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Crypto has been on the forefront of every great financial mind and institution in the world over the last couple of years.
It’s becoming increasingly easier to invest in crypto with access to large exchanges like Coinbase, Crypto.com, and my favorite, Kraken.
For more details and to make your purchasing process even easier, here’s my guide to buying crypto. The interest in crypto is only continuing to grow, as more and more investors dip their feet in the shallow end.
Don’t get me wrong, there’s a lot of unknown. And understandably so.
We are basically a decade into the crypto era. Investing ten years ago would’ve been a sound idea. If you had just even ten Bitcoins now, you probably would be reading this in the Bahamas atop your newly constructed mansion.
That definitely does not make two of us. Or any of us.
This graph plots the search frequency of crypto, as analyzed by google trends. The trend speaks for itself.
It’s clearly evident that crypto has exploded in popularity, particularly over the last few years.
Despite the popularity, there is a lot of disagreement on how to invest. And don’t get me wrong, there are many ways you can invest in crypto.
Just like stocks or real estate. There’s no single right answer, But there are plenty of wrong answers.
Amidst all the smoke and gunfire, here are my best investment tips for crypto investing.
Stick to Large Market Coins
If you’ve never invested in crypto, I would safely assume you’ve heard of Bitcoin and Ethereum. And for good reason.
These two coins are by far the most popular cryptocurrencies. Stick to investing the majority of your portfolio in these two coins.
Outside of stablecoins, Bitcoin and Ethereum are historically the most reliable and consistent performing coins.
In such a novel industry, Bitcoin and Ethereum are two of the oldest coins. Provided we still don’t have a lot of data, trust the coins with the most data to date.
To give you an idea, I have nearly 45% of my portfolio invested in Bitcoin and 40% in Ethereum.
Don’t be an Emotional Investor
The two most popular investing strategies in any asset class are long-term holding and short-term trading.
A lot of people engage in day trading with crypto. I simply don’t have the time of day to do this, and I would imagine a lot of you don’t either.
Buy your cryptocurrencies and be patient.
Cryptocurrencies are volatile. If you’ve ever seen a seismic chart during an earthquake, crypto price movements look oddly similar.
The best practice is to avoid obsessing over price movements. I’ve owned Bitcoin when it’s been $35,000 per coin and $50,000 per coin.
I firmly believe that Bitcoin (and Ethereum) will both rise far more than their current values.
This is playing the long-game. Don’t get emotional. Don’t be impulsive. Trying to “time” the market in any asset class is always difficult, especially with cryptocurrencies.
Stay the course, and hold long term.
Dollar Cost Average
This is one of the most profitable and reliable investing strategies with stocks. Dollar cost averaging is the process of repeatedly purchasing an asset consistently over a period of time.
Why dollar cost average?
Dollar cost averaging helps to mitigate volatility. Let’s say you buy a stock or cryptocurrency every Monday.
Some Mondays that asset will rise in price, other times that asset will fall in price. By consistently purchasing, no matter the price, you are “averaging” the price. If you remember our earthquake graph example, dollar cost averaging helps to flatten that graph.
This helps to mitigate volatility. With the rollercoaster that is crypto, dollar cost averaging can really make a difference.
Especially if you are investing long-term.
Accept the Risk
At the end of the rainbow, there could be a pot of gold. There also could be an empty bank account.
Cryptocurrencies are the most volatile asset class currently in existence (with NFTs making a sweeping effort to top the podium). By investing, you are assuming a very large amount of risk.
But much like investing in any arena, you must be prepared to lose. Invest what you are comfortable with, but don’t get too greedy.
Greed is good, until it’s not.
Allocate a Small Percentage, But Not Too Small
Many prominent investors and financial institutions recommend allocating around 5–8% of your overall investment portfolio in cryptocurrency assets.
The idea is that your portfolio should already be diversified enough to handle the inherent risk that comes with cryptocurrency investments.
Again, ultimately this is up to what you, the investor, are comfortable with. Don’t overextend, but also don’t set your scopes too far below the tree line. Investing less than $100 isn’t going to ever yield you any beneficial returns.
Take risk, but calculated risk.
This is arguably the most important piece to crypto investing.
Hacking in the cryptocurrency space is prolific. Most large financial institutions have baked in firewalls and software protections to prevent cryptocurrency breaches.
The primary mechanism for keeping cryptocurrencies safe is through offline storage. Most large exchanges (think Coinbase or Crypto.com) store at least 90% of their cryptocurrency assets and holdings in offline servers.
There are warehouses that are literally locked and guarded by giant humans with machine guns.
Yup, that’s a real thing.
Either way, wherever you purchase and hold cryptocurrency, you should enable ever possible authentication, identification, and security protocol.
Make it as difficult as possible for a potential hacker.
Nothing is ever completely secure, but utilizing every security tool available is the best practice. You should already be doing this with any app or account you have with a company or third party.
Do Your Research
I mentioned that sticking to the large market, popular coins is the best practice.
If you venture outside of Bitcoin and Ethereum, it becomes even more imperative to do your research. Avoid the temptation of falling in love with the “to the moon” ideology and invest a significant allocation into an alt coin like Dogecoin.
Be prudent and intelligent. Thoroughly research any coin you are interested in investing in. This should already be your best practice for any investment.
Anything you put money into is worth the research. Knowledge is power.
Crypto is new and largely still unknown and untested. Crypto really is a long-ticking grenade that we’ve pulled the pin on. That grenade could explode with confetti and money, or with gunpowder, shrapnel, and a lot of money wasted.
I can’t guarantee that you will profit off of any investment strategy. That’s the inherent risk of investing.
I can, however, guarantee that with these pieces of advice, based on my personal and well-researched experience, you will set yourself up in an advantageous position.
Stay the course, accept the risk, and play the long game.