In recent years, nothing has entranced the world to such an extent as cryptocurrencies, with mouth-watering returns from certain altcoins and SuperBowl Commercials, to endorsements from the likes of Larry David and Matt Damon, there simply seems to be no stopping this decade old concept from upending traditional markets and currencies.
While the recent extended bear market has dented the erstwhile rosy image of cryptocurrencies, the party is far from over for the die-hard enthusiasts.
If anything, experts believe that the recent corrections should bolster an application based approach to crypto, fundamentally altering the nature of the market, which has thus far relied on names, spectacles, and the buzz surrounding assets to make their bets.
If you are hellbent on dipping your toes in the crypto pool, this guide should help set the stage for a safe and responsible experience, with certain tried-and-tested best practices to familiarize yourself with before taking the plunge.
With no regulatory body, or ombudsman, investors are essentially dealing with the wild west equivalent of a global financial system, making it all the more perilous if things go wrong.
1. Understand Your Risk Tolerance Level
Responsible investing starts with an understanding of the current financial position, consisting of income, expenses, assets, and liabilities.
This should help ascertain the amount of money you are fine losing, without having any detrimental impact on your long term financial future, or the ability to put food on the table. A lot of investors have lost their shirts in recent years, trying to play the crypto markets.
Ideally, you should only invest money that you are willing to lose, and have some savings, or a diversified portfolio to cushion any falls arising from your cryptocurrency endeavors. Never make the mistake of taking out long term savings and investments, in pursuit of superior returns in crypto.
Given the level of volatility with these assets, investors might see big swings in their valuations within just minutes.
2. Don’t Buy Crypto With Your Credit Card
Most crypto wallets and exchanges don’t have any restrictions with regards to where your funds come from. While some exchanges don’t accept payments from credit cards, a vast majority of them, including the likes of Finance, do allow investors to buy cryptocurrencies by using their credit cards. In fact, there are certain cryptocurrency credit cards, issued especially for this purpose.
However, it is highly recommended that you don’t buy crypto using your credit card, especially since most exchanges charge exorbitant fees in order to facilitate credit card transactions, often as high as 3% to 5% of the total amount.
Beyond this, many credit card issuers have recently started treating crypto transactions as cash advances, levying a 3% to 5% one-time fee, making the process overly expensive.
3. Diversify Your Crypto Portfolio
Instead of chasing the ‘next big coin’, and putting all your investments in one basket, it is highly recommended to diversify your crypto portfolio across a wide range of different assets. Given the large number of scams, and unscrupulous players that dominate this ecosystem, you are better off with your wealth spread over a wide range of assets, to cushion the losses arising from such scams.
With tens of thousands of coins available, each with different features, characteristics, and applications, an ideal portfolio can ensure the perfect balance, ensuring support in all types of market conditions.
There are a few assets that don’t follow broad-based market trends, and tend to perform inverse against big hitters such as Bitcoin, and Ethereum, making them ideal in hedging against drawdowns.
4. Beware of Scams
If something sounds too good to be true, it probably is, but when it comes to the crypto markets, it definitely is a scam. The ecosystem is filled with influencers, product creators, and marketers who are constantly looking for a way to make quick bucks by selling rosy tales and promises to beginners, this includes signals services, trading bots, and expensive courses by gurus.
We cannot say that all of them are scams, but given the nature of this market, the core principle is “Buyer Beware.”
Scams and swindles aren’t that obvious either, leaving most consumers unsure about what hit them, and this includes pump and dump schemes, cloud multipliers, malicious wallets, and even fraudulent giveaways, all aimed at luring unsuspecting beginners, just getting started with crypto.
These are truly exciting times in the crypto markets, and despite the massive correction in recent weeks, it is fair to assume that this segment’s best years are ahead.
As the ecosystem is cleaned up, and all the satire, and copycat assets are replaced with coins that have real utility, we are likely to see the mother of all bull runs in the coming years.