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Despite its well-known volatility, cryptocurrency is on fire, and many investors are attempting to capitalize on its meteoric rise. Cryptocurrencies like Bitcoin and Ethereum ebb and then rise, and many other popular digital currencies do the same. For years, experienced traders have been speculating on cryptocurrency, but what if you're new to the market and want to get in on the action?

Here's how to get started with cryptocurrency investing and what to look out for.

5 Cryptocurrency Investing Steps

First and foremost, if you want to invest in cryptocurrency, you must have all of your finances in order. This includes having an emergency fund, a manageable level of debt, and, ideally, a diverse portfolio of investments. Hopefully, your crypto investments will become another component of your portfolio, contributing to an increase in total returns.

As you begin to invest in cryptocurrencies, keep these five things in mind.

1. Know what you're investing in.

Understand exactly what you're investing in, just as you would with any other investment. When purchasing stocks, it is critical to read the prospectus and thoroughly research the companies. Plan to do the same with any cryptocurrencies, as there are literally thousands of them, each of which operates differently, and new ones are being created on a daily basis. You must comprehend the investment case for each trade.

Many cryptocurrencies are supported by nothing at all, neither hard assets nor cash flow. This is the case with Bitcoin, where investors rely solely on someone paying more for the asset than they paid for it.In other words, unlike stocks, where a company's profits can grow and drive returns for you, many crypto assets must rely on the market becoming more optimistic and bullish in order for you to profit.

Ethereum, Dogecoin, Cardano, and XRP are among the most popular coins. Solana has also been a massively successful coin. So, before you invest, make sure you understand the potential upside and downside. If your financial investment is not backed by an asset or cash flow, it may be worthless.

2. Keep an eye on volatility.

Cryptocurrency prices are about as volatile as an asset can get. They could fall in seconds based on nothing more than a rumor that turns out to be false. That can be beneficial for sophisticated investors who can execute trades quickly or have a solid understanding of the market's fundamentals, how the market is trending, and where it could go. It's a minefield for new investors who don't have these skills – or the high-powered algorithms that direct these trades.Volatility is a game for high-powered Wall Street traders who are competing to outgun other wealthy investors. The volatility can easily crush a new investor.

This is because volatility frightens traders, particularly beginners. Meanwhile, other traders may step in and make a low-cost purchase. In short, volatility can assist sophisticated traders in "buying low and selling high," while inexperienced investors in "buying high and selling low."

3. Keep in mind that the past is history.

Many new investors make the mistake of looking at the past and extrapolating it to the future. Yes, Bitcoin was once worth pennies, but it is now worth much more. The key question, however, is "Will that growth continue in the future, even if not at such a rapid pace?"

Investors are concerned with the future, not with what an asset has done in the past. What factors will influence future returns? Traders who purchase a cryptocurrency today require gains from tomorrow, not gains from yesterday.

4. Never invest more money than you can afford to lose.

It's critical to avoid investing money that you don't have in speculative assets. If you can't afford to lose it all, you can't afford to put it in risky assets like cryptocurrency, or even other market-based assets like stocks or ETFs.

Whether it's a down payment on a house or an important upcoming purchase, money that you'll need in the next few years should be saved in a safe account so it's there when you need it. And, if you want a guaranteed return, your best bet is to pay off your debt. You will earn (or save) whatever interest rate you pay on the debt.You can't possibly lose there.

Moreover, don't forget to consider the security of any exchange or broker you use. You may legally own the assets, but someone must secure them, and their security must be tight. If they believe their cryptocurrency is not properly secured, some traders will invest in a crypto wallet to store their coins offline, making them inaccessible to hackers or others.

5. Control your risk.

Finally, when trading any asset on a short-term basis, you must manage your risk, which is especially important when dealing with volatile assets like cryptocurrency. As a new trader, you'll need to understand how to manage risk and create a process to help you mitigate losses. And the process varies from person to person:

• A short-term trader's risk management may consist of establishing strict rules for when to sell, such as when an investment has fallen 10%. The trader then entry follows the rule to ensure that a relatively minor decline does not turn into a crushing loss later on.

• A long-term investor's risk management strategy may simply be to never sell, regardless of price. The investor's long-term mindset allows him to stick with the position.

Newer traders should consider setting aside a certain amount of trading money and then only using a portion of it at first. If a position moves against them, they will still have money to trade with later. The bottom line is that you can't trade unless you have money. Having some money in reserve ensures that you will always have a bankroll to fund your trading.

Risk management is critical, but it comes at an emotional cost. Selling a losing position hurts, but it can help you avoid larger losses in the future.

Other ways to Invest in Bitcoin

While investing directly in cryptocurrency is the most popular method, traders have other options, some of which are more direct than others. These are some examples:

Crypto funds: There are a few crypto funds (such as the Grayscale Bitcoin Trust) that allow you to bet on price swings in Bitcoin, Ethereum, and a few other altcoins. As a result, they may be a convenient way to purchase cryptocurrency through a fund-like product.

Stocks in cryptocurrency exchanges or brokers: Purchasing stock in a company that is poised to profit from the rise of cryptocurrency regardless of the winner could also be an interesting option. That is the potential of an exchange like Binance or a broker like Robinhood, which derives a large portion of its revenue from crypto trading.

Blockchain ETFs: A blockchain ETF allows you to invest in companies that stand to benefit from the rise of blockchain technology. The best blockchain ETFs provide exposure to some of the most important publicly traded companies in the space. However, it is important to note that these companies frequently do much more than crypto-related business, which means your exposure to cryptocurrency is diluted, lowering your potential upside and downside.
Each of these methods varies in terms of risk and exposure to cryptocurrency, so you should know exactly what you're getting and whether it meets your needs.

Crypto futures: Futures are another way to bet on Bitcoin price swings, and futures allow you to use leverage to generate massive returns (or losses). Futures are a volatile market that exacerbates the already volatile movements in cryptocurrency.

Best crypto information site for trading

1. coinmarketcap.com

2.coin360.com

3.livecoinwatch.com

4.crypto/fear-and-greed-index/

5.cryptometer volatility

6.coingecko.com

DISCLAIMER

The author's or anyone else's views or opinions expressed in this article are for informational purposes only and do not constitute financial, investment, or other advice. Investing in or trading in crypto assets carries a financial risk.

IMAGE CREDIT
Featured image via Unsplash

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