The crypto market has been in free-fall of late, with its total market cap value reaching $1.06 trillion in July of this year. While this may seem like a large sum of money, we should note that the market cap peaked at a shade over £3 trillion as recently as November 2021.
Of course, some may argue that this should deter you from investing in cryptocurrencies, but this remains an inherently volatile space that provides opportunities to profit even during times of sustained depreciation.
What’s more, many crypto assets are now significantly undervalued, with Bitcoin (BTC) offering a relevant case in point. In this post, we’ll address the top strategies for getting started as a cryptocurrency investor.
Why are Cryptocurrencies Highly Volatile?
At their core, crypto tokens are not underpinned by a secure store of wealth or value, as they exist solely as digital entities that have been mined through an associated blockchain.
This ensures that they’re particularly volatile entities, as it creates a scenario where their value is particularly malleable to market sentiment and the machinations of a few, highly influential investors.
For example, it’s thought that most Bitcoins are held by a select few investors, known as ‘whales’. These asset holders have a disproportionate influence on BTC and have the capacity to manipulate prices through their actions, with this compounded by the fact that there remains a finite supply of BTC tokens.
Scarcity certainly plays a key role in why crypto is so volatile, particularly as the percentage of tokens in circulation rises and prices have a tendency to increase over time.
How to Invest in Crypto Safely and Wisely
The question that remains, of course, is how can you invest safely in crypto and leverage the market’s volatility to your advantage? Here are some ideas to keep in mind:
- #1. Only Invest What You Can Afford to Lose: While all investment markets carry inherent risk, we know that cryptocurrencies are particularly volatile from the perspective of investors. One way to minimise this risk is by investing a fixed amount that you can afford to lose, with this based on your wider financial circumstances and starting capital. Even if you have a healthy appetite for risk, it’s important to establish a viable loss limit and ensure lose more than you can afford on this type of speculative investment.
- #2. Diversify Your Portfolio: The world of crypto extends far beyond BTC, even if this is where the market was first born. So, it’s important to diversify and continually rebalance your crypto portfolio, with a view to ensuring that you minimise your exposure to risk when the market declines sharply. This means incorporating a number of tokens into your portfolio, including second and third-generation assets that boast far more scalability and utility. You should also consider investing through spread betting as a way of diversifying your investment vehicles.
- #3. Ignore the Hype: As we’ve already touched on, market sentiment is a huge factor when determining the real-time value of crypto assets. However, it’s important that you don’t make investment decisions based solely on hype, as you should instead focus on recent price shifts and clear market trends. Also, try to inform your strategy with knowledge and understanding of the relevant crypto assets, as this will create a keen sense of determinism that really stands you in good stead.