When it comes to investing in cryptocurrencies, there are some things that don’t get discussed nearly enough. These things can either help grow and scale your cryptocurrency portfolio, or they could lead you to financial ruin and frustration. Due to the huge amount of content that is posted about cryptocurrencies on a daily basis, it can be hard of the best of times to hone in on the most important developments and cut through the noise.
13 Secrets Nobody Told You About Cryptocurrency Investing:
So in this guide, we are going to cover the secrets of cryptocurrency investing that no one else is talking about, and leave you with the most up to date information and strategies to make your venture a success.
1. Diversification Isn’t Always The Right Move
At first glance, this may seem like unpopular advice. At all corners of the Internet, you’re going to hear people say to invest in multiple coins, and to avoid over committing yourself to one brand of cryptocurrency. While this advice holds true for practically every other form of investment, it’s not the case here with crypto.
The only good reason to diversify your portfolio with cryptocurrencies is if you want to buy more coins, as well as to increase your volume of coins for better future gains. In general, you should identify what has the best value for your portfolio and then invest as much as you are willing to lose in a single coin. Splitting your portfolio among different coins may minimally reduce your risk of losing it all, which is why you should only invest as much as you can lose in the first place.
With this strategy, you are using diversification with the intention to invest more into cryptocurrencies, which should then improve your overall profit.
However, like all strategies, this one too has its caveats. The first is that you should expect for the volatile swings in the crypto market. Coins can lose as much as 35% of their value in a single day. This then makes for a good argument for diversification. Secondly, it can be hard to know what coins are going to give you the best return on investment. Even with a well-rounded investment portfolio that promises high returns, cryptocurrencies will always be a highly speculative venture for the foreseeable future.
The trick is to not focus on the ups and downs that will occur daily, but rather look to the horizon. If you have faith in the fact that the crypto market cap will continue to rise, then that could be reason enough to trade your fiat dollars for virtual tokens.
2. Market Cap Is More Important Than Price
One mistake that traders make is belief that earning some short-term gains is the same as following a proven strategy. Most of the stories that people read about their astronomic success in trading cryptocurrencies is usually the result of a bull market for altcoins and making a few lucky decisions. Most of these moves were made when the coins were priced at under $1, and were purchased due to their low prices.
It should be noted that the price of the coin becomes a relevant factor only after considering for its total supply. The number of coins in existence times the price of those coins is the market capitalization of the token, which is the most important metric to consider. When you buy a coin, you should look at how many of them you are buying against its total market cap, as this is what will determine its scarcity, supply, and value in the long-term.
For example if the market cap for a Litecoin were to increase by 20%, someone who invested $10,000 in the coin would have made $2,000, in the same way that a coin with a smaller cap would have made the same amount with a shift in its value. It’s simply harder for a coin with a larger market cap to increase in value than a smaller coin.
The point for all of this is that price is simply based on the total supply of tokens in circulation, and does not make for a significant investment metric. Focus on coins that have a low market capitalization when you buy your next altcoin.
3. Don’t Focus On A Coin’s Absolute Price
When it comes to investing, the two most important ideas to keep in mind is that past performance is not indicative of future performance, the sunk cost fallacy, and to look for positive future value. The theme of all 3 of these ideas is to not take out the profits you have made from your crypto portfolio.
In fact, there are only a few rare exceptions for you to be taking the money you earned from your investments, with being centered around a change of circumstance of the market. One could be that the amount of money that you are worth has changed and you have too many high risk cryptocurrencies. A good rule of thumb is that you should only have between 10% and 20% of your disposable income invested in these ventures, otherwise you are overleveraged.
Another reason to withdraw your earnings is if you lose faith in the future of cryptocurrencies, or think that your money could be utilized elsewhere.
One final point is that you might decide to pull out from your portfolio if it will improve your peace of mind. This could be a good idea if you have earned a large amount of money through investing intelligently, as you are now playing with “house money” that doesn’t seem real. Investing in this state can lead to some bad decisions since some people rationalize that the funds were not theirs to begin with, which is the slippery slope that gamblers face. Withdrawing a small portion of the money invested could make
4. The Goal Isn’t To Be Right As Often As Possible.
This is something that is sometimes overlooked by the crypto community. Many investors can get their egos involved in the decision making process and become more focused on being right than making profitable decisions.
Although being right can be comforting, finding loopholes in events will make you more money in the long run.
