If you are just now thinking about investing in cryptocurrencies, you may be asking yourself one simple question – Why now? Yes, 2017 was the big appreciation year, and Yes again, the asset bubble that formed did burst in early 2018, but the future does look bright, as 2019 makes its debut. “Crypto Winter”, as it has been called, was a long, drawn-out bear market decline that lasted for the balance of 2018, but it appears that a strong support level has finally formed, as investors jump back into the fray.
Bitcoin, the leader of the crypto pack, is hovering around $4,000, as investors muse about the next direction, whether south or north or ranging for a bit. A number of positive developments are on the way, many designed to serve large, institutional investors, which want more liquidity, less volatility, more secure protocols, trusted custodial services, and monitoring software to prevent price manipulation.
A majority of crypto exchanges have these enhancements in their systems development pipeline, but a few new entrants, like Bakkt for example, will already have the necessary tools and features that banks and investment houses expect. Fidelity Investments will also provide many of these services, as well. Combined with other blockchain developments, 2019 looks to be a pivotal year for the crypto ecosphere.
Investment analysts also see good things ahead, but after being burned over the last twelve months, unless you were a professional that shorts for a living, the outlook is one of cautious optimism. As for an entry point into this topsy-turvy asset class, one could not ask for more. The primary thought to keep in mind, however, is that cryptocurrencies have already gained a reputation for being the most volatile asset class in history.
Volatility, however, and opportunity go hand-in-hand, as long as you manage market risk appropriately. Forget about any seminars that you may have attended that have stressed that risk should be avoided. Risk can never be avoided, but it can be managed to an acceptable level, as long as you are aware of how it behaves. In the crypto world, volatility and liquidity risk are givens. Risk management techniques, as you may have learned in other investment arenas, will ensure that you return another day, after the market may have turned on you or a losing streak came your way.
As every disclaimer about cryptos will warn you, this arena is high risk, and as such, you must approach the market in a disciplined fashion with a detailed, step-by-step plan of attack and only after investing hours of practice on a demo system to fine-tune each step. Seek guidance from a veteran trader, if possible, but, if not, then here are ten tips to help you on your way:
#1 – Are you a trader or an investor?
The first question you have to ask yourself is: “Do you want to be a trader or an investor?” Investors tend to put their money on the line for long periods of time. They are willing to ignore bad times when they come because they understand that a good time will follow. They seek value for the long term, as well, and have been told by their investment advisors that it is a waste of time to attempt to time the market. Traders do not necessary violate this maxim, unless they try to pick bottoms and tops of the market, which, as any veteran will attest, is a fool’s game. Not everyone, however, is cut out to be a trader. It takes nerves of steel, and you must adhere to your disciplined plan at all times. If not, your mind will play tricks on you and undermine your decision-making process, usually at just the worst time, too. Practice sessions may guide your choice.
#2 – Only invest in cryptos capital that you are prepared to lose
Investing or trading in cryptocurrencies is a high-risk endeavor, and for that reason, your allocated investment capital should be money that you can do without. If you set money goals each month in order to pay rent or other expenses, you might be putting too much pressure on yourself, pressure that could again stir your emotions and mess with your mind. A corollary may also be to never bet the ranch. Cash management techniques ensure against this practice, but step up your bets, if and when you encounter a strong trend, whether up or down.
#3 – Ignore the ubiquitous industry “noise”
The crypto arena is the hottest investment sector in the market at present, imbued with a “Wild, Wild West” attitude on all fronts. Like it or not, both zealots and critics enjoy creating loud noise, if you will, to put forward their heartfelt opinions. The press can be nasty and negative, as well, but according to the Satis Group: “Trading activity for personal investors will increase by 50% in 2019.” Predictions like these are indications that buying demand will increase over time. Do your due diligence, select the assets you believe in, and then go for it. If you let the hype guide your thinking, then you are part of the herd, and herds have a way of being on the wrong side of a trade at the wrong time.
