Investing in cryptocurrency can be rewarding provided you know what to expect and formulate a plan for yourself. If you are just jumping on the crypto bandwagon then the ideal beginner move would be to buy a cryptocurrency and hold onto it till the value is higher. However, if you have been investing for quite some time, there are some things you should know.
Diversification – Diversification is one of the most important things that one should consider, especially if you wish to take lesser risks. Diversification of your portfolio allows you to take risks without heavily relying on just one cryptocurrency. For example, if a cryptocurrency loses its value overnight you will still have many options and you will not be left at a complete loss. The volume of the crypto trade has grown substantially over the last few years. Asset allocation is important to ensure you get a return on your investment at a lesser risk. Although diversification reduces your risk it also can reduce your return on investment. Essentially, diversification means investing in multiple cryptocurrencies instead of investing heavily in just a few.
Copy-trading – As the name suggests you copy the steps of a professional investor. You can select a trader and retrace the footsteps to gain a sizable profit. In such cases, it is wise to allocate a certain percentage of your portfolio to a particular trader instead of committing a hundred of your assets to a single trader. The disadvantage of this method is that their appetite for risk may be different than yours. For example, a professional trader might invest in a higher-risk cryptocurrency and get a higher return on investment. However, if they lose the entire amount, it might be ok for them as they might have amassed a certain wealth while trading. For someone like us, it could be a big shock. So if a trader buys BTC in INR, you should consider your scope of investment before jumping in.
Defi staking – It is a way of locking your assets in an app to receive annual interest. Decentralized finance is a sector of the crypto industry that uses traditional financial avenues like loans and insurance, which they put on the blockchain. These services are not controlled or maintained by one company instead they are managed by their community of users and automatically executed computer programs known as a smart contract.
Arbitrage – One of the ways to get a return on your investment is to buy cryptocurrency from one platform and sell it on the other platform. The difference in prices is your profit. The profit will be very less unless the volume of trade is high. For example, you can buy Solana in India from one platform and immediately sell it on another platform to gain a profit. Do not forget about the fees you need to pay to the platform or you might end up in losses.
Volatility– The fluctuations in the crypto market have been viewed as a negative for a long time. However, if you are alert, you can make a profit by selling your cryptocurrency at the perfect time. The crypto market is open 24 hours and you do not need to wait to conduct transactions. You can observe the patterns of cryptocurrencies and invest at the time the value of cryptocurrency is lowest. When the value increases during the day you can immediately sell. Most people indulge in this activity and it is called day trading.
Ignore the buzz – Cryptocurrency is the talk of the town on every social media, every website, and even every party. Every online forum is swarming with tips and tricks to make a profit with crypto. Right from celebrities, who are taking a personal interest to billionaire businessmen, who are making statements cryptocurrency has caught everyone’s interest. However, if you are looking to invest in crypto it is important to conduct your research and look at facts without thinking about the buzz that you see online. Getting an unbiased view is important to unearth the potential of cryptocurrency we are looking to invest in.
Communities of particular cryptocurrencies make sure they promote their agenda but the real-world applications of the same cryptocurrency might not be up to the mark. Distinguish between facts and do your research before you invest. Apart from this, it is important to invest in a good crypto wallet that will protect your crypto assets.