Before you start any endeavor, you need to become educated on what you are about to do. If you want to be successful at fishing, you learn about rods and reels and the different types of bait, and what type of fish you catch in which bodies of water. Investing in cryptocurrency is a lot different than fishing but the basic principle stays the same. The more you know, the better chance you have to succeed.
As you consider trading cryptocurrency or while you are just starting out, education is such an important factor in finding success. Knowing the basics of cryptocurrency investing is key to building a foundation that will serve you well in your crypto journey. It can be difficult in the beginning though to know where to start.
To help get you started on the road from cryptocurrency enthusiast to actual crypto investor, we will offer a few tips to help you get started. These tips will help guide your research and focus your learning on some of the most important aspects of cryptocurrency investing. Here are a few top tips for becoming an educated cryptocurrency investor.
Learn the Fundamentals of the Technology
When you start investing in stocks, you should know what they are and how they operate. You should know you are effectively buying a tiny, fractional ownership stake in a company and that the company’s performance will dictate the stock price over time. That’s pretty easy to understand. The fundamentals of crypto are a bit more complicated.
Cryptocurrency is a digital form of currency based on a decentralized digital ledger known as blockchain. If this already sounds like a foreign language to you, cryptocurrency may not be the best investment. If you are intrigued and want to learn more, that is a good sign.
Understanding the fundamentals of the technology behind crypto is important because once you know that, you can start taking the next steps. These next steps include things like learning how and why the prices move and understanding how this new form of currency may be used in the future.
Investigate Different Trading Strategies
Once you get deeper into crypto investing, there are many crypto-specific trading strategies you can find that traders execute to try and turn a profit. While you are starting your crypto education though, you need to know about the basic strategies investors employ. These strategies are very similar to basic stock investing strategies.
There are two general buckets these strategies fall into and several sub-strategies within each category. The two main types of crypto investing are active trading strategies and passive investing strategies.
The former requires more attention and gives investors more action. Active trading strategies include things like day trading, swing trading, trend trading, and scalping. The second category is more a “set it and forget it” type of investing. Here you use a buy and hold strategy or an index investing strategy.
The investment strategy you choose should reflect your risk tolerance and how much time you want to commit to investing. If you are not sure which is best for you, there is always the option to engage in a mix of several strategies to find out which is the best fit.
Are They a Good Investment?
This is a complicated question and, frankly, the answer will be different for every investor. The biggest key for figuring out whether crypto is a good investment for you personally is to understand your risk tolerance. That will help determine if crypto investing is right for you at all and, if it is, which investment strategy is best.
Cryptocurrency is a highly volatile market prone to quick, wild price swings. It is also now a crowded market where new, unproven cryptocurrencies are repassed seemingly every day. Sometimes these new cryptocurrencies take hold and skyrocket in price and other times they fall to zero shortly after they come out.
This is what makes crypto so risky. Chances are when you invest in a stock, you won’t wake up one morning with your entire investment wiped out. Likewise though, you aren’t likely to wake up an overnight crypto millionaire either. Risk isn’t necessarily a bad thing; you just need to know your tolerance before you start investing.
And there is a risk disparity as well in each of the investment strategies, active investing and passive investing. Passive investing–the set it and forget it model–is less risky than high-volume trading that active investing requires. If you want to dip your toe into cryptocurrency, passive investing may be the way to go.
If you have a high tolerance for risk, though, and are engaged and educated, day trading is the best way to make a lot of profit fast. There are many different guides to cryptocurrency day trading available. Cove Markets has a good starting point here.
Research the Resources
Education and knowledge are not the only things you need as a cryptocurrency investor though. You need the right resources to succeed as well. Becoming an educated crypto investor means doing your research on the tools used in investing as well as the currency and the markets themselves.
There are several tools that successful investors use to trade, stay abreast of the crypto market, and to manage their investments. This includes things like crypto exchanges, news aggregators, charting tools, crypto wallets, crypto tax software, and more. Each of these resources is important to investors whether you are a casual investor or a pro.
As a relatively new industry, each category of resources is not completely saturated as is the case with stock market tools, but there are a few options within each to consider. Make sure you do your research and maybe even try out different products to find out which is right for you and the way you want to invest in crypto.
Being an educated cryptocurrency investor is the first step to finding success in this new investing frontier. To become educated, you have to understand what cryptocurrency is, learn about the different investment strategies, figure out which is the best investment strategy for your personal risk tolerance, and find out all you can about the investing resources available to you. When you do these things, you will be well on your way to becoming an educated crypto investor and hopefully a profitable one as well.