There are still many curious potential Bitcoin investors, eager to enter the cryptocurrency market and start making the millions, as many have claimed overnight successes. It is, however, important to have a strategy or game plan before investing. Any investment is always a risk and the cryptocurrency market is particularly volatile. Having a game plan in place will protect you against huge losses.
Bitcoin has grown in popularity since it was launched in 2009. Multiple studies have been conducted and have proved that millennials and younger investors, in particular, have grown increasingly critical of traditional financial service providers and banks in the wake of the 2008 recession. According to reports, at least 40% of these millennials have indicated that they intend to invest in cryptocurrency in the future.
Although it may be easier for new investors to purchase digital assets right now, there are still a few crucial factors investors should consider before buying into the cryptocurrency market.
Here are four essential things new investors must consider before purchasing any cryptocurrency:
Presently, there are over 5000 cryptocurrencies listed across a long list of exchanges, Bitcoin is the most popular among them and receives the most coverage from the media. Market capitalization or market cap refers to the market value of a publicly-traded company’s outstanding shares. It also provides specific insights into the level of risk an investment represents. It is becoming increasingly important to check a digital asset’s market cap prior to investing.
Investing in digital assets with a high market cap and large circulating supply means that the risk of manipulation and volatility is less, whereas smaller market cap coins are subject to frequent fluctuation, often based on positive or negative news.
Assessing a digital asset’s trading volume is just as vitally important. Investors need to analyse how many tokens are actually being bought and sold on a daily basis. Higher trading volumes means it will be easier to buy and sell the digital asset. Low trading volumes suggest that an investor will most likely struggle to buy the digital asset or have existing orders filled. Low trading volumes could also be a sign of a dead project and it is not advisable for an investor to buy into a digital asset with a very low trading volume.
Stop-losses and taking profits
Developing a plan for every trade is vital. A good investor develops a game plan for the price at which they intend to buy and sell a digital asset. It is important that the investor stays on course with this plan and starts thinking about what actions they will take in an event where the trade runs at a loss. A stop-loss order protects investors against losing large sums of money by selling an asset at a predetermined price, which is usually slightly below the purchasing price.
Safely storing your cryptocurrency
Once an investment is made in cryptocurrency, the next step is usually determining how and where to store your digital asset. If you’re using advanced cryptocurrency trading software like a few of the one’s we have reviewed,e.g. Crypto Trader, you can store your digital assets on the tool and transact at any time.
Other investors rely on hardware wallets that store the digital assets or private keys to those digital assets. This is stored offline and can only be accessed by the owner. There is also a diverse range of software wallets available, which allows investors to store their own private keys to their cryptocurrencies. Keeping your funds with a custodian such as an exchange is risky. The possibility of getting hacked is high.
Investing in the cryptocurrency market doesn’t have to be a complex situation. Investors should plan well and do the necessary research to secure their investments and minimise the risks associated with it.