Since December 2017 we’ve seen a massive influx of new investors in the crypto space, and the inflow of their money has led to a massive boom for altcoins. I have come up with 10 simple advice points that will help new investors in the crypto space and will make you much more of an intelligent investor:
1. Only invest what you can afford to lose
Don’t have more than 1-5% of your entire investment portfolio in crypto, and only invest what you can afford to lose. Once you double your profit, pull out the principal so you are only playing with profits.
2. Learn to recognize FOMO when it hits you
FOMO is “Fear of missing out” and is one of the main driving forces of the market right now. It leads to emotional investing, so if you ever feel this itch to get in on a rapid upswing because you don’t want to miss out on some new development that is causing it, stop yourself, go to point #3 below and try to be analytical in your investment decision.
3. Do the research when investing in an ICO
I cannot stress this enough, you are buying an asset with your hard earned money, and it should have some utility. Start by reading the whitepaper that is on the main site for the coin. You can avoid a lot of scams by simply critically evaluating the question: “Why does this coin exist?” Is it simply trying to apply a blockchain to something that doesn’t need it or is there a transactional inefficiency/problem that the unique properties of the blockchain can solve?
- What is the Dev Team like? What is their track record? How are they funded, organized?
- Who is their competition and how big is the market they’re targeting? What is the roadmap they created?
- How will they attract their target market, how is their marketing?
- How does the coin derive its value? Is there some sort of dividend structure, profit sharing plan, or is it a store of value within a digital economy? How many coins will be released?
4. Look for warning signs and recognize that most altcoins have a net present value of zero.
Look at every new coin you evaluate with a super sceptical eye, because now there is way too much hype for coins that have no use case and are just get rich quick scams by the founders. Some obvious warning signs are:
- Massive portions of the float are assigned to the founders of the coin.
- The founders of the coin have anonymous teams or members with a sketchy pasts.
- Use case does not require or benefit from a blockchain.
- Vague whitepapers and websites filled with technobabble that sounds impressive to people who don’t know tech.
5. Understand that many people are losing money
Don’t be a sucker for the get rich quick buzz. There is an illusion right now that making money trading cryptocurrencies is a solid way to make lots of money. Don’t forget that those who lose money keep quiet about it and don’t advertise their failure.
6. Don’t chase a pump and dump
Never buy a coin based on a rapid upswing alone. It could be a “Pump and dump” – a trading scam where people organize to coordinate the laddered purchase of an asset, then wait for others to come in at some delay and further increase the price before coordinating the unloading of their position once a specific price target is reached. In general it is better to look for coins that have long term investment value (see points #3 & #4 above).
7. Make short term trading decisions based on news, as well as technical analysis
If you do short term trading, do it when you have high certainty that a specific news will lead to an increase. Read in forums and communities about events like upcoming roadmap item releases, fork airdrops, exchange additions and partnerships. Combine this information with indicators to see if you’re getting in at a reasonable entry point. Good indicators are MACD (moving average convergence divergence), RSI (relative strength index), market depth and support-resistance lines.
8. Diversify your portfolio
There are many different coins you could own, but try to diversify by holding some core assets such as Bitcoin & Ethereum that are “safer”, some finance coins such as Ripple or Stellar, some tech coins like IOTA, privacy coins such as ZCash or Monero etc. By diversifying you reduce your risk of portfolio wipeout in the case your chosen asset dumps, as well as increasing your chances of landing that special coin that will significantly increase in value.
9. Accept that it’s OK to miss out on a lot of great investments
By taking your time to make your decisions you end up focusing on the fundamentals rather than short term movements.
10. Use regulated platforms for short term trading
There are easy to use platforms like eToro where you can trade a nice variety of cryptocurrencies and deposit using your credit card or Paypal. They are safe and regulated and even offer training accounts where you don’t have to risk any of your own money to learn the ropes. Click here to visit etoro.