Cryptocurrencies are once again a hot topic of discussion. As the bull market continues to bring more (institutional) investors and increased retail demand, people buy Bitcoin in bigger quantities than they are currently beeing produced. Only Paypal alone is currently buying up approximately 70% of the newly minted coins, while funds like Grayscale take up the remaining 40%.
Knowing this, you might be interest in becoming part of this exciting shift in wealth standards. But what should you take into consideration before investing in Bitcoin? Check out the following points to prepare accordingly.
1. Educate yourself
The crypto industry is filled with affiliate marketers who prey upon new investors in hopes of making bank themselves. These so called “shillers” promote cryptocurrencies that have no value whatsoever, leading to many mistakes on the side of the buyers.
It is best to start you crypto journey by reading upon reliable educational material and follow the people who truly care about the growth of the industry. In our opinion, the following resources are the best to get you started:
- The Pomp newsletter (weekly newsletter including podcast episodes)
- What Bitcoin did (weekly podcast of Peter McCormack)
- Plan B, creator of the S2FX model for Bitcoin’s price prediction
- Max Keiser (senior investor and Bitcoin maximalist)
- The Bitcoin standard (the only book you need to read)
- The bullish case for Bitcoin (the only article you need to read)
2. Use non-custodial wallets
Non-custodial cryptocurrency wallets give full control of private keys to the user alone. There is no third party that is able to control your wallet or its funds, which offers additional security. Aside from that, most non-custodial wallets store funds in the cold storage, which makes it even better in terms on long-term safety.
3. Have a low-time preference
By low-time preference, we refer to the process of long-term HODLing. Naturally this process will be difficult for new investors, especially those that are very emotionally invested. For all kinds of financial markets it is important to maintain a level-headed approach and invest based on logic. And looking at the long-term growth pattern of Bitcoin and other established cryptocurrencies it is clear that those who are patient are those who receive the best rewards.
4. Invest only what you can afford to lose
This is one piece of advice that most people do not follow. However, it is strongly tied with to your ability to make rational decisions and control your emotional intelligence. When you only invest money that you do not directly need, you will not feel the urge to exit the market when strong volatility occurs. On the other side, when you invest a large amount of funds (probably money you will need to pay the rent with), you will start making compulsive decisions in face of risk and uncertainty.
Even though Bitcoin has defied all logic and has grown to unprecedented highs, it is still a risky asset to invest in, and thus one that should be looked at in such manner.
5. Don’t take out a loan for crypto purchases
During the latest bull market, retail buyers entered a stage of “mania” when the peak of the market was approaching. Some sold their card to buy Bitcoin, others sold their home. Then, there were other example of people who took out their 401k or made early withdrawals of their retirement funds. And while all that sounds risky and by all means wrong, nothing beats those who took out loans to make purchases.
By it student loans, mortgages, or any other type of loan, many people got burned in hopes of becoming rich fast. It is important to remember this as we are now entering another positive market cycle that could extend to a longer time period.
And eventually we will once again see people make the same mistakes as they did before. Therefore, only invest money that you have, and preferable follow the previous point when deciding how much of it to invest.
6. It’s best to be safe than sorry
Our last point refers to the actual cryptocurrencies you choose to buy. It may be luring to invest in a small cap coin with an extremely low price. It may even be somewhat of a gamble of the coin has not experience a prior bull market. However, keep in mind that the more recognizable a coin is, the better you odds of making certain profit, albeit lower in size.
Start by investing in Bitcoin and Ethereum, and only once you feel comfortable start considering other available options. For example, you could eventually start investing in coins like BNB, with proven utility and strong growth potential. Once again, the risk is only yours to bear, and so are the potential rewards.