For that, you will need to consider several crucial factors before, during and after investing your hard earned money into it.
If you do not have any clue and are wondering how to start, this is the right place for you.
In this article you will find all those questions you need to ask yourself before you start, and the type of research you need to do beforehand, as well as the tips to invest in the right crypto and the ways in which you need to manage your crypto account.
When it comes to investing, you should choose something that is valuable to invest in and something that others will pay for.
This is in accordance with the Latin saying ‘Res tantum valet quantum vendi potest, which translates to ‘A thing is worth only what someone else will pay for it.’
Therefore, you should first have this kind of mindset before you step into the exciting crypto world.
It is only when you follow the right steps, you will be able to make it big in crypto that relies heavily on blockchain technology that is quite hyped and the volatile nature of the crypto coins that result in wild price swings.
Yes, things will take time to fall into places which is why you should be absolutely cautious and confident while building your crypto portfolio.
Here are the different factors and aspects that you need to consider before and all through the crypto investment endeavor.
What Factors an Aspiring Crypto Millionaire Should Consider While Investing?
Cryptocurrencies can offer high returns but at the same time can take away everything that you invest in.
Therefore, you should be careful and confident enough that things will always turn in your favor to make it big in this space.
First, it is absolutely crucial to know whether or not you are fit to deal with crypto before you look into the factors that you should consider while investing in such volatile coins.
For that, you can start by going through some of the best free educational contents on crypto. Alternatively, you can go through this article in its entirety.
Right at the outset, it is good to know the fundamentals about crypto so that you know what you are getting into.
- First, you will find thousands of different crypto coins out there but Bitcoin is the most popular one because it is more established and comes with a better prospect for growing in value. Therefore, this is a good coin to invest in and hold for a long term.
- Second, since the entire process is speculative it is therefore quite unpredictable. As a result, most of the money experts and financial advisors consider investing in cryptocurrencies as an act of skepticism which resembles gambling or purchasing a lottery ticket rather than a form of an investment.
- Finally, the cryptocurrencies market is decentralized, which means it is beyond the reach or scope of any central authority governing it. It lacks governmental oversight and therefore comes with a lot of unacceptable risks and with no guarantee of recourse should anything unexpected happen.
With such uncertainties in crypto investments, it is natural that there will be a few questions in your mind, and that brings to the next section of this article.
Questions to Ask
There may be different questions that may bother you but if you find answers to these four essential ones, you will find some solace before you invest in crypto.
Just like it is in making any other big personal investment decision, you should ask yourself WHY.
This will allow you to evaluate your situation and the goals that you want to achieve with respect to that.
Since you will need to consider crypto as an investment and not as a currency, you should not want to become rich quickly but take it as a long term investment to reduce the risks involved in it.
If you do not know what cryptocurrencies really are, you should first know what these are actually and what their prospects are.
However, if you know that already, you should know what your risk tolerance is.
Since it is highly speculative and prone to wild price swings, there is no guarantee that things will always turn in your favor.
Since you will invest in it with a hope that someone else will buy it from you at a higher price later, you should be able to take on losses in stride.
You should research and find out where and how exactly you can buy cryptocurrencies.
You will need a reliable crypto exchange for that, which is mostly unregulated, as said earlier.
Also, check the requirements of the crypto exchange because those may vary from one exchange to another.
Some may allow moving coins while others may not, some may offer insurance while others may not, and some may want you to hold your coins in an online wallet while others may not.
Finally, you should decide which specific crypto you want to invest in.
As said earlier, Bitcoin is the most obvious choice for its characteristic attributes and potential but there are others that are also quite good to invest in.
You can invest in the major ones, in the lesser known ones, or even in the meme coins but make sure that the coin you choose will grow in the future and will not disappear altogether.
This is important because you will be typically making an investment for a long term.
Know the Ground Rules
So, now that you know that you are good enough to handle crypto and its somewhat ‘irrational’ behavior efficiently, here are the ground rules to consider before you invest in a coin.
You should never get into crypto unless you have a solid fund in place for dealing with the emergency situations.
Though the amount to have in such a fund is a matter of debate, most people agree that you should have funds that it is good to have enough funds to cover the expenses for at least 3 months, if your situation is stable.
If not, then you should have funds to sustain for at least 9 months to a year.
Make sure that along with the emergency fund, you also have your financial bases properly covered.
Do not rely on your crypto investment for making these payments because it is highly speculative and there is no guarantee of success.
Other Financial Fundamentals:
You must also make sure that your other financial fundamentals are in the proper place and are in the desired condition such as the 401(k), other retirement plans, traditional IRA or Roth contributions, and, most importantly, your monthly budget.
Other Key Considerations:
You must also consider a few other key factors before you invest in crypto and some of the most important ones are:
- You should not get caught up in any type of hype but do your own research instead both on the cryptocurrency as well as on the blockchain technology involved
- You must also get the feel of the crypto industry not only to understand how it looks but also how it works by reading the white papers carefully to know the timeframe, specifics and the general overview of the project
- You must stay active not only in managing your crypto account but also to learn more about the latest developments surrounding this market by staying connected with the online community of crypto enthusiasts and
- You must know the right time to make your investment by following the price patterns more closely and also by taking into account several other external factors that may affect the price as well as your investment such as price manipulation, exchange hacks, and fraud.
Remember, there are many aspiring investors who have poured their money into this space and have also seen it disappear quickly.
However, if you do your homework properly before making an investment, you will minimize such chances and ensure success.
Identifying the Currency
Now it is time for the most important aspect – identifying the best currency to invest in.
This is a crucial factor to consider and will depend largely on the funds available for investment.
If you do not have a large amount with you then the smaller coins that come at a low price will provide the best bang for your money.
