How Much To Invest In Cryptocurrencies

16 October 2018



Featured image courtesy of Icons8.com

This guest post has been written by Matthew Hill, you can learn more about him in his bio at the bottom.


Investing in cryptocurrencies is a complex field and a lot of factors come together to define the big winners and losers. While being an early adapter can have huge rewards, in most cases, however, a lot of the new coins and ICOs have a tendency to falter and disappear. So should you stick to Bitcoin as the safest investment or maybe taking calculated risks with some of the well-established altcoins can bring a decent margin of profit in the long term? And is it wise to trust the market forecasts or should you go with your guts on this one? When it comes to the cryptocurrency market and investing in this still new field, there is no golden set of rules that will guarantee success.

However, there are certain guidelines that if you take into consideration, regardless of how much experience you have, you can avoid the pitfalls of risky investment and make sure that you end your year in the green. And just as with all fields of the crypto-world, including crypto sports news, there’s a lot of potential there for those willing to learn and put in the hours. Here are a few tips that are by no means comprehensive, yet they should give you a solid basis for what you should keep in mind when investing in cryptocurrency.

Don’t invest more than you can afford to lose

As much as this rule applies to any endeavor that carries an element of risk within it from playing poker to buying property, it rings true even more so with crypto investment. The crypto market is fluid and as more and more people rushed to cash in on a trend that made some people millionaires overnight, the market has become even more volatile. This volatility should make you proceed cautiously. And if the money you intend to invest is needed elsewhere, such as rent or more secure bond investment, then you shouldn’t take a risk on the crypto market. I’m not saying that investing in Bitcoin is inherently as risky as rolling a dice (it isn’t if you do your homework) but the same principle applies. When you invest in the market your life and capacity to go on investing shouldn’t be affected if the worst scenario case happens and sais investment tanks.

In other words, you should put aside funds for your financial investment. If you feel the need to dip into your savings, or money that you have put away for a rainy day in order to invest in that new super hot altcoin that everyone is talking about, then you’re doing this crypto investment thing all wrong.

Don’t take a loan to invest

You probably have heard about the people who sold their home to invest in cryptocurrency. Or that couple who insisted on getting paid in Bitcoin when selling their property. Others fearing being left out went ahead and took a loan to get in on the crypto action. This happened when Bitcoin peaked in December 2017 and everybody was talking about the new crypto millionaires. And we know what happened a few months later. Bitcoin took a plunge and lost about two-thirds of its peak value.

So where did that leave the couple with a bunch of bitcoins in their hands instead of a house? They took a big hit, that’s for sure. But at least they didn’t find themselves staring at a huge debt. Which is what happened to those who took loans and second mortgage on their home to invest in Bitcoin and altcoins.

Again there’s an element of risk in investing and you have to ask yourself this question before you commit money you just borrowed into a crypto transaction: what would happen if the market took a dip and I lost my investment? If the answer is years of debt then you should return the loan and keep your house.

Don’t invest other people’s money if you don’t have yours

So your friend the expert on everything crypto and who cashed out before Bitcoin took a nosedive has just slipped you a valuable tip about a coin that is expected to replace Bitcoin pretty soon. You trust the guy and you need to act fast before you miss out this next bull wave. But you don’t have any money to invest. You don’t even have a house to sell or mortgage. What do you do? Why just convince others to give you their money to invest for them. That sounds like a safe course of action. It’s not your money so the risk is diminished.

While that may sound like the easiest way to lose friends and create enemies in a short span of time, it can actually put you in jeopardy. This assumes that you lose that investment and the cryptocurrency doesn’t end up replacing Bitcoin (many have tried over the years without much success). But even if the investment soars and you end up making a lot of money, it’s not your money. So all your hard work will actually go to the original investors whose money you used to invest. The bottom line here is, if you use other people’s money, you lose if you win and lose if you lose.

Invest so much that if it all disappeared today, your emotional and financial state wouldn’t change

Just as you shouldn’t put all your eggs in one basket, invest what you can’t afford to lose, and blurring the boundaries between your investments and the other life necessities, how much you should invest depends on your budget. If you have put aside some cash for your cryptocurrency portfolios then it’s prudent to invest slowly and think the long-term game. This means that it’s not wise to dump all your funds at once in one portfolio no matter how varied and diverse it is. One slight dip in the market that affects the major coins would see your investment totally wiped out or at least a big chunk is taken out of it. In that case, you might become despondent, lose heart and cash out taking a huge loss.

So to avoid that, always pace yourself (more on that later) and put on the market only a portion of your capital. That way if things go bad, you won’t lose all your funds and along with them your appetite for investing. It’s true if your coins soar you won’t make as much profit as you had hoped to, but then again if you lose, your loss won’t be a devastating blow to your whole investment. Winning and losing are both parts of the crypto market. And if you can’t handle a loss, then you need to reconsider your overall plan.

Invest according to your skills – if you’re a beginner, don’t overextend yourself

Believe it or not, there’s more to cryptocurrency than buying some Bitcoins and waiting for them to hit another peak and make you a boatload of money. So if this is your first rodeo, so to speak, don’t go jumping in on the meanest and toughest bull you can find. You need to find your feet first. There’s a lot to learn and understand. Your gut feeling isn’t enough to pick when to buy or sell. In fact, if you’re a beginner, then you shouldn’t put any faith in what your gut tells you. And just because someone on a crypto forum said they pulled off some tricky investing manoeuver it means you should try it too.

And that’s something else you should totally ignore: picking up advice on forums. You’ll learn a lot more by studying the market, reading serious material on the subject and investing time and effort in learning the ropes. It won’t happen overnight so your expectations should be aligned with your skill levels. Start with some small investments in secure coins like Bitcoin, then as you gain confidence you can explore other altcoins. When you have learned how to read the market like an open book, only then can you begin to trust your gut feeling.

Make your research on the current market cycle – bear/bull

The previous point touched on the importance of studying and doing your homework. And that in itself is a deep branch of knowledge that takes time and hard work to get to the bottom of. You can’t rely on tips you get on Reddit if you want to be a serious investor. Secret tips are no substitute for the hours you put in watching the market, looking for patterns, learning about the various factors that affect the rates. Politics play a role and a small action taken by a government in Asia can wreak havoc on the international crypto market that is felt on every exchange.

But while a novice would panic and dump your wallet and run for the door, a more experienced and nuanced investor would stay behind to pick up the dip and wait for the opportune moment to sell.

Layer down your investments

You can layer them down as follows: 30% today, 30% in 3 weeks, 30% in 3 months.

This is an important rule that everyone should heed. Don’t rush in buying everything in sight until you run out of funds then sit back and watch. Baby steps. You never know what investing opportunity you’ll get tomorrow or next week and you don’t want to watch a good investment go by that you can’t be a part of because all your money is tied up in some worthless coins. Plan ahead and give yourself the ability to move in and snag an investment with a small window without having to dump your wallet at a loss.

Investing in cryptocurrency takes time and patience. You want to rein in your expectations, pace yourself, put in the hours to learn and study, and most of all, study the market. It is almost certain you’ll make mistakes at the beginning, but you don’t want those mistakes to be so costly that they would take you out of the crypto investment altogether.

You might also want to read some of our cryptocurrency trading strategies.

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About the author:

I have the Computer Science and Engineering background. Also, I have a deep interest in Bitcoin since 2009. I like to learn and write about cryptocurrencies, the most successful ways to apply them, and the tendencies on the cryptocurrency market. Currently I’m writing and consulting for sportsbet.io and some other websites.