5 Key Things to Keep In Mind Before Investing in Cryptocurrencies

5 Key Things to Keep In Mind Before Investing in Cryptocurrencies

Table of Content

bitcoin chart

  • Cryptocurrency investing can be risky and knowing what to look out for is essential.
  • No investor should ever invest more money in cryptocurrencies than they can afford to lose.
  • There are scam projects out there so it is always recommended to research a project fully.
  • Each investor needs to implement diversification and never go all-in on a single cryptocurrency for the best results.

Cryptocurrency investing can be a fun and exciting new field of investment for a lot of people. With the open-ended design of blockchain technology, which allows just about anyone, anywhere in the world, to buy, sell or trade cryptocurrencies, this investment option has blown up in popularity as well as appeal.

However, investing in cryptocurrencies can be risky due to their volatility and the overall security of specific centralized and decentralized exchanges, and as such, there are a few things that each investor needs to keep in mind prior to making an investment in any cryptocurrency.

To streamline this process and aid newcomer investors, we are going to go over the top 5 things everyone needs to keep in mind prior to making a cryptocurrency investment on any platform. Let’s dive in.

Top 5 Things to Keep in Mind Prior to Investing in Cryptocurrencies

We are going to cover the top 5 things that every single investor needs to keep in mind before making an initial investment, and these include:

  • Never Invest More Than You Are Willing to and Can Actually Afford to Lose
  • Conduct Your Own Research and Utilize Reputable Sources
  • Avoid Rug Pulls or Scam Projects
  • Store Your Long-Term Cryptocurrency Investments in a Cold Wallet Storage Device
  • Diversify Your Portfolio and Don’t Put All of Your Money in a Single Basket

Let’s dive into each section individually.

1. Never Invest More Than You Are Willing to and Can Actually Afford to Lose

The prospect of doubling or even increasing your money by x100 is a promise a lot of people see in the field of cryptocurrencies. This could, in some cases, entice people to pour in as much money as they can in crypto. 

However, what each investor needs to remember is that the cryptocurrency space is extremely volatile, and if a cryptocurrency can increase 1,000% in a short time period, it can decrease 1,000% within the same or even quicker time frame.

There’s Always Some Level of Risk with Any Investment

What this means is that the crypto space is a highly speculative market, and nobody should invest more than they can actually afford to lose. 

In other words, ensure that you always enter the crypto space with an amount of money that you would feel comfortable losing, even if you ended up losing all of it. There is always the chance that you can make tremendous profits and gains from the crypto space, but the opposite can also happen, so be cautious. 

2. Conduct Your Own Research and Utilize Reputable Sources

There are many self-proclaimed experts within the crypto sphere, and due to the fact that we live in an era that is dominated by influencers throughout social media, the chances are likely that you will encounter someone, at some point in time, who will recommend a specific project or cryptocurrency for you to invest in.

However, it is always recommended for you to do your own research. Look up the project, visit its website, read its whitepaper, see what the team behind the project is and what they have done in the past, and only make an investment after you have done your own research and due diligence only if you genuinely believe that the project has a high chance of success and a bright future ahead of it.

3. Avoid Rug Pulls or Scam Projects

Within the crypto space, whenever you encounter a new cryptocurrency or a new project that aims to sell its native token, and you start hearing promises that seem too good to be true, it is very likely that the project is, indeed, too good to be true. 

There are numerous scam artists out there who might fabricate a project, get people to buy the tokens, and then pull off what is known as a “rug pull,” where they essentially sell all of the tokens while they are high in value and abandon the project completely. Your main strategy here should be to conduct a high level of research and learn as much about the team behind the project as possible prior to making any investment.

4. Store Your Long-Term Cryptocurrency Investments in a Cold Wallet Storage Device

Within the crypto space, there are two main types of wallets that people will typically utilize. First, there is a hot wallet device, which is an on-exchange wallet or a non-custodial, private wallet where the user has direct access to their private keys. 

In both cases, it is important to remember that these are wallets that are connected to the internet at all times, and as such, there is always some small percentage that the wallet could potentially get compromised.

Hardware Wallets Are Essential for Long-Term Storing

If you are planning on storing your cryptocurrencies for a long time frame, let’s say 6 to 12 months, for example, it is recommended that you invest in a cold wallet storage device, which is essentially an offline wallet that you can disconnect from the internet at any point in time. 

5. Diversify Your Portfolio and Don’t Put All of Your Money in a Single Basket

While it might be appealing to just buy Bitcoin (BTC), for example, it is always recommended that you diversify your portfolio. 

One of the safest strategies as well as approaches within the crypto market is for you to diversify your portfolio so it can include top projects in the popular Decentralized Finance (DeFi) sector; in other words, do not put all of your money in a single basket, as this way, the losses, and gains across your entire portfolio have the potential to balance out, even at times of extreme losses. 

Moving Forward with Cryptocurrency Investments

We have gone over some of the best things that each investor needs to keep in mind prior to making a cryptocurrency investment. 

While there are a lot more things you can do and implement in order to have a much better experience, these five things are essential and should be followed by anyone that aims to stick around in the crypto space for years to come.

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Written by

Alexander Sterling

Alexander Sterling

Alexander Sterling is a renowned financial writer with over 10 years in the finance sector. With a strong economics background, he simplifies complex financial topics for a wide audience. Alexander contributes to top financial platforms and is working on his first book to promote financial independence.

Reviewed By

Judith

Judith

Judith Harvey is a seasoned finance editor with over two decades of experience in the financial journalism industry. Her analytical skills and keen insight into market trends quickly made her a sought-after expert in financial reporting.