Cryptocurrency has been a topic of debate for a decade now. Every now and then we hear stories about people becoming millionaires overnight or losing everything in a matter of minutes. Such stories have created a craze for investing in crypto and people from all over the world are wanting to get in on the action.
However, should you buy just for #FOMO (Fear of Missing Out)? I believe you shouldn’t.
Before you decide to invest in a cryptocurrency, there are certain aspects that you need to check and analyze. Without proper analysis, the investment you make is a pure gamble and more often than not, it will fail.
Hence, today I am going to list 5 most important things that you MUST do before investing in cryptocurrency.
1. #DYOR – Do your own Research
First and foremost, you should never blindly follow the buzz. While it is tempting to jump into the game and follow what all others are doing, it won’t help much.
The important thing to do is research. Before selecting a coin to invest in, always do a thorough research.
A few guidelines that you can follow for researching a potential coin
- Check the basic stats of the crypto on sites like CoinMarketCap & Coingecko. The major metrics you would want to see are Market Cap, Volume (last 24h) and the exchanges where the coin is traded. As a general rule, cryptocurrencies whose 24hr volume is consistently greater than 20% of the market cap are good picks. This is because when you decide to sell, there are buyers in the market to honor your sell order.
- Do a Google search for the coin and check the “News” tab. Any coin which has been covered recently by the press or has made a major announcement is likely to give you good value in future. You can also read a review about the cryptocurrency to better understand the technology and use case.
- Find out whether the crypto has venture capitalists backing it. This is quite important for the small cap cryptos (the ones with market cap typically less than $200m). If a new cryptocurrency project has big venture capitalist backing it, then it is likely to do well. It is because these investors do not invest in shallow projects. While a VC backed crypto isn’t guaranteed to be successful, but it does have lesser chances of failing when compared to the cryptos with no VC backing. You can find out about the venture capitalists by checking the coin’s official website or using Cypherhunter.
- Follow the crypto’s social media channels, telegram groups, and read their blogs. Try to understand the value they aim to offer and see if it has huge potential.
2. Follow the narratives
Since cryptocurrencies are not backed by anything significant, their values are mostly speculative. Bitcoin is huge because millions of people believe in it. The same is true for Ethereum which is the second biggest cryptocurrency after Bitcoin.
In the same way, you need to find out whether your selected cryptocurrency has a narrative that people believe in. For example, right now the crypto world is buzzing with NFTs (Non-Fungible Tokens) & DeFi (Decentralized Finance).
Hence, currencies which are aligned to these narratives would generate more interest than the ones which are not. Consequently, there will be more investor interest in the cryptocurrency that fits the popular narrative.
A sound strategy for you would be to first find out about what type of cryptocurrencies and narratives are hot right now and then find a cryptocurrency which fits in to that narrative.
3. Keep a check on your emotions – Avoid #FOMO
The biggest risk in cryptocurrency investing or any investing for that matter is FOMO. The fear that you will miss out on huge gains is what makes people do rash things.
Therefore, it is very important to keep your emotions in check while trading.
A recommended alternative would be to actually analyze the emotions of the market. If people are panic selling and there is a dip, it might be a good time to enter a crypto in which you wanted to invest. If there is euphoria around a certain currency, you might want to cash in and make profits if you hold that cryptocurrency.
All in all, keep your head in the game in order to come out on top in the long run.
4. Understand the risk with investing in crypto
It is really very tempting to go all in when you heard about people becoming overnight millionaires. However, NEVER DO THAT.
It is vital to understand that investing in crypto is a high risk activity. The crypto market is highly volatile and sometimes all it takes is a tweet to crash the market.
Therefore, it is important to only invest an amount that you can afford to lose. Additionally, never go all in on one coin unless you’re absolutely sure about it. It is always better to have a more diversified portfolio that can help you hedge the risk.
5. Have a realistic goal – Don’t expect the moon always!
Dreaming of becoming a crypto millionaire is nothing wrong. Investing in crypto actually has the ability to make you a millionaire in the long run, if not overnight.
If you look at the stats, Bitcoin first touched $1 on Feb 9th, 2011. Since then, the coin has grown to touch the levels of $64,000 earlier this year. Now that’s a massive 64000% gains over the course of a decade.
However, this needs a lot of patience. Most of the people entering the crypto market these days are influenced by the likes of Dogecoin, which gave ~12,000% gains in under one year. While such things do happen, they are rare.
Therefore, my suggestion would be to have a realistic goal and stick to it. For example, you can buy a small cap crypto at the initial stages and have a set target of 10x or 20x for selling. So, when the coin does hit your target, you should sell. You might not make 1000x on one coin at a time, but this strategy can help you make regular profits and reach your wealth goals anyway.
Conclusion – Treat investing in crypto at par with stocks
The final word I have regarding investing in crypto is quite simple – treat it like stock trading. Cryptocurrencies are an asset class and you should treat them as such.
Just like you would not invest in a stock without understanding the business and looking at the technical aspects of it, the same should be followed for cryptos.
Also, be sure to register on a well known crypto exchange. Being registered on a reliable crypto exchange is as important as selecting the crypto to invest in. This is because the cryptocurrency market is highly volatile and you don’t want your buy / sell orders to be stuck when there is massive selling / buying. Further, please fund your trading account beforehand so that you have money to trade with when the opportunity arrives.
Following the steps above will help you in selecting cryptocurrencies with high investment potential.
Finally, if you play it smart and make informed choices, then cryptocurrency investment literally has the ability to take you to the moon!!
Looking to buy your first crypto? This stepwise guide is all you need to get started.
I have done a comparison of the 4 biggest crypto exchanges in India, you should definitely read it.
Start your crypto journey with BitBNS and win Bitcoin worth INR 100 when you complete KYC.
Ashish is Write it Right’s go to man for all things “Finance”. He started his passion for blogging and content writing during his college days back in 2013 and has been on and off ever since.
His hobbies include trying out different cuisines, binge watching shows, traveling and sleeping!!
Currently, he works full time as a Credit & Portfolio Manager and with his blogging, aims to educate the masses about Finance, Fintech and the Cryptocurrency revolution.