Consider this in case you want to know how to invest in the crypto market: the best case scenario for cryptocurrencies — mass adoption — will change the very definition of money and bring about the greatest transfer of wealth in human history.
If that comes true, becoming an early investor in cryptocurrencies could well be the most profitable decision you ever make. But there’s a catch.
With over 5.000 cryptocurrencies in existence and counting, even the best case scenario will include thousands of failed coins and tokens. Assuming that cryptocurrency projects will have similar life cycles as traditional companies, the vast majority of them will fail within their first 10 years of operation.
That’s why a major key to cryptocurrency investment is developing your ability to pick out the promising projects from the scams and junk. To do it well, you’ll need to gain both knowledge and experience.
Make no mistake about it, though. Learning how to invest in cryptocurrency can unlock a whole new world of possibilities and free you up to pursue whatever greater purpose you have in your life.
Study the basics of the technology
When you still have questions like “How does cryptocurrency work?” or “How do I invest in Bitcoin?”, researching those topics is the best place to start. You don’t need a technical background to understand the basics, but you shouldn’t expect to learn everything in one night either.
The main idea that you need to become familiar with is decentralization. This is what makes Bitcoin and other cryptocurrencies different from all currencies that existed before, and it’s also the reason that they have so much speculative value today.
However, just studying the topic of decentralization on its own probably isn’t the most efficient way to understand how cryptocurrency works or why it’s important. For that, we’ve selected some of the best articles, podcasts, and videos on the web for you to get started with:
• YouTube: How Does a Blockchain Work? — Simply Explained
• Article: WTF is the Blockchain? — HackerNoon
• Podcast: The Quiet Master of Cryptocurrency — Nick Szabo
• Article: Beginner’s Guide to Blockchain – Explaining it to a 5 Year Old — HackerNoon
• YouTube: Bitcoin for Beginners — Andreas Antonopoulos
• Article (with audio): You Don’t Understand Bitcoin Because You Think Money Is Real — Maria Bustillos
Our cryptocurrency exchange simulator can also be a great resource for beginners. It makes learning investment skills as well as trading strategies fun and easy. To see all the ways we can help accelerate your learning curve check out our article: How to learn about cryptocurrencies in Coins2Learn.
Use the past to predict the future
A principle that rings true for Bitcoin investing (as much as traditional markets like stocks and commodities) is that understanding the past is the best way to be able to predict the future.
Although Bitcoin’s past only goes back to 2009, there’s still plenty to learn by studying its previous price action. Even if you aren’t planning on day trading crypto, knowing about bullish and bearish market cycles is essential if you want to maximize your return on investment.
Without this fundamental knowledge, your emotions will compel you to do the opposite of what you should do at the moment. You’ll buy in the Belief, Thrill, and Euphoria stages and then you’ll want to sell in the Panic, Capitulation, Anger, and Depression stages. Without discipline and awareness, you’ll likely experience severe losses.
The goal of investing is to Buy Low and Sell High, and knowing about market cycles and past price history is essential in order to accomplish that goal.
Understand your own investor profile
There are three basic investor profiles: conservative, moderate, and aggressive.
The top priority of a conservative investor is the safety of their funds. Unlike traditional markets, conservative crypto investors don’t try to diversify their portfolios too much because the cryptocurrency market is still very immature. Instead, they predominantly buy and sell Bitcoin, Ethereum, and other top coins that are less likely to fully collapse in value during poor market conditions.
Meanwhile, moderate investors try to strike a balance between security and maximizing profitability. For these types, it makes sense to put about 50-60% of their total portfolio into a relatively safe Bitcoin investment, while the other portion can be used for more niche projects with greater short-term upside.
Last but not least, aggressive investors have a high-risk tolerance and prioritize profitability above everything else. These types happen to be best suited to day trading crypto, and their portfolios are often the most diverse as well. However, finding the best small market cap cryptocurrencies takes lots of dedication, so having an aggressive strategy requires the biggest commitment.
Cryptocurrencies are still significantly more risky than other traditional assets. Including them in your portfolio at all takes some bravery. If the risk is holding you back, our Bitcoin trading platform will help you learn and practice investing in cryptocurrencies with play money so that you don’t need to lose money as you develop into a successful Bitcoin trader or investor.
Bonus tip: Project teams make all the difference
A good idea with poor execution stands no chance to succeed in the long-term, no matter how much money it has from fundraising or how well it’s marketed to the public. That’s why a huge key to cryptocurrency investment is analyzing the teams behind each project before contributing funds to them.
The three biggest traits to look for in a cryptocurrency project’s team are:
• Relevant experience
• Demonstrated competence
Relevant experience is the easiest of these to decipher. If the co-founders of a supply chain management project have 30 years of combined experience in the traditional supply chain industry, it’s more likely that they have developed a blockchain solution with real market demand.
Demonstrated competence is also critical to research, although it might require some extra digging. Tools like LinkedIn can be helpful for finding out what projects team members have worked on in the past and their results.
If a project’s founders or executives haven’t done anything noteworthy yet in their careers, it’s a good indication that their cryptocurrency project won’t be noteworthy either. Even Vitalik Buterin — who was just 19 when he co-founded Ethereum in 2014 — had already been involved in Bitcoin for several years and founded Bitcoin Magazine prior to launching a new cryptocurrency project.
Finally, the most important trait to look for is integrity. The crypto market has its fair share of scams and blatant money-grabs, and you want to avoid losing even one cent to those projects. If there isn’t any public information about a team, you probably shouldn’t invest. Or, in the case that founders or executives have a public track record but their commitment/integrity is questionable (e.g. Dan Larimer, who has abandoned two projects he founded), you should at least factor that into your decision making.
The stock market offers relatively safe and consistent returns through index funds and ETFs. But if you want to make life-changing money, cryptocurrency investment is the best opportunity that exists today.
Still, don’t expect to make money with Bitcoin or altcoins if you aren’t willing to put in any work. Being truly successful in this Bitcoin game requires a basic understanding of how cryptocurrencies work and their price history, as well as researching the teams behind each project before investing.
Ultimately, though, the work it takes to learn how to invest in cryptocurrencies can give you the financial freedom to pursue whatever purpose calls you, and that’s worth every second.