Risk vs Reward: The Do’s and Don’ts of Investing in Cryptocurrency

No investment is risk-free, and that rings extremely true in the world of cryptocurrency. This digital asset has recently become a global phenomenon, and everybody wants to get a piece of the profitable pie. Several banks, companies, and even universities have invested in various blockchain projects to see what all the hype is about.

For those who are unfamiliar with what cryptocurrency is, it is a peer-to-peer electronic cash system that doesn’t rely on banks or governments to operate. It’s a digital currency that is “mined” or “created” in cyberspace with the use of computers. It’s become an extremely lucrative market for those who invested in the early stages of this new venture fund.

Risk vs Reward: The Do’s and Don'ts of Investing in Cryptocurrency

However, cryptocurrency is one of the most volatile forms of investment out there. Therefore, it’s important to distinguish between the dos and don’ts of investing in cryptocurrency…

The Do’s

1. Do Conduct Your Own Research

You should always conduct your research before you decide to invest in any asset. When it comes to crypto as a whole, you can explore social media platforms for news, research trending topics, and take a look at niche forums.

Investing in Cryptocurrency

If you’ve found a coin you’re interested in, look at all-time highs, all-time lows, and the coin’s white paper. A white paper is essentially a document released by the crypto creators that provides investors with the concept of the coin as well as the future projections for the currency and how they aim to achieve this.

2. Do Diversify Your Investment Portfolio

No investment is risk-free; however, diversification is a smart way to reduce the risk of experiencing extreme outcomes. It’s good practice to invest across a number of cryptocurrencies.

For example, if you’ve invested all of your money in a single coin, such as Shiba Inu, and this happens to drop, you may risk losing all of your money. If you invest carefully across a selection of coins and you buy Ethereum, Cardano, and Shiba Inu, a single coin dropping in price won’t affect the rest of your finances.

3. Do Finding a Reliable and Reputable Trading Platform

Without technology, blockchain currencies would not exist. Since all transactions are created and managed online, this also adds a certain level of risk. It’s not rare to hear of bitcoin wallets being hacked or trading platforms being attacked, therefore it’s important to find a reliable place to trade,

The most reputable trading platforms are internationally recognized and relatively safe to use. To determine the platform you should use, it’s important that you look for an array of security features. Attributes you should look out for include cloud flare, multi-signature, time-locked transactions, two-factor authentication, and hardware security modules. When it comes to your own security, make sure to keep your password secret and use the private information that only you would know.

The Don’ts

1. Don’t Give Out or Lose Your Private Security Key

Your is what you’ll need in order to prove your ownership and access funds. It typically looks like a long string of characters with jumbled-up numbers in between. There are various ways you can keep hold of your security key. However, once you lose it, your funds are gone too.

Don't Give Out or Lose Your Private Security Key

Keeping your private key on a device that is connected to the internet is an open invitation for hackers, viruses, and other malware. It’s best to store this on a piece of paper somewhere and keep it in a secure location, such as a safe. Adversely you could look into the range of cold wallets that are available on the market specifically for these purposes.

2. Don’t Let Your Emotions Get the Best of You

Humans are inherently emotional beings, however, when it comes to trading crypto, you need to leave your feelings at the door. Fear and greed are two of the worst emotions you can experience when trading crypto. When Ethereum reaches all-time highs, everybody wants a piece of the profit, but when the price is slashed in half, people begin to panic sell. Learn to differentiate between cutting your losses and panic selling.

The best time you can buy ethereum is when prices drop and the market experiences a ‘dip’. Cryptocurrencies are known to experience volatile highs and lows, so it’s important that you stick to your guns when you see your crypto wallet turn red. Remember to always buy low and sell high.

3. Don’t Choose Cryptos You Know Nothing About

If you’ve just started to learn about cryptocurrency, there’s a lot of information to soak in. Navigating through the lingo and doing your research can be rather time-consuming and complex. That’s why many crypto investors choose to bypass this important step and simply invest in whatever coin they’re told will turn a profit. This is a big no-no when it comes to crypto!

Always do your own research before investing and avoid the coins you know nothing about. Don’t close your eyes and pick a few coins at random, as this is a sure way to lose money. A quick google search can provide you with hundreds of links about the blockchain project, its mission, and its future trajectory. If you want to get really technical, you can even take a read at the coin’s white paper, which, essentially, is a blueprint of the coin for investors.

As with any investments, putting your money into digital stocks and assets can be very risky. That being said, it can also be extremely rewarding, especially if you know how to navigate and manage your investments. The rule of thumb when it comes to investing is that the higher the risk, the higher the reward, and vice versa.

Unless you’re a trading superstar, it’s inevitable that you’ll make a few mistakes along the way. That’s why we always recommend diversifying your investments, starting off small, and doing your own research. Slowly but surely, you’ll start to see your money grow, and you’ll become confident in your cryptocurrency abilities.