Digital coins are no longer a subject of interest only for cryptographers or people traveling to the farthest corners of the Internet. Today, large corporations are investing in bitcoin, such as MicroStrategy, BlackRock, Ark Invest Whether Tesla. However, it must be borne in mind that this sector is still very young. Mand only 14 years old – in fact, we are at the beginning of the revolution that blockchain technology brings. If we want to start investing in cryptocurrencies and become active participants in this dynamic market, we must first delve into some of the fundamental principles that govern it.
Cryptocurrencies are similar to other investment assets in the sense that before making an investment decision, it is helpful to understand the background of the project. This can include assessing the team behind the project, examining how the token is distributed and its long-term goals, and checking its online presence. For example, if the token’s authors frequently attend industry events, publish project roadmaps regularly, and interact with their community, then there is a high probability that the project will gain value as it grows. – Gasper Štih, Chief Marketing Officer of Zonda Exchange
Education and knowledge are the key to success
In this article, I will present you with a few key principles that will help you navigate the digital asset market safely. Perhaps they will protect you from losing money on your first investments in digital assets. Why do I mention losses at the beginning? Every investor must be aware that due to the speculative nature of cryptocurrencies and their high volatility, they are high-risk assets. It is also an undeniable fact that many scammers operate in this sector. Their only intention is to mislead inexperienced investors and make a quick buck at the expense of someone else’s harm.
There are therefore certain actions that every participant in this market should implement – regardless of their seniority and experience. This is primarily the constant refreshing and consolidation of knowledge and practiced education in the field of emerging novelties in the blockchain and digital assets space.
If you’re just getting ready to make your first purchase, it’s essential to understand the basics of cryptocurrencies and the technology behind them. It’s also crucial to know the types of projects you want to invest in.
Each project is worth considering in terms of its foundations. First, check who is behind the cryptocurrency and what its community looks like. Social media channels such as Twitter or LinkedIn will be most helpful in this regard. Another important fact is how long the project has been operating on the market.
Diversify your investments
The question often arises whether it is worth investing all of your investment capital in one asset or maybe several. Diversifying your capital reduces the risk of large losses on a given investment. It is not wise to blindly enter one project with all of your cash resources. There is never a certainty that the price of a given cryptocurrency will not lose significant value. It is also not known whether it will be able to return to its peak level after a correction.
There is always a possibility that a given token will suddenly drop to the minimum. If we had invested, let’s say, only 10% of our funds intended for cryptocurrency trading before such a situation, there is a tenfold smaller chance of failure from a given investment. For example, the LUNA token dropped to practically zero in May 2022, and the collapse of the Terra ecosystem led to losses of 40 billion dollars. The hype for this cryptocurrency was really big. So if someone entered this market with all their capital and did not manage to get out, they lost everything.
There are few certainties in life, and even fewer in the cryptocurrency market. Investing in a project with all your funds is a very risky and, in my opinion, financially suicidal move.
HODL
If we decide to invest in several cryptocurrencies, it is a good idea to determine how long we want to hold a given position. Long-term investments in projects with solid foundations, such as bitcoin or ether, definitely increase our chances of profit. Even if the price of the token we have just purchased has started to experience declines, it is worth considering its history. The fact that our token has just lost 30% of its value does not mean that we have definitely “soaked” in this investment and must accept the loss.
It is therefore worth closely observing previous cycles and how a given coin behaved during them. Even bitcoin has been called a “corpse” many times. It was suggested that it would not recover after significant drops. Then it turned out that its price recorded such a rally that many investors kicked themselves for selling the bottom. Meanwhile, others could say with satisfaction “good thing I HODLed”.
Use proven tools
If we decide to trade cryptocurrencies through exchanges, it is very important to verify in advance whether a given platform is a safe investment environment. It is worth checking whether the entity we are interested in has the appropriate licenses and is regulated by the appropriate supervisory authorities. It also does not hurt to be interested in the experience of a given exchange on the market and the opinions of investors about it. An additional determinant may be the fact whether it has been the victim of hacker attacks in the past. On the Polish market, Zonda is certainly such a safe and regulated entity.
The same applies to cryptocurrency wallet providers, where we want to store our digital assets. Who has access to our private key and what security measures are used for a specific type of wallet – these are also key issues regarding the security of funds.
Have limited trust
At this point I will move on to the aforementioned issue of fraudsters operating in the cryptocurrency sector. As I mentioned, you need to be aware that cyberspace is full of so-called “bad actors” who want to make a fortune at the expense of someone else’s loss. Navigating the cryptocurrency market you need to be aware of common scams such as phishing, rug pulley, and pump and dump.
In this world, there is no shortage of touts who will try to persuade you to invest in a given project, fund, collection, etc., promising mountains of gold and multi-digit returns. In many cases, the initiators of such projects suddenly disappear into the ground with our funds, and the project itself turns out to be a simple financial pyramid or other SCAM. I will repeat here that before making any investment decision, a given project should be carefully analyzed. In this industry, just like when driving a car, there is the principle of limited trust.
Use cold logic
Cryptocurrencies are a very risky asset class, so we should never invest more money in this market than we can afford to lose. Putting everything on one card is as naive as playing in a casino. A good investor is one who, in situations of extreme euphoria or panic on the market, maintains a calm mind and the ability to rationally analyze the situation.
If everyone in a given community on the market is rushing in a certain direction – before you go with the same flow, it is worth giving yourself a moment to think and reflect. Do not be guided by emotions when making an investment decision, because it can often end in tragedy.
It is important to monitor the market. Listening to the opinions of others is not a bad practice, but only if we draw our own conclusions from it. In a situation where we are not sure about something, humbly turning to a trusted person for advice is also not a bad idea. Read industry media, check analyses and conduct your own research..
Once we start to feel more confident in this industry and intend to start trading larger amounts, we need to establish our own strategy. What do we want to achieve in the cryptocurrency market? How long do we want to invest in it? At what point do we intend to exit certain positions and leave this market? All of this is very important to secure the profits from our investments.
Cryptocurrency Taxes
You also need to know your rights and obligations if you become an active participant in the cryptocurrency market. This type of finance is also subject to taxation if at some point you exit a certain position in cryptocurrencies and move to FIAT. Even if you lose on a given token, you still have to report it to the tax office.
Summary
The cryptocurrency market is full of opportunities and offers us many solutions as an alternative to the decaying traditional financial sector. However, it is a young sector and to some extent still uncouth in its nature, hence full of risk. There is no 100% chance of winning in this industry, as many a “sure thing” has painfully learned. However, there are many investors who have built their fortunes thanks to cryptocurrencies.
What I wanted to tell you at the end is that you should always focus on education. Regardless of the experience you have already gained in this space. I would also like to point out that this article is for educational and informational purposes only and does not constitute investment advice at all.
