Bitcoin is a global digital currency that offers sound, predictable, and easily verifiable monetary policy. If you are a new investor taking your first steps into the world of the blockchain, you might be wondering how you can find success in this emerging investment space.
Here are some of the most important things for you to consider when investing in Bitcoin:
1. Perform Your Due Diligence
Given the convenience of mobile Internet access and the wealth of available information online, investors don’t really have a good excuse to invest with little to no understanding of any type of asset.
Cryptocurrencies, including Bitcoin, have easily accessible whitepapers online. Take a few minutes to read through the original 2008 whitepaper to brush up on your knowledge about this potential investment. The whitepaper is essentially a roadmap to Bitcoin. It offers information on how the digital currency operates, how the blockchain stores secure data, and how it makes money.
If you find it difficult to understand the technical terms contained therein, find a trusted person or resource that can help answer any questions you may have. Working with a mentor can also help you gain insight into the nuances of your investment in a safe environment.
2. Embrace the Risks
The cryptocurrency market is very volatile, and the Bitcoin market is no exception. As a Bitcoin investor, you need to be mentally prepared for extreme price swings that you won’t often find in other traditional markets.
When you are mentally prepared and accustomed to unfavorable, and perhaps terrifying investment performances, you’ll be more able to act rationally instead of emotionally when you come across unprecedented price swings. More importantly, only invest as much money you can actually afford.
Below are some great tips to keep in mind when dealing with Bitcoin investment risks:
- One of the common mistakes for neophyte Bitcoin investors is succumbing to the fear of missing out or FOMO. Many newcomers see double-digit growth and purchase more Bitcoins because they fear that they will miss out on further price moves. However, buying the asset high is extremely unprofitable in the long run. Instead, bide your time and strike during the most favorable market conditions, which is when the price has bottomed out and is ready to increase again.
- A popular strategy that most cryptocurrency investors use is diversification. Essentially, this means that you don’t put all your eggs in one basket. Invest in other assets or cryptocurrencies aside from Bitcoin so that you don’t get shocked by the inevitable price fluctuations.
- Another strategy that investors have found very successful is the buy-and-forget technique. This is a passive investment style, where investors buy Bitcoin at their lowest price, resist the temptation to make short-term moves, and sell the asset when it is at the top. This investment strategy also tends to be the cheapest one in terms of trading fees and overall operating expenses.
- Remember that Bitcoin is a global digital currency. It is apolitical and it won’t be affected by the financial situation or stability of any single country. When looking at trends and assessing the impact of economics and politics on the price of Bitcoin, consider the full, global picture, and do not get hung up on the events in one country.
3. Find a Safe Trading Platform
Figure out what kind of investment strategy to follow before you start buying Bitcoin. Do you prefer long-term, passive investments or short-term, active trades?
Long-term investors tend to pay lower taxes, operating costs, and overall fees, but they do tend to miss out on attractive price fluctuations. Short-term investors, on the other hand, can monitor the market for favorable trades and avoid corrections, but they also tend to pay more taxes and trading fees.
If you plan to be a long-term investor, you’ll need to find a reliable wallet where you can store your coins. You can choose from online wallets, mobile wallets, and paper wallets. Each one has its pros and cons, but if you want to manage risk better, use all three simultaneously. Store your Bitcoin investments just as you would keep some cash in your bank account, some in your safe, and some in your wallet.
If you plan to be an active trader, choose a secure and reliable site like the Bitcoin Revolution platform. It has an intuitive interface and it also provides various security features that will help you protect your assets. It also offers tools and software that can automate certain tasks and make your trading experience so much easier.
4. Pay Attention to the Market Cap
One of the most common mistakes that you can make as a new Bitcoin investor is to base your investment decisions solely on the price. Remember that the value of Bitcoin and any other cryptocurrency is only valid after you also take into account the current circulating supply. The total market cap is the number of coins multiplied by the price of those coins.
Do not focus too much on the absolute price. Instead, think about the percentage of the total market cap that you are planning to buy. Keep in mind that the closer Bitcoin gets to its market cap, the higher the demand will be to sell in the future.
5. Set Clear, Well-Defined Profit and Loss Targets
Because Bitcoin is still considered as a relatively new market, it is difficult to predict the best times to sell or buy Bitcoins. Given the volatility of the market, you need to set clear profit and loss targets before opening a trade. A lot of Bitcoin traders fail because they become too emotional or stubborn, and don’t realize that it’s time to let go of a bad position.
Don’t let your ego or emotions control your trading behavior. Set clear exit points for profits and make sure that you have stop-loss strategies in place in case a trade is not going as expected. These tools will help you minimize losses so that you can continue the fight on another day.
Bitcoin is an exciting asset class for new and experienced investors. However, because Bitcoin is still in its nascent stages, there are still so many risks involved with investing and trading in this market. To ensure success, make sure that you take some time to understand how the asset works, how you can secure your investment, and how you can avoid risks and losses.
Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.