The 6 Golden Rules for Investing in Cryptocurrency
This is a guest post by writer Garima Pachauri
This is a guest post by writer Garima Pachauri
Cryptocurrencies continue to remain a preferred mode of investment among small and large investors for several reasons. Bitcoin, the biggest crypto-currency can be brought to its one-millionth fraction, Satoshi that makes it popular among beginners and small investors looking to build wealth.
Increasing number of merchants- ranging from pizza shops to escort services, airlines to luxury hotels and casinos now accept crypto-currencies in lieu of conventional money. Unfortunately, cryptocurrencies have run into doldrums too: some governments have banned cryptocurrencies altogether while others remain unsure about policies to regulate their trade.
Cryptocurrencies are increasingly figuring on law enforcement radars for suspected use in terrorism, drug trade, human trafficking, transfer of banned technology and cyber-attacks. Taxmen are viewing cryptocurrencies as a threat to national exchequers since they broadly facilitate tax evasion.
Despite these vagaries, cryptocurrencies offer very lucrative returns for investors. Growing popularity implies, major cryptocurrencies such as Bitcoin, Ethereum and others are here to stay for long, despite projections to the contrary. Hence, it is ideal to invest in cryptocurrencies, provided you follow some golden rules.
Golden Rules of Crypto-Currency Investment
These golden rules for investing in cryptocurrencies are nothing complex. Nor do they vary vastly with other forms of investment such as stocks, commodities and Mutual Funds.
Study Crypto-Currencies Well
Before investing in cryptocurrencies, you need to know how they function. Unlike conventional fiat currency, trading rates of cryptocurrencies are solely dependent upon market demand and supply. Means, whenever demand for a crypto-currency soars, a corresponding increase is observed in its rate. This is because the number of cryptocurrencies is vastly limited.
Hence, you need to study how various cryptocurrencies have fared over the last two to three years. Learn about the time and reasons when their rates sprang upward or plunged and highest and lowest rates recorded during a three-month period. Such study will provide near astute knowledge about when to enter into the buying or selling mode while investing in cryptocurrencies.
Create a Crypto-Basket
Undoubtedly, Bitcoin is the king of all crypto-currencies. By mid-May 2018, one BTC was worth US$ 8,780. Bitcoin is known for its wild price swings. In December 2017, Bitcoin was touching the US$20,000 mark- highest ever for any cryptocurrency. Other cryptocurrencies are not equally volatile. Ethereum and LiteCoin for example, exhibit fairly stable prices and cost much lower than BTC.
Therefore, another golden rule for investing is to create a basket of various cryptocurrencies. Investing in different cryptocurrencies offers you some level of buffer against price volatility. Should your investment in one cryptocurrency plunge, others will still retain an upward swing. This means, your investments retain their value.
Invest for Longer Terms
You can derive only by holding them longer. This is another golden rule for investing in cryptocurrencies. While short-term trading is possible, it may cause you to lose on massive returns that are possible in the longer run.
For example, Bitcoin sold at about US$1,500 at the beginning of 2017 only to peak at US$20,000 at the end of the year. By early 2018, rates were on the slide. Bitcoin and other cryptocurrencies display excellent records of recovery.
Hence, a sudden spurt in prices is no reason to sell them off. Nor are sliding rates cause for concern. Holding them longer helps you tide over these wild fluctuations and price volatility. The longer your holdings, higher the returns, as most cryptocurrencies continue to show.
Learn How to Bid
A unique feature of cryptocurrencies is, they allow you to choose a buying price. This means you can place your order for a specific number of a particular cryptocurrency. The order remains active until fulfillment. This means you can obtain cryptocurrencies at the price you demand. The money you will pay for these cryptocurrencies is not debited till the order is fulfilled.
However, to place a bid, you need to know the high, median and low prices recorded by a cryptocurrency over a prefixed span of time. Also, you need to be realistic about the price upon which you will bid. Several online tutorials are available on how to bid for cryptocurrencies at your price. Cryptocurrency exchanges also provide information related to bidding and placing orders.
Take Instant Delivery
This is of prime importance and a golden rule for investing in cryptocurrencies. Whenever you buy bitcoin or other cryptocurrencies, take delivery and store them on a hardware wallet. Leaving them with a cryptocurrency exchange can prove risky as was recently proven in India.
Indian authorities swooped upon cryptocurrency exchanges and froze assets that led them to exit the market. Consequently, investors were left in the lurch. Hence, it is advisable to take delivery of your cryptocurrencies immediately
Storing them on software wallets can be risky. Nowadays, cyber-attacks are fairly common. Certain software wallets are device specific. This means, they will function only on particular models of smart-phones and an account cannot be transferred very easily. Thus, keeping cryptocurrencies in hardware wallets that have multiple encrypted accesses are the safest bet.
Buy at Safe Havens
Another golden rule for investing in crypto-currencies is buying them in safe havens or countries where their trade is legal. A search on the Internet will reveal countries and locations where you can buy cryptocurrencies legally.
Buying at these places protects you from any laws that may affect cryptocurrency trade in your native country. Since cryptocurrencies are borderless, trading from any location does not affect their prices.
Additionally, you can get higher level of anonymity than buying at home. For example, paying for cryptocurrencies using credit or debit card or net banking cause your bank to record the transaction. Using cash to buy them in a foreign country helps circumvent such records and enables better anonymity.
In Conclusion
Some other simple rules you can follow for investing in cryptocurrencies includes avoiding proxy buying or asking someone else to purchase on your behalf. Also, buy cryptocurrencies from well reputed exchanges only: there are countless scammers on the Internet who will take your money and vanish into limbo. By following these six golden rules for investing in cryptocurrencies, you can safeguard the money while getting fullest benefit of high returns.