.
Related: 3 Popular Myths About Cryptocurrency
2. Do your own research
There is no shortage of self-proclaimed cryptocurrency experts and financial gurus on the internet who all claim to have the secret formula for success. They want to sell you access to private Discord servers, Telegram chats and WhatsApp groups.
Never trust anyone else when it comes to investing your money, especially someone who is not a licensed financial advisor. These characters make their money selling information and once they have you they don't care if you succeed or fail.
Always do your own research and due diligence before investing, especially if it is a new coin. I would suggest you check out some YouTube tutorial videos on the subject. When you see how easy it is, you will be much more careful when it comes to researching potential cryptocurrency investments.
3. Use your common sense: if it sounds too good to be true, it usually is
If someone promises you 100x winnings on a new coin, be very careful. Sure, there are some instances where early adapters can step into a new coin and its value can skyrocket, delivering incredible returns.
In any case, there are thousands of investors who lose everything in a pure gamble in hopes of realizing one of those legendary returns. When you get a good return on a coin, take out your initial investment and set it aside.
This is what well-disciplined investors do. They are not afraid of limiting their potential return by doing so. Not every coin is going to be a winner, so this strategy allows you to invest in something else if the coin goes down due to the carpet drawn.
Related: 8 Benefits Of Blockchain For Industry
4. Never act on the basis of FOMO
Most new cryptocurrencies start with a lot of hype. From aggressive PR campaigns to celebrity endorsements, this can lead many investors to step in blindly without thinking because they fall victim to FOMO (fear of missing out).
This can result in heavy bites and cause you to make irresponsible decisions. A lot of PR is bought and not organic or fact-checked. Celebrity endorsements and partnerships are also bought, usually in the form of tokens that give the individual incentive to pump the coin and hype.
5. Keep your keys
Finally and most importantly, you need to protect your private key phrase. This is the only way to access your cryptocurrency and if you lose your keys there is no way to access it. Equally important is the fact that anyone can access and steal your crypto if they have your set of keys.
Never save it on your computer or leave it open. Try to memorize it, write down your sentence and keep it under lock and key. For even more security, you should write it down on several pieces of paper.
Related: Tax Regulations For Buying And Selling Bitcoin