For that matter, you can even choose a few different types of such low priced coins to diversify your crypto portfolio.
Since all crypto coins, especially the low priced ones, may not offer the same returns to your investment, you should carefully consider the prospects of each before choosing one or a couple of them.
Adoption of the coin is an important factor to consider since that will help in speculating and selling them when you need.
You must also consider the number of coins in circulation in the market as of now as well as the total supply of it before you invest in it.
This is important because most of the crypto coins have a definite supply and there will be no more of these produced through mining efforts when this maximum level is reached.
The prices of these coins can only go up if the interest is maintained when its supply is stagnant.
Building the Portfolio
Now, here are the most important factors that you should consider to ensure that you build your crypto portfolio comprehensively and precisely.
You should never invest in crypto more than you can afford to lose.
For that, consider your liquid assets and make sure that your crypto investment amount does not exceed 5% of its total worth.
You must also not invest in crypto with borrowed money (which is applicable to your credit card as well since it is not your money in the first place).
Speculating with someone else’s money is perhaps the craziest thing to do especially when it comes to investing in such a volatile and unpredictable space.
Consider your exposure limits to such risky investments for your best interest. Start by investing small amounts initially and if things do work in your favor you can increase it gradually.
If it does not, this will ensure that you do not lose an enormous amount by being compelled to sell the coins at a significantly low price and may even shift your investment to other coins and avenues.
This will significantly reduce your wait time to break even.
When you use this method you will be able time your moves more correctly to make the most out of the market situations and stay long in it without impacting your trades.
Consider the counterparty risks and understand them properly if you want to follow the footsteps of most of the people who favor investing in Bitcoin or other crypto coins through crypto exchanges.
This is an important factor to consider because when you do so you will actually not own the coins and will have to rely largely on the exchange or the third-party custody holding and managing your coins on your behalf.
This will add to the risk of the coins being stolen or the exchange going bankrupt and in such situations there will be very little or no protection for you.
Rebalancing your crypto portfolio is an equally important factor to consider while building it.
This will reduce the risks of your investments more effectively and efficiently.
Since it is done periodically, this process will allow you to realize some of the profits because you will be able to sell off those assets that have done well and purchase those that have not.
This strategy will allow you to diversify your portfolio and avoid losses that you may incur due to significant drop in the price of a token.
You should not be worried about the movements in the market that are for a short term.
In fact, you should ignore them even if you see the prices going up and down every hour or every day because it may wipe out most of your gains.
Diversifying your crypto portfolio is most important if you want to make it stronger.
As it is said, ‘Don’t put all your eggs in one basket’ it is universal wisdom that reigns in any form of investing, including crypto.
All financial advisers will recommend following this strategy where you take multiple positions in multiple types of coins to make your crypto portfolio healthy.
This will help you to realize the potential future earnings from crypto.
In order to ensure that your crypto portfolio and the account is secure, you should consider using alternative personal email to login rather than your using your standard email account.
This will reduce the chances of exposing your account to any unnecessary data breaches.
Ideally, you should use a single and exclusive account for crypto trading and even reduce the risks further by using specific security measures such as additional Two-Factor Authentication or 2FA password for every address login and for every exchange.
Always use a very strong password and a unique username to log into your account which is very difficult, if not impossible, to guess or trace back by others, especially the hackers.
Ideally, nothing in the username and password should be related to you or reveal any personal and identifiable information about you that will help others to trace your back.
Consider going through the use cases of the project you want to invest in especially when you do your research and due diligence.
This will help you to know more about the underlying asset and how it will perform along with what you can expect from it in return.
This will help you to create proper roadmaps to manage your crypto portfolio more efficiently and make the most out of the investment opportunity.
Pay specific attention to the market cap of the coin you want to invest in.
This will help you to know about the potential of the coin in a much better way with all the relevant and valuable information available to determine its probability of increasing in value over time.
You will need to analyze this by using the info you gathered related to the supply and circulation of the specific coin before.
It is also very important to set up a Stop Loss always in order to protect your portfolio from the effects of the unpredictable nature of the crypto market and prices of the products available in it.
When you set up such barriers around your investment, it will allow you to sell off a crypto asset when the price of it falls to the set limit.
This will save you from taking on a severe blow when the price continues to fall.
Well, you will need to know the basics of Technical Analysis to set up such limits around your investment.
You should choose the safest and perhaps the most productive way and invest in Bitcoin which is the king of crypto.
Therefore, stick with it. However, if you choose to go with other Altcoins, you should typically not get too bullish on them though it is a common practice among the Bitcoin investors to buy these Altcoins when the price of Bitcoin stalls and the price of Altcoins increase.
It may seem a brilliant idea but consider the situation when in the future everyone would turn to Bitcoin and you have a bag full of Altcoins only.
If you have any Altcoins, always evaluate them in terms of Bitcoin and not in your currency or any other fiat money.
Though most people do it, you should not because if you do so you will not be able to read the Bitcoin charts to understand the current trends and react to the prices when the Altcoins lose value and it is time to dump them.
However, when others dump them, there will be a further fall in the price of the Altcoins and you will incur further losses.
There may also be some tax consequences if there is a loss. It is true that there may be no tax implications if you simply hold the coins but you may not know when and what changes are made in the tax rules by the IRS.
They will ensure that you fulfill your tax obligations as desired and save you from financial as well as legal consequences due to violation of the tax rules.
Though there is no guarantee of success in crypto investment, implementing these proven steps will ensure that you have a safer and more productive long-term crypto portfolio built that may make you a millionaire down the road.
All the factors mentioned in this article when considered before, during, and after investing in cryptocurrencies will ensure your success and help in getting rid of the daily noise.
These steps will raise the confidence in your crypto investment strategy.