Three Crucial Tips: How To Become Successful in Cryptocurrency Investment


Success in cryptocurrency investment is not by chance. Any investor or trader who have accomplished a lot in this sector cautiously followed a laid down rules and strategy to avoid lost. Since the inception of Bitcoin, the face of investment has changed with many people trying something new and sticking to the plan.

There have been many reports of people becoming millionaires overnight, thanks to the sudden rise of the bitcoin price. Similarly, there are a number of people who have been ruined by cryptocurrency investment. Success and failure in this venture depends on how well you execute your strategy to minimize lost while making profit. In a bid to help investors, especially the newbies to achieve their goal of multiplying their investments whiles minimizing risk, this article will present three interesting tips or strategies to consider.

Diversify your Portfolio (Cryptocurrency Investment Tip)

Cryptocurrency investment

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Portfolio diversification focuses on the spreading money across different investment classes. Putting all money into one cryptocurrency is not a healthy way of starting an investment. It is understandable that cryptocurrency investment is highly risky, and can cause you to go bankrupt if not tackled with the right strategy.

Diversifying your investment portfolio is a common risk management strategy proposed by experts to newbies and even experienced investors. It means giving equal chances to multiple cryptocurrencies to increase the possibility of reaping some returns even when a few of the assets record a massive crash.

For easy understanding, cryptocurrency investment is likened to a farm. Farmers sometimes grow multiple crops on the same land not to meccesserily to multiply profit. Sometimes, the idea is to have at least one class of crop growing well and covering up for the other crops that were affected by the adverse effect of the weather, and the harsh condition of the soil. In cryptocurrency investment, not all digital assets record a positive growth at a time. In most cases, the price of Bitcoin rises when others are falling. This can be explained by many ways.

Portfolio diversification is very common in other areas of investment. Gold, for instance, has been recognized as a very good asset for this purpose since its price usually rises when the price of major stocks fall. Gold has been proven to have an inverse relationship with political and economic wars between countries. Its price rises when the political atmosphere or even the economic environment is not favorable.

To diversify your investment portfolio, first make a comprehensive search on most of the cryptocurrencies, and write down assets whose prices usually go the opposite direction of others, and add them to your investment portfolio.

Short time Investors Must Follow the News

A number of people hold the wrong perception that the prices of cryptocurrencies are just the random product of unknown activities. This is 90% false. The prices of various cryptocurrencies are the product of demand and supply. In this case, the direction of their price movement can sometimes be predicted when the determinants of their demand is known.

It is worth noting that since the size of market demand largely affect prices, it is important to follow the market news to check if there is any activity around a selected asset that may affect demand.

Cryptocurrencies such as Ethereum and Litecoin have been a very important assets for the past two years. They are very sensitive to the point that any technological innovation announced by their teams can cause a price spike.

When there is any breaking news about the implementation of a new policy that may change the face of their operation, the price responds rapidly and takes a sharp rise on the price curve. Similarly, any news on government crackdowns or shutdown of any major cryptocurrency exchange affects their prices significantly.

Experts also advise that investors should keenly follow the latest happenings around the bitcoin market before they decide to buy more of an asset or sell their holdings in the short term. Bitcoin mostly uses its power to drive other cryptocurrencies along when its price rises or falls.

Following market news in cryptocurrency investment has also been said to be an efficient strategy since their prices are largely driven by speculations more than valuations. The expectation of the price spike of an asset when its team announces an important partnership deal pushes the demand even higher and vice versa according observation.

Background Check Before Cryptocurrency Investment

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Bitcoin, the first cryptocurrency to be introduced by Satoshi Nakamoto has drawn a whole lot of altcoins into the market with its success and popularity in the past few years. Following the success of Bitcoin, a lot of experts, teams, companies such as Facebook and even a few countries have come out with their digital assets for whatever reasons.

Interestingly, many of these introduced cryptocurrencies were created for fun, with no clear roadmap, and have no recognized working teams that seek to drive the prices to the moon with updated features. Investors, especially, those who have little or no experience in the market are likely to invest in an asset that has been given up on. Cryptocurrency investment involves a complex analysis of all possible forces that can create a successful investment.

Also, in assessing the over thousand active cryptocurrencies, it is clear that most of them were not created for investment. A typical example is Tether. To invest in Tether because you found it among the listed cryptocurrencies with cheaper prices is likened to putting your money into a savings account thinking you bought a treasure bill.

Tether was created at a ratio of 1:1 to the USD. The idea was to have a stability just like the US Dollar. Checking from its price history, Tether has always been $1 since its inception. Investing in this blindly may lead to a big disappointment, though funds may not be lost.

Some of the cryptocurrencies are also undergoing a lot of challenges, example Bitcoin private (BTCP). Bitcoin private was forked from Zclassic and has, for sometime now, been trading below $0.5. Even on most of the exchanges, withdrawal of this asset has been temporally deactivated. This and many other reasons explain why investors must do a comprehensive check on an asset before they add them into their investment portfolio. Cryptocurrency investment is a very lucrative venture if done rightly, but can be a nightmare if some mistakes are not avoided.

A Few Tips When Doing Background Checks

To start a background check on a digital asset, first focus your search on the team and the community of the cryptocurrency. Check whether the asset has an official website. If it has, find and read its roadmap or probably its whitepaper. Check some of the recent partnership deals they have announced, and also, check their technological innovations that have been planned to be executed. Most of these assets have official social media pages. Go to these pages and find the last time they updated their community. Through this, it is easier to know whether the asset has been given up on or not.

In addition, check whether there is an active community of the cryptocurrency on maybe Facebook and Twitter. After these social media searches, you can make a research on the team behind the asset. Check their profile if possible before you hit the ground running for the cryptocurrency investment. Try as much as possible to search on the uniqueness of the asset, some of the problems they intend to solve with their project and most importantly, check whether the cryptocurrency is fully decentralized or centralized. Some maybe centralized, but are worth investing in, example XRP.

Finally, put the cryptocurrency under critical scrutiny with the idea of finding whether its price can easily rise in response to increase in market cap. From my observation, it is rewarding to invest in an asset with a small available or circulating supply. Assets with small circulating supply rise faster in response to an increase in market cap than assets with large circulating supply.

Bitcoin has a circulating supply of closed to 18 million, while XRP has a circulating supply of 43 billion. Since the price of an asset is determined by dividing its market cap by the available supply or circulating, its price becomes higher when the circulating supply is smaller against a rising market cap. This is a very important but most underrated strategy in cryptocurrency investment.

The market cap of XRP in this case has to equal its circulating supply to trade at a dollar. If XRP had a smaller circulating supply, example 18 million (approximate circulating supply of Bitcoin), its current price would have been- 10 billion (market cap) ÷ 18 million (circulating supply) = $555 (price). Investors can still make a good return from assets with larger circulating supply by buying a lot of them. 

Source: Investopedia

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