Cryptocurrency is a decentralized digital currency that seeks to offer an alternative to government-issued money. The cryptocurrency market has exploded in recent years, with no sign of slowing down.
With that said, cryptocurrencies are still relatively new investment vehicles, and there are several dangers involved with buying them. For starters, there's no safety net when it comes to cryptocurrency investments; if something goes wrong (whether you caused it or not), you may lose all of your money.
Here are five strategies for safely investing in cryptocurrencies to ensure something like that doesn't happen to you.
5 Tips For Investing In Cryptocurrency Safely
#1 Pick A Trading Style
The first way to ensure you invest safely is to choose a trading style that matches your personality and investment goals. Here are a few of the popular styles you may want to employ:
HODL (buy and hold): This is the strategy chosen by many crypto investors today—rather than making a decision on when to sell their assets, they simply buy and hold for the long term. The term lovingly stands for "hold on for dear life," which is how crypto investing can feel a lot of the time.
Trend trading: Choosing your position in line with current market trends is called trend trading. If the market is going up, you buy in, and if it's going down, you sell or go short. A substantial amount of recent investment research suggests that trend trading may lead to subpar outcomes, but that doesn't stop investors from doing it anyway.
Hedging: Taking an opposite position to a position you currently hold is known as hedging. You'd want to do this to mitigate your potential losses if you thought the market was set to move against you.
Day trading: Day trading involves opening and closing positions in a single day. It's not for the faint of heart, but if you know what you're doing, day trading can be a great way to lock in quick profits.
#2 Do Your Research On Exchanges
Before investing any money into cryptocurrencies, it's vital to understand the distinctions between the different Australian exchanges. There are plenty of exchanges out there, so you should always research how secure a specific exchange is before investing with it.
There's no shortcut here if you want to do this the right way: researching exchanges means reading reviews, especially from knowledgeable bloggers and past and current users. Things to look out for include how they store their coins (online or offline), how secure their servers are, how they keep customer data private, and whether they've been hacked in the past.
#3 Practice Safe Storage Techniques
When it comes to cryptocurrency, one of the first things you should consider is how you intend on storing it. There are three primary ways to store your coins:
#1 Paper Wallets
The most basic type of crypto wallet is a paper wallet, which is simply a piece of paper with your secret keys printed on it. However, there are some disadvantages to paper wallets: if you lose your paper wallet, you will also lose your cryptocurrencies. On the other hand, since these cannot be accessed by hackers, they are considered to be one of the safest ways to store your coins.
#2 Software Wallets
Software wallets (also known as "hot wallets") may be downloaded to any computer or smartphone with Internet access. They're very useful, but they can also be hacked—even if you have 2-factor authentication turned on.
#3 Hardware Wallets
The most secure method to keep a large quantity of cryptocurrency is in a hardware wallet, since it can't be hacked or utilized without direct access to the physical device. Hardware wallets have become increasingly popular among security-conscious crypto exchanges in recent years.
If you want the security of a hardware wallet with the convenience of a software wallet, you could also opt for a software wallet that's downloaded to your PC, keeping all of your data offline.
#4 Diversify Your Investments
Diversifying your assets is a smart way to boost your chances of success when it comes to investing, and cryptocurrency is no exception. If you've purchased some Bitcoin, for example, it would be wise to also invest in Ethereum or Litecoin so that you're not entirely reliant on a single currency for your profitability. Likewise, if those other coins are doing poorly, your Bitcoin holdings can help keep your investment afloat.
#5 Plan For Volatility
Cryptocurrencies are highly volatile and susceptible to rapid price changes, making them a risky investment. As a result, you must be prepared for the possibility of losing all of your money if the price does not move as expected, and you need to accept this risk before investing in any digital currency. If the ups and downs of crypto don't work for you, stop buying before you get yourself into a real mess.
The cryptocurrency market has exploded in popularity in recent years, but it's also highly volatile and still relatively complex. If you aren't careful, you may lose a significant portion of your money overnight as a result of the market's fluctuations.
However, as long as you remember these five pointers, you should be ready to capitalize on this exciting new frontier of investing.