#4 – Expect the unexpected
Surprises happen daily in Crypto-Land. Learn to expect the unexpected. News pieces that may seem innocuous may indicate a larger problem beneath the surface, and token prices are so sensitive with limited liquidity that even a small news item can easily cause a 10% fluctuation in price in a single 24-hour period. A few negative words from a regulator on the other side of the globe can send a coin valuation into a tailspin. Positive news has the opposite, more desired impact, but the message is that it is easy to be blindsided in this space. Accept it, put your emotions aside, and move on.
#5 – Avoid Crypto snake oil salesmen
You will be bombarded by social media ads, emails, and you name it by every “pump-and-dump” schemer or snake oil salesman in the industry, touting their token, trading robot, or managed fund as the greatest thing going. You will be an overnight millionaire, if only you would hook up with their product or service. Forget about it! If what they were selling was so great, why are they sharing it and for such a low price, as well? As in forex trading, there is a winner and loser on each trade, but a broker or exchange has also taken a cut, so that to succeed, you need to win 60% of the time. Yes, you will need an “edge”, but your trading strategy, technical analysis, and confidence will suffice.
#6 – Awareness is key
Never choose a token based on a hunch, a rumor, or a secret shared by a supposed insider. Awareness is key. Although cryptocurrencies are relatively young, there is a wealth of information on the Internet to help you understand what is behind each underlying asset. Independent websites can guide you to whitepapers, if you cannot find them on the token’s website, another reason for avoiding it, by the way. In a high-risk arena, due diligence is a must, but in Crypto-Land, you cannot over-do due diligence.
#7 – Diversification is a good thing
Basic risk management lessons instruct us to never put all of our eggs in one basket. You are better off to spread your risk through diversification than not. It may be prudent to invest in a handful of offerings, but not so many that following each one becomes burdensome. Focus on a few and understand the fundamental forces that drive price behavior in each. For now, exchange-traded funds, ETFs in the stock world, are a wonderful tool for diversifying, but it may be years before regulators authorize an application for a crypto ETF. The SEC has blocked Bitcoin ETFs, but 2019 might be the year. It may take longer for a multiple coin ETF to be granted.
#8 – Set up a separate investing email account
How many emails do you receive in a day? Veterans prefer to have a separate email account dedicated to their investment and trading activities. They also go a step forward and require a service with two-factor access authentication. If you can avoid using text for the second part, then do it. SIM-card swap fraud and direct hacking of mobile phones is a growing cyber threat in today’s electronic-driven society. Database compromises are prevalent in the news, and it best to insulate your passwords and login IDs from unwanted attention.
#9 – A “Cold” wallet may save your crypto nest egg
Current reports indicate that crypto exchange fraud exceeded $1 billion in 2018, and that figure is based only on three quarters of data. Until exchanges can guarantee the use of “cold” wallets on their premises, then you are better off buying your own device and protecting your private “keys” offline. There is already a timeworn phrase among crypto enthusiasts that emphasizes this point: “If you don’t own your keys, then you don’t own your Bitcoin.” A “cold” wallet that you control will give you this ownership. This advice includes avoiding the use of a mobile phone app to access and trade cryptos. Yes, the convenience is nice, but the risk of compromise while using a cell phone is astronomical. One crypto CEO lost $1 million of coin balances, when a hacking gang targeted his cell phone. A word to the wise should be sufficient.
#10 – Two exchanges are better than one
There are over 250 crypto exchanges operating around the world today, with many new projects coming on stream in 2019 and beyond. Each exchange is unique, and, although there are over 2,000 coin programs in existence, it is estimated that 70% of them will never be traded on an exchange. It costs money to be a market maker for a coin system. Some exchanges only handle three or four coins. Some do not handle fiat currency. Some offer multiple coins and pairings. The message is that exchanges compete for your business, and it may be advisable to have accounts at more than one exchange, if only to gain access to the coins that you wish to trade.
Investing in cryptocurrencies is not for the faint of heart. It is risky business, but if you keep a cool head, maintain a positive attitude, and remain confident, then you may have the “edge” needed to succeed in this space. As for the latter item and as in any other human endeavor, experience breeds confidence. Practice is your best avenue to gain this necessary experience. Veterans will tell you that they live or die by their practice regimens. Your practice sessions can only increase your experience and prepare you for the daily rigors of trading. If these tips help in that regard, then so much the better.