The question that potential investors of virtual currencies are asking more seriously is possibly how much to invest in the sector. And, certainly, it is not something that should be considered lightly.
The burgeoning universe of crypto is susceptible to market fluctuations, due, in part, to their relative youth. Taking this into account, investors should always maintain a cautious attitude towards their investments.
Before entering this interesting world, it is important to consider several factors that will help you make the best decision about where to put your money:
To decide what type of cryptocurrency you are interested in
As important as deciding how much to invest in cryptocurrencies, it is also necessary to be strategic to understand the fundamentals of a digital asset, since it can play an important role in the level of risk involved.
The fundamental analysis is the best indicators for investors, in the long run, so you will need to know how a coin or coins initial offer (ICO), its history and what brings before choosing to participate in its development work.
It might be better to see the purpose of the cryptocurrency that interests you, how long you have been in the market, your capitalization and your underlying technology solutions. Virtual currencies that solve problems have greater potential to achieve success than those that are essentially ICO.
In addition, the longer a cryptocurrency has been in the market, the more reliable it is.
To decide what type of investment suits you
Naturally, you will want to create a plan if you want to enter the cryptocurrency market. The question is whether their exchanges will be short, medium or long term. This is an important consideration that affects the amount of money you will put into your investments. If the plan is to negotiate regularly , then understanding market trends, the culture that drives them and the mindset of investors is a step in the right direction.
If you want to go further, study market indicators, fundamental and technical analysis, related events that affect the space, general technological news and announcements from developers , among others, is the next step to increase your chances of success.
Pay attention to statistics
As stated before, measuring the behavior of the market during different periods of time is part of a well-ordered strategy. While this may be confusing to follow up at times, the dynamics of the market should not be overlooked, especially if you plan to negotiate in the short term . Go for the basics, speed up your choice of cryptocurrencies to those who prefer, look for their graphs and try to detect trendsthrough market indicators.
Inquire about the acceptance and reliability of the currency
As in most markets, trust is crucial for potential investors. For someone to put their money behind a cryptocurrency or project, that person must conclude, through a process of their own, that they trust the idea enough to invest in it. In the crypto space, this process could focus on three key factors of the new technology that billionaire philanthropist and entrepreneur Peter Thiel has explained at times: a unique idea (that offers tangible solutions), progressive improvement (that has a good team of development) and the ability to coordinate complex ideas.
Actually, these three points are the best indicators that a long-term investor can consider with respect to cryptocurrencies.
In an appearance at the Economic Club of New York in March, Thiel analyzed the reliability of cryptocurrencies by drawing parallels between Bitcoin and gold. Both are considered a reserve of value, are not backed by any government, have unclear inherent values and are immutable, each in its own way.
Observe the main actors in space
In any field, learning from the knowledge of predecessors will never hurt, but it can help. Cryptocurrencies are not the exception. In fact, this one step could be the most important due to the volatility of the market, since a small mistake could cost a fortune or all of its assets.
The most common saying of crypto investors and finance experts is that “you should only invest the money you are willing to lose”. In practice, this translates into a low percentage of your net worth. The question is: do they really do it? The criptomillionaire Erik Finman, for example, invested US $ 1,000 in cryptocurrencies when he was 12 years old. He had very little money, but opted for a high risk and high reward strategy, and he made millions in the process.
At one point, Jeremy Gardener turned most of his shares into digital coin investments, and since then he is another lucky young millionaire thanks to the crypto.
At the end of the day, these people made big jumps by investing in cryptocurrencies. Even so, the important thing about their investments is that they were willing to lose the money.
Reverse the correct amount
The general rule that you should “invest only what you are willing to lose” is almost impeccable. Let’s put it this way: if you woke up one morning with your investment hanging by a thread, could you pay your bills next month? If the answer is negative, you are investing too much. Of course, losing money is never good, but if you invest properly, it will not be the end of the world if the worst happens.
Investors should always make sure to keep 95% of their investments in a well-diversified portfolio in different asset classes, sectors and geographic regions. This helps them position themselves to mitigate risks and take advantage of opportunities as they appear.
That said, dedicating around 5% of the portfolio to cryptocurrencies is generally considered a good option, at least for the growing number of investors who firmly believe that virtual currencies, in some way, are the future of money.