Investing Tips For Cryptocurrency Newcomers

• Adam Cifu
• January 25, 2024

Anytime you are a new entrant in a particular investing space or asset class, there are some things you should be doing to ensure you don’t, as they say, take a bath. Crypto is a complex asset for many reasons, both because of the market forces it is subject to as well as the nature of the underlying blockchain technology. This shouldn’t discourage you from making it part of your portfolio, but it should spur caution and careful initial investing. With that said, below are some important investing tips for cryptocurrency newcomers. 

Start Small

Whenever you start investing in a new assets class, especially if you are just testing the waters and learning the fundamentals, is to start conservatively. This means allocating only a small percentage of your portfolio to it. While cryptocurrencies have gone up considerably over the last year, and are widely considered much more stable and predictable assets than they were a few years ago, they are still relatively unpredictable. 

Many portfolio allocation models suggest starting as small as 0.5% of your total holdings in cryptocurrencies. You are obviously free to deviate from this as much or as little as you would like, but riskier assets like derivative products, fiat currencies and cryptocurrencies should always be treated with caution and carefully monitored, and even more so when you are just starting out. Additionally, any time you are getting acquainted with a new asset class or market, it is always good to subscribe to an investment research service to see what the experts are saying about a particular investment opportunity before making any allocation decisions. 

Use a Simulator

If you are not quite ready to start putting real money into cryptocurrencies and would like a little more hand-holding before taking the final leap, you might consider spending some time experimenting with a trading simulator. There are many free simulators online that allow you to trade and observe the markets in real-time without having to risk actual capital. Many exchanges have their own, but there are good stand-alone programs as well. 

A good way to get a lot out of these simulators is by using them to watch how the currencies you are interested in move in real-time. As the prices of your preferred currencies fluctuate, you can map those movements onto announcements and conversations you see taking place in the major cryptocurrency publications as well as on investor forums and comment sections of popular podcasts. This is how you get a feel for the markets, the forces driving crypto price movements, how to anticipate buy and sell opportunities and ultimately how to make the most out of your initial investment. 

Look Beyond Bitcoin

Many new crypto investors make the mistake of assuming that Bitcoin is the only worthwhile crypto investment and some are even discouraged by the now stratospheric price of BTC, writing it off under the impression that it is no use investing in something that costs over $50,000 per coin. These sentiments are mistaken on two levels. You can, in fact, buy fractions of Bitcoins, so it is still possible to invest in BTC even if you don’t have tens or hundreds of thousands of dollars to spend on entire coins. Secondly, there is now a litany of high-performing, well-respected coins on the market that can be purchased. These include Ether, Ripple, Cardano and others.

Bitcoin is still the most widely-accepted cryptocurrency at businesses and institutions around the world, has the largest market cap and is the most commonly held coin by big investors, but there is money to be made in many of the other up-and-coming and competitor currencies as well. Part of being a good crypto investor is knowing how to spot the deals, including the potential diamonds in the rough, and learning to recognize value outside of the mainstream coins. 

Consider a Cold Wallet

Your crypto wallet is where you store your various coins and it is the gateway to your holdings. Many exchanges come with their own proprietary wallets and there are plenty of third-party wallet providers out there as well. One of the biggest downsides with cryptocurrencies is that they are not insured, which means should someone hack into an exchange and drain investors’ wallets of their holdings–which has happened and continues to do so–there is not much recourse for them. 

For this reason, many investors choose to store their assets in what is known as a “cold” wallet, or a hardware wallet. These are physical devices akin to USBs that keep your crypto data offline, which means it is no longer vulnerable to digital theft. It is, however, still vulnerable to physical threats, since a cold wallet can be lost, stolen or destroyed. If you lose a hardware wallet, it and its contents technically now belong to whoever finds it, and if it falls out of your pocket in the middle of nowhere, any assets it holds are lost for good.

Spread Your Investments Out Across Exchanges and Wallets 

There are two main reasons why it is not a good idea to keep your cryptocurrencies in a single wallet. The first is that because the transactions of any single wallet are always visible to other investors, any time a wallet starts to accumulate significant holdings, it draws attention, and often from the kind of people you would rather not know how much money you have. Additionally, and as previously mentioned, if someone has access to your wallet, they essentially own your funds. Secondly, if you forget your key for whatever reason, and end up locked out of your wallet, those funds are essentially irretrievable. 

Conclusion 

There is every reason to believe that we are witnessing a pivotal moment in the history of blockchain and cryptocurrencies. What was once possible to dismiss as a fad is no longer the case and both retail and institutional investors the world over have been forced to take digital currencies seriously. There is still time and plenty of opportunities to enjoy capital gains with many of these assets, but making your foray requires careful planning, caution and understanding. Keep the above cryptocurrency investing tips in mind and ensure that you make the best financial decisions possible.