Crypto is a hot investment these days, and due to its growing adoption and exciting opportunities, more investors want to get into the game. Like other assets, cryptocurrencies can be bought with the goal of substantial financial returns; however, they are also highly volatile, so they may not be ideal for everyone.
Deciding to invest in this type of asset is complex and depends on several factors, such as your risk tolerance, financial goals, and understanding of the market. Here are some essential aspects to remember before learning how to buy Ethereum or any other cryptocurrency.
Decide if crypto is right for you
Cryptocurrencies like Ethereum have risen in popularity due to interest from retail and institutional investors. But you shouldn’t invest in them only because of their popularity. Instead, consider if they align with your financial goals and whether you’re willing to take the risk of potentially losing your money. It is uncertain whether that happens or not, as many factors can influence the outcome of your investment, but before putting your cash into the market, it is wise to consider this possibility.
Also, ask yourself why you want to invest in crypto: do you believe in blockchain’s great potential? Or is it because you’re looking to build your wealth quickly? Whatever your motivation, be really honest with yourself when answering this question. Don’t simply jump into the crypto bandwagon just because everyone else is doing it. Take the time to understand what you’re getting into, as crypto isn’t for faint-hearted individuals, and you need to be prepared for a bumpy ride.
Investigate the asset you want to buy
Crypto is digital money that doesn’t rely on a centralized entity like the bank or government. The P2P transactions are recorded on the blockchain, ensuring high accuracy and efficient transfers. Many people expect to make quick gains when getting started with crypto, but things aren’t that simple in such a volatile market. It is essential to evaluate a crypto before investing in it to ensure the project is legitimate and profitable.
Some factors indicate a specific asset is a worthy investment. For instance, it has a website that is user-friendly and offers a clear description of the coin’s objective. You should also look for its whitepaper, as this is a vital tool in investigating a token, explaining the concept of the project in detail, what solutions it brings, and how it plans to evolve in the future. Moreover, a crypto’s price history is also a great indicator of its potential for substantial returns, so make sure to take a look at its past performance.
Create a balanced portfolio
Experts recommend not to allocate more than 5% of your investments to cryptocurrency, so don’t go all in. Even if cryptocurrencies have transformative power, it is still unknown how they will perform in the future, and the industry still has many hurdles to overcome. So, to be safe, consider creating a diversified portfolio. Diversification is a fundamental concept of investing, playing a crucial role in lowering your portfolio’s risk. Simply put, it is about choosing different types of assets instead of putting all your money into cryptocurrency.
Diversification is vital for various reasons, such as giving you new opportunities for capitalizing. Each digital asset has unique benefits and features, so by diversifying, you enhance your chances of making significant profits. Moreover, diversification can increase your liquidity, as you don’t hold a considerable amount of a single asset that may be difficult to sell. Lastly, it allows you to adopt a long-term perspective on investing, thus decreasing the impact of short-term market fluctuations.
Have a good strategy in place
Buying a bunch of crypto coins is relatively easy, but it is crucial to utilize the right strategy as it plays a significant role in how successful your investing journey is. Simply put, an investment strategy comprises instructions that will help you make decisions regarding what asset class to purchase and how much of your money to put into crypto.
Crypto investment strategies can vary, with each presenting unique benefits and risks, so it’s essential to research them all and carefully consider which suits your investment style. For instance, you can adopt a conservative strategy that focuses on protecting your wealth in the long run, thus building a low-risk portfolio. Or, you may find that an aggressive strategy suits you better and take higher risks as your goal is to make money faster.
Build an emergency fund
Whether you want to invest in stocks or cryptocurrencies, it is vital to build an emergency fund first. The main purpose of this fund is to offer financial security if you face a challenging and unexpected situation, whether job loss or a medical emergency. When building a crypto emergency fund, consider choosing more stable assets, such as Bitcoin and Ethereum, and make sure to store the fund in secure wallets to prevent malicious actors from accessing it.
The amount for your emergency funds will differ from one individual to another depending on their own financial situation, but as a general rule, your crypto should be able to cover at least 3-6 months’ worth of living expenses. While the main purpose of an emergency fund is to use it for emergencies, it is a good idea to ensure you can access it whenever necessary. So, it’s best not to tie up your crypto portfolio in illiquid assets.
Don’t get carried away by peer pressure
The human brain is wired to seek social experiences, so it is common to feel anxious when other people are having a good time. This is known as FOMO, which can appear in different situations and areas of life, including investing. Although FOMO can be healthy to some extent, motivating you to seek new experiences, it can also have negative effects. When investors experience FOMO, they can follow the crowd and invest in a specific project without taking the time to understand the risks involved.
Because they succumb to the fear of missing out, investors make emotional decisions, which is never advisable when navigating a volatile market like crypto, as it can lead to huge losses. Thus, it is essential to educate yourself about the project you want to invest in, have a well-thought-out investment plan in place, and learn to recognize FOMO to prevent it from clouding your judgment.
While cryptocurrencies are becoming increasingly popular, it’s important to remember that the market is volatile. You shouldn’t let success stories about crypto blur your vision; instead, stay rational, examine the market carefully, and make sure you have a plan to stick to.