5. Crypto Worth Should Be Measured Against Both USD And BTC.
You should care about how the other currencies stack up to Bitcoin because in the long-run, it is wise to make trades that has a net positive affect on your BTC value. However, this doesn’t always mean that you should only Bitcoins, but rather your objective should be to increase the underlying value of your portfolio measured in BTC. If your value of BTC is not increasing, it means that you could be better off simply buying and holding on to your Bitcoins.
6. Buy Low And Sell High?
Despite the obvious advice to buy cryptocurrencies while they’re cheap and sell once they have reached their peak, it’s actually much harder to do this in reality. The huge volatile swings of the cryptocurrency market makes it difficult to see past the peaks and values. This issue is also amplified due to the speculative nature of the market, and the short-term price fluctuations.
The better strategy would be to hold on to your crypto instead of trying to make gains over small periods of time, which can be very challenging. Selling based on hype can make you overconfident in identifying the best time to sell and buy.
7. Invest 10-20% Of Your Income In Crypto
A good rule of thumb is that you should only put in between 10-20% of your total income into cryptocurrencies. This number is what is typically left over from paychecks after people have paid their bills. A common strategy of splitting one’s earnings is to put half of that amount into Bitcoin and the other half Ethereum. This will let most people have a hand in the crypto game without exposing themselves to too much risk.
8. Keep Your Day Job
Despite some people’s claims of being a cryptocurrency millionaire, that apparently happened for them overnight, people should refrain from quitting their day job in order to start buying and selling these tokens full-time.
You will be far more emotionally dependent on the profits you get if you decide to make trading your full-time profession, which can lead to the symptoms of panic buying and panic selling, but of which can lead to financial ruin.
9. Read Every Day About Cryptocurrencies
Do not underestimate how important it is to read as much as you can about the space of cryptocurrencies. Aim to learn something new every day. Keeping up to date with what's going on is critical, especially in such a fast-moving space of altcoins and the fluctuating value of Bitcoin. The market is moving so quickly that it reached a $100 billion market cap in under 5 months.
10. Surround Yourself With Players In Your Industry, Not Ordinary People
When you are getting into the crypto game for the first time, it can be tempting to recruit your friends family to follow you into the market. However, this probably won’t pan out in your favor.
The reason being is that cryptocurrencies are too volatile at the moment and there are far too many uncertainties. They are not a safe investment, and you won’t want to feel responsible if a family member's altcoin crashes. The other reason is that you will be bombarded with calls and questions from your family asking for investment advice. And if those coins lose their value, you are going to be blamed for it.
The best thing you can do for your friends and family is to encourage them to research about the potential for cryptocurrencies and warn them of the dangers. You can add your point of view if you choose to, but avoid giving investment advice that will probably fall on deaf ears anyway.
11. Always Do Your Research
It’s unfortunate that manipulation, scams, frauds, and hacking are all common tactics when it comes to investing in the cryptocurrency market. All of these things can lead to tragic financial loss and can put your portfolio’s balance to zero. This means that you need to be vigilant when it comes your due diligence process.
If you are investing in an ICO for example, who are the founders? What are their credentials? Is their business model realistic? Simply by seeing past the hype you will be able to avoid some very costly mistakes over the long-term.
12. Think Long-Term
When it comes to your crypto portfolio, it’s important to get out of the day trader mentality of making short-term profits, and see the bigger picture. But if you are going to trade in crypto anyway, a good rule of thumb is that you only trade 30% of what you are worth in cryptocurrencies and 70% over the long-term.
A good amount of the profits that can be made through investing in cryptocurrencies is through the market increasing in price overall via an inflated market capitalization and lower supply. Remember that the crypto market went up more than $100 billion dollars in less than six months, which is where most people made their money as they held onto their coins. This long-term play will come with far less stress, emotional reactions, and a healthier bottom line.
13. Be Responsible
Once you have earned your money in the space of cryptocurrencies, the final step is to hold onto your wealth and not be reckless. This is especially important if your portfolio has reached double, or even triple gains in value. With this money, it could be tempting to go on a shopping spree, but it would be wise to avoid this temptation.
Another important thing to realize is that those gains you made should not be considered cash until it is in your bank account, so you should still only spend as much as you are prepared to lose. Anything can happen to your portfolio in an instant: from losing your private key to your trading account getting hacked.
Thanks for reading our top secrets for getting the most out of your crypto portfolio. More ideas on how you can maximize your returns can be read at our blog.