This post originally appeared on Entrepreneur.com - #Growing Your Business
The worst thing you can do is put your money into options you know little or nothing about.
5 min read
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Investing in cryptocurrency is one of many options for investing your money today. In fact, it’s pretty hard to avoid hearing about the crypto market and its opportunities. Still, all this buzz doesn’t mean it’s the safest way to invest your money; it’s just an option.
Last week, I was completely knocked out by a friend’s reaction when I simply asked, “How much do you have in your bitcoin wallet?” He suddenly wore a disdainful look. What happened? He replied, “It’s a long story. I heard glowing reviews on how cryptocurrencies have turned many into millionaires overnight, so I thought it wise to invest all I had on November 27, 2017. Little did I know I was throwing debt a welcome party. I don’t think I can ever invest my hard-earned cash on cryptocurrencies again.”
Actually, I felt pity for him. But the big question is, did he do his homework before putting all his money in? No, he didn’t. He merely heard people’s positive testimonies and jumped into it. The crypto market is, after all, highly volatile. It’s not a safe or low-risk type of investment. Therefore, don’t allow FOMO to swing you into making a swift and risky decision just like my friend. But If you are considering it, here are smarter ways to invest and still make the most out of it.
(Note: I don’t intend to discourage you from investing in cryptocurrency. I just want you to be aware of the high risk involved in know how to invest like a businessman and not a gambler.)
1. Carry out a deep study before you invest in any cryptocurrency.
To make profit from investing in cryptocurrencies, you have to carry out a deep study on the obvious coins. This way, you’ll be more knowledgeable about the coins you want to invest in and understand the utility it contributes to the crypto world. One of the core reasons why so many are still in doubt about cryptocurrencies is because they suffered serious loss as a result of the dramatic decrease in bitcoin and altcoins in December 2017.
Just like the case of my friend, due to FOMO, he entered the market without proper research and ran into huge debt. In this form of investment, just like forex and stocks, you don’t have to gamble to make a profit, so be careful with whatever decisions you make, because the worst thing you can do is to invest in cryptocurrencies you know little or nothing about.
2. Don’t invest based on hype and noise.
A smart crypto investor doesn’t make decisions based on hype and noise — it’s highly risky. If you want to make money investing in crypto, you’ll have to invest based on calculated risks and asking the right people for the right guide. Relying on only what the crowd is saying about a coin is not wise at all. The price might crash all of a sudden, leading to a terrible loss.
Instead, be enlightened, ask the right people for a guide and arm yourself with enough knowledge before you invest. Making money in the crypto market is not child’s play. You need patience and the right knowledge to make worthwhile profits.
3. Understand your risk strength and invest what you’re willing to lose.
Taking financial risks makes some people nervous, while some seize the moment and jump on a potential opportunity. Where do you belong? Be sincere with your response here. It will help you decide what portion of the portfolio to invest in.
Advisably, if taking risk makes you nervous, don’t invest in crypto. There are many other investment opportunities out there that aren’t extremely volatile. However, if you’re a risk-taker, invest only a portion you’re willing to lose, in case things go south.
Most importantly, there is no rule on same-amount investment. Just because Jan invested $4,000, it doesn’t mean you have to do the same. If you’re willing to risk more than Jan, that’s your decision, and if you’re willing to risk less, that’s your choice as well. What matters is that you invest within your limit. That is what you’re willing to lose.
4. Proportioning your money on more than one coin.
A good strategy for reducing risk is to spread your investment across cryptocurrencies. It does have its own complications, but it’s better than investing in just one coin. Yes, cryptocurrencies are extremely volatile in their pricing, but all of them simultaneously failing is an unlikely event.
Aside from bitcoin, there are thousands of others in the market. You just have to open your eyes because, there are many scam coins as well. Among the “real” coins, study and opt for the ones that have potential, and then proportion your money based on your calculated risk. The idea behind this — and any of these tips — is to mitigate the risk of losing all your money. Good